All fiat currencies will eventually perish, but before their death, they always serve a hidden purpose of transferring wealth from value creators to those politically close.
Written by: Knut Svanholm
Translated by: AididiaoJP, Foresight News
Currency is the core of the market, facilitating trade and economic calculation. Its value, or purchasing power, is damaged by inflation, which benefits the wealthy while sacrificing the interests of savers.
Nothing is more important to the functioning of a free market than currency. Currency constitutes every transaction, representing the value of all goods and services exchanged. But what exactly is the price of currency?
The most liquid commodity in the market often becomes the preferred medium of exchange in society. Pricing with this universal medium makes economic calculation easy, thereby enabling entrepreneurs to discover opportunities, generate profits, and drive civilizational progress.
We understand how supply and demand determine commodity prices, but determining the price of currency is far more complex. Our dilemma is that since price itself is expressed in currency, we lack a unit of account to measure currency's price. Since it cannot be explained in monetary terms, we must find alternative ways to express currency's purchasing power.
People buy and sell currency (exchanging it for goods and services) based on their expectations of its future purchasing power. As we know, individuals always make choices at the margin, thus creating the law of diminishing marginal utility. In other words, all actions stem from value judgments, with actors choosing between their most urgent goals and secondary desires. The law of diminishing marginal utility applies here: the more of a commodity a person possesses, the weaker the satisfaction from each additional unit.
Currency is no exception. Its value lies in the additional satisfaction it can provide, whether purchasing food, security, or future options. When people exchange labor for currency, the only reason is that they value the currency's purchasing power more than immediate time utilization. Thus, the cost of exchanging currency is the highest utility an individual gives up by holding cash. If someone works an hour to earn a ribeye steak, they must consider the meal's value higher than an hour of leisure.
The law of diminishing marginal utility shows that each new unit of a homogeneous commodity satisfies desires progressively less, so individuals' valuation of additional units decreases accordingly. However, the definition of "homogeneous commodity" depends entirely on the individual. Since value is subjective, the utility of each additional currency unit depends on personal goals. For someone who only wants to buy hot dogs, "one unit of currency" equals the price of a hot dog. Only when they have enough cash to buy a hot dog do they increase the unit of this "hot dog-specific currency" as a homogeneous commodity.
This explains why Robinson Crusoe would view a pile of gold as worthless, as gold cannot be exchanged for food, tools, or shelter. Currency is meaningless in isolation. Like all languages, it requires at least two participants to function; currency is essentially a communication tool.
Inflation and the Illusion of Idle Currency
People choose to save, consume, or invest based on time preference and expectations of future currency value. If they expect purchasing power to rise, they save; if they expect it to fall, they consume. Investors make similar judgments, often moving funds to assets they believe can outpace inflation. However, whether saving or investing, currency always serves its holder. Even "waiting funds" have a clear mission: reducing uncertainty. Those holding currency without spending are satisfying their desire for flexibility and security.
Therefore, the concept of "circulating currency" is misleading. Currency is not like a river flowing; it is always held, owned, and serving a purpose. Exchange is action, and action occurs at a specific moment. Thus, there is no such thing as "idle currency" in the world.
If disconnected from historical prices, currency loses its anchor, and individual economic calculation becomes impossible. If a loaf of bread cost $1 last year and now costs $1.10, we can infer the direction of purchasing power change. Accumulating such observations long-term forms the basis of economic expectations. The CPI (Consumer Price Index) provided by governments is the official version of such analysis.
This index attempts to reflect "inflation rate" through a fixed basket of goods while deliberately ignoring high-value assets like real estate, stocks, and art. Why? Because including them would reveal a truth the authorities desperately try to conceal: inflation's penetration far exceeds what they acknowledge. Measuring inflation through CPI essentially masks an obvious truth: price increases will ultimately be proportional to monetary supply expansion. The creation of new money always leads to a decline in purchasing power relative to its potential level.
Price increases are not caused by greedy producers or supply chain failures, but ultimately stem from monetary expansion, with increased money issuance leading to reduced purchasing power. Groups closest to the monetary source (banks, asset holders, and politically connected enterprises) benefit, while the poor and working classes bear the impact of price increases.
This impact has a lag and is difficult to trace directly, which is why inflation is often called the most insidious form of theft. It destroys savings, exacerbates inequality, and amplifies financial volatility. Ironically, even the wealthy would fare better under a sound monetary system. In the long term, inflation hurts everyone, including groups that seem to benefit in the short term.
The Origin of Currency
If currency's value derives from its purchasing power, and this value is always judged against historical prices, how did currency initially acquire value? To answer this, we must trace back to the barter economy.
Commodities that evolve into currency must have non-monetary value before becoming currency. Their initial purchasing power must be determined by demand for other uses. When they begin to serve a second function (exchange medium), demand and price rise simultaneously. From then on, the commodity provides dual value for its holders: utility value and exchange medium function. Over time, the latter's demand often exceeds the former.
