Gold And Money

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Fiat Money

According to Austrian School Economic Theory, Fiat or Paper Money is the cause of a lot of national and international financial problems. In order to understand why this is so, it is a good idea to look at the history of money and why we use it. Fiat literally means "let there be" (money).

A simple society such as that of the Aboriginals, or a barter society has no need of money, but the more complex a society becomes, the more there is the need for a medium of exchange. In a barter society, a poultry farmer would exchange eggs for apples or pears or a piece of cloth. Things get a bit more complicated though for example how many chops does the butcher have to pay for a new pair of shoes from the cobbler, or to have his roof repaired? What if the cobbler is vegetarian and does not eat chops? This is where a medium of exchange comes in. Now whether that medium is cowrie shells or pearls or coins or paper promissory notes does not really matter as long as the medium is reliable and trusted by everyone.

Coins and promissory notes have been around for a long time.

Fiat money was a serous issue whenever it was tried, eg the 13th century Chinese money, assignats in revolutionary France (~1790) etc.
It has a 100% failure rate, except for the currencies still alive today. It is only during the 20th century that Fiat money  has again become a serious issue, first with WW1, followed by attempts with to shore things up with the Bretton-Woods agreement and in the 21st century with the Global Financial Crisis.

Further Reading