Well I think we are confusing the concept of money, with value.
The reason reason paper is money is the government has Legal Tender laws declaring its use to pay back debts public and
private, however in the past in the United States money was backed by Gold & Sliver .
Lets say there was no Legal Tender laws denoting that pieces of paper are required for debts and taxes, would the paper
be money? Only if people accepted it in exchange for goods and services.
Gold and Silver, clam shells etc, whatever were all accepted as people valued them, I doubt people would value a fiat
money system if there wasn't a legal requirement in having it.
As a side note to Melymay
Dollars, Pounds, Francs, Marks were all names of a certain weight of gold or silver before the fiat paper revolution
which allowed governments to print money without stop to pay for their debts.
Consider the United States Of America,
We have a US Treasury, we have A Federal Reserve and we have the Government Debt section.
Anytime our government has a budget deficit, they have to auction off debt to the primary dealers (Preaccepted Banking
Corporations that get to buy the debt first at a discount, then sell it back at a slight discount to the public so they
can make their money, so in essence underwrite US Gov Debt)
Now our Federal Reserve System, gate keeper and protector of the Financal system and the economy, provides a liquid
secondary market for Gov Debt, by offering the banking community the ablitity to borrow money from the fed by pledging
US Debt securities from the treasury auctions, on top of that to increase or decrease the amount of money in the
Economy, they do what is called Open Market Operations to buy US Gov securities when the economy is going though a
recession. The question is, how does the Federal Reserve buy US Gov securities? IT simply writes its self a check, and
the person who sells the bond, cashes it in, and boom the bank has the allotted funds which they call forth if they need
physical cash brought to them. So to buy a financial asset all the Fed does in essence is print Federal Reserve notes
aka Dollars. The reverse of course is to sell Government debt securties therefore pulling money out of
circulation.
That being said anytime you create more money you sow the seeds for inflation which means purchasing power per dollar or
any currency for that matter is dilluted. Causing people on fixed incomes (like most wage earners and social security
and gov benefits people) to be effected by having less with the same amount of money.
Might want to read Murray Riobard's Mystery Of Banking or History of Money.
It goes though the failed adepts of getting a fiat money system to work without hammering the citizens.
