I think the fiat system of economic governance is completely wrong. The most important difference between commodity money, such as a proper gold standard, and ‘paper money’, such as our present fiat money system, is the elasticity of the money supply. In the former, money is essentially inelastic, in the latter it is perfectly elastic. Most economists would say that elasticity is a big advantage. It makes fiat money, if managed properly, superior as it allows the Fed to stabilize the economy.
My argument is that this is false, and that the opposite is true. The elasticity of the money supply in a fiat money system, and the constant expansion of the money supply under present arrangements in particular, systematically distorts relative prices, disorients economic actors and destabilizes the economy over time. Imbalances accumulate, which obstruct further growth and which will be countered with accelerated money injections, destabilizing the economy further. Elastic money is unnecessary, suboptimal, unstable, and ultimately unsustainable and history has shown that every fiat currency ever tried has failed miserably. Even a small 2% per year inflation rate eventually eviscerates the middle class as the heavy burden of taxes and unfunded wars causes market distortions, if you understand how exponents work it becomes quite obvious. The system must make enough money available each year to pay off the cash injection PLUS the interest due from the previous year. This guarantees inflation over the short, medium and long term, an ever widening ocean of constantly devaluing money.
