Haim, you are looking with monetarist nostalgia on a period in history where 99.99% of the people lived in abject poverty, a period when a kid of 13, toiled in the field for 18 hours a day, yes, those few that had gold or the ability to rob gold and RE from others did "well". Even in this country, by the turn of the century, we still had the great majority of the people on the farm toiling from sunrise to sunset to barely provide for themselves and a little surplus to provide food for the rest of the population. Today, less than 3% of US workers provide food for all the rest of us and a good portion of the world. This would be impossible without paper money and technology. They do go together. It takes you 15 minutes to transfer money to the other side of globe, now a day, but if it was gold, it would take you a month, you'll have to pay 5% or so as transfer cost, and you would lose a good 8% of its time value by the time it reaches its destination. Paper money (fiat money as you call it) is currently the only solution to provide for free flow of capital, and free flow of capital is essential to maintain growth in the world's economy, this way capital can rapidly "find" the best rate of return. Now, you may think of growth as a bad thing, since when excessive, it brings about inflation, but frankly, if the price of improving the human condition is endemic or creeping inflation, I for one, can live with it.
The fact of the matter is that we are adding year after year large numbers of people to "the middle class", our children should be expected to have a "better" life that our own (some people doubt that <VBG>) and the system of "fiat money" organized societies (governments), rational laws and regulations all contribute to that feat.
As for the "faith" people put in the dollar, why not, that faith is really in the ability of the US government to tax its citizens, and currently, the taxation level in the US is quite lower than in many other countries. Look at Japan, we are in the eleventh year of an economic malaise there, yet, you do not find there mass starvation and misery as the 1930 have seen, so maybe, the system we have arrived at does manage to stem downward depression like spirals.
Zeev |
