The Bible recounts how the Holy Spirit led Jesus into the wilderness to be tempted by the devil. The devil appeared and first wanted Jesus to turn stones into bread. (In fact, Mises criticized Keynesianism, saying, “the stones do not turn into bread”). Jesus refused. Then, the devil challenged Jesus to throw himself from the pinnacle of the temple in the holy city, asserting that the angels would catch him. Again, Jesus refused. But the devil did not give up. In Matthew 4:8–11, it says:
Again, the devil took Him to a very high mountain and showed Him all the kingdoms of the world and their splendor. 9And he said to Him, “I will give you all these things if you will fall down and worship me.” 10Then Jesus told him, “Go away, Satan! For it is written: Worship the LORD your God, and serve only Him.” 11Then the devil left him, and angels came and began to serve him.”
The last temptation is particularly significant. The devil promises Jesus “all the kingdoms of the world and their splendor,” meaning all power and wealth there is. Jesus resisted this temptation as well. However, humans, in their imperfection, often and all too easily fail in resisting similar temptations. For instance, the rulers and the ruled in the Western world have long succumbed to a particularly devilish temptation: replacing commodity (or precious metal) money with state-issued, unbacked money, known as fiat money. In a sense, they have been seduced by the tempting prospect of securing “all the kingdoms of the world and their splendor,” that is, the power to increase the quantity of money arbitrarily and in unlimited amounts at any time. The temptation to centrally control the economy was irresistible.
The transition from gold to fiat money happened quite some time ago. Many people probably no longer remember August 15, 1971, when the end of the gold-backed monetary system was announced. On that day, the US administration under President Richard Nixon (1913-1994) declared that the US dollar would no longer be redeemable in gold. And, with the end of the dollar’s gold backing, a global fiat money system was effectively created, a system in which all major currencies are literally produced “out of thin air.” But why did the shift away from commodity, or gold-backed, currencies occur?
The US took this step to avoid impending insolvency. The amount of US dollars it had issued over the years far exceeded the amount of gold the US Treasury had in its vaults, and which was redeemable at 35 US dollar per ounce (31.10… grams) of physical gold. By the late 1960s, more and more countries with US dollar reserves began converting their greenbacks into physical gold at the Federal Reserve Bank in New York. It became evident to the Nixon administration that sooner or later the US would no longer be able to fully redeem the dollar for gold. To avoid insolvency, the Americans simply suspended the gold convertibility of the US dollar “temporarily.”
Hellbound and Down 