This is the core of Mises' regression theorem, explaining how currency emerges from the market and always maintains a connection with historical valuation. Currency is not a state invention but a spontaneous product of voluntary trade.
Gold became currency because it meets excellent monetary standards: durable, divisible, easily identifiable, portable, and scarce. Its use in jewelry and industry still provides it with use value. For centuries, paper money was merely a gold redemption certificate. Lightweight paper money perfectly solved gold's transportation challenges. Unfortunately, certificate issuers soon discovered they could over-issue paper money, a practice that continues today.
When the connection between paper money and gold was completely severed, governments and central banks could create money out of thin air, forming today's unbacked fiat currency system. Under the fiat system, politically connected banks can be rescued even when bankrupt, creating moral hazard, distorting risk signals, and causing systemic instability, all achieved through inflation's silent plunder of savings.
The temporal connection between currency and historical prices is crucial to market processes. Without it, individual economic calculation becomes impossible. The monetary regression theorem discussed earlier is a behavioral insight often overlooked in currency discussions. It proves that currency is not a bureaucratic illusion but genuinely connected to the original desire for "exchange means for specific purposes" in a free market.
Currency is a product of voluntary exchange, not a political invention, collective illusion, or social contract. Any commodity with limited supply that meets basic exchange medium requirements can become currency. Items possessing durability, portability, divisibility, uniformity, and universal acceptability can serve this purpose.
Suppose the Mona Lisa could be infinitely divided, and its fragments could become currency, provided there is an easy method to verify its authenticity. Speaking of the Mona Lisa, the anecdotes of famous painters in the 20th century perfectly illustrate how the increase in commodity supply affects its perceived value. These painters realized they could become wealthy by leveraging their celebrity status through signatures. They discovered that signatures themselves have value, and could even be used to pay for meals. It is said that Salvador Dali once signed a crashed car, instantly transforming it into a precious work of art. However, as signed bills, posters, and car wrecks increased, the value of new signatures continuously decreased, which is a perfect example of the law of diminishing marginal utility. Quantity increase leads to quality depreciation.
The World's Largest Ponzi Scheme
Fiat currency follows the same logic. Increasing currency supply dilutes the value of existing units. Early recipients of new currency benefit, while others suffer. Inflation is not just a technical issue, but a moral one. It distorts economic accounting, rewards debt instead of savings, and preys on the most defenseless groups. In this sense, fiat currency can be considered the world's largest Ponzi scheme, nourishing the top at the expense of the bottom.
We accept flawed currency merely through inheritance, not because it is optimal. But when enough people realize that sound money (currency that cannot be counterfeited) is more beneficial to the market and humanity, we may stop accepting false gold certificates that cannot fill our stomachs, and instead build a world that is real, honest, and values are earned through merit.
Sound money originates from voluntary choice, not political decree. Any item that meets the basic requirements of currency can serve as money, but only sound money can enable long-term civilization prosperity. Currency is not just an economic tool, but a moral system. When currency is corrupted, everything downstream - savings, price signals, incentive mechanisms, and trust - becomes distorted. When currency is honest, the market can coordinate production, indicate scarcity, reward frugality, and protect vulnerable groups.
Ultimately, currency is not just a means of exchange, but a guardian of time, a record of trust, and the most universal language of human cooperation. Corrupting currency destroys not just the economy, but civilization itself.
"Humans are short-sighted creatures, only able to see the inch before them. Just as passion is not its friend, specific emotions often serve evil intentions."
Counterfeiting: Modern Currency and Fiat Illusion
... [rest of the text continues in the same manner]Behavioral science helps you understand human motivations. It teaches you to look at actions rather than words, and more importantly, to contemplate parallel realities that might have existed but were intervened and erased from view.
Fear, Uncertainty, and Doubt
Human psychology is naturally inclined towards fear. We evolved for survival threats, not for appreciating flowers. Therefore, alarmist narratives spread faster than optimism. The solution for any "crisis" (whether terrorism, pandemic, or climate change) remains consistent: strengthen political control.
Researchers of human behavior deeply understand its causes. For each individual actor, the purpose can always justify the means. The problem is that power seekers operate similarly. They exchange freedom for security, but history shows that fear-driven transactions rarely yield positive outcomes. Understanding these dynamics makes the world clearer, and background noise gradually fades.
You turn off the television, reclaim your time, and realize that accumulating capital and liberating time is not a selfish act, but the foundation of helping others. Investing in personal skills, savings, and relationships can expand welfare for everyone. You participate in labor division, create value, and do so entirely voluntarily. In a broken system, the most radical action is to build better alternatives outside of it.
Every time you use fiat currency, you are paying the issuer with your time. If you could completely avoid using them, you would help build a world with less theft and fraud. This may not be easy, but worthwhile endeavors have always been challenging.
