I think the notion of “fiat” isn’t quite what it seems. The Fed Creates dollars by buying debt from the treasury, so the money is backed by the good old security of US bonds. Which goes to my point about it being a contract, with the asset backed by a debt. So it isn’t really just printed up out of thin air, with nothing other than belief to back it up. The belief is that the US government will always pay its debts. The problem seems to be, not so much that the money isn’t backed by gold, but that its value is not tied to some, seemingly set asset, like gold, grain, oil, etc. Though all of these are commodities, whose value is presumably set by the market. Given one reason gold is valuable is its scarcity, that limits its ability to back the currency of an economy that values growth, over stability. While we all like stability, the fact is that nothing, other than nothing, is perfectly stable. Stability leads to stasis and then hardening. So there has to be some ability to set the level of the currency relative to the size of the economy, not a specific commodity.

Economists see some minor level of inflation as necessary, because it encourages people to spend money and keep it in circulation, as well as keep it in banks, rather than stuffed under the mattress.

While my history is a little vague, it seems the dawn of modern capitalism was when Charles 1 owed a lot to the Rothschilds, who were the primary gold dealers in Northern Europe of the day, basically the original international bankers. So they made a deal to forgive his debts, if they could run his treasury and so the Bank of England was formed. The advantage of this is that it put control of the money supply in the hands of those concerned with a functioning economy and not political considerations, since politicians are driven by needs that tend to require more promises than can be easily sustained and so the impulse to print more money is strong. As the Ancients would debase coin based currencies with base metals.

Another point to consider is that the federal deficit started to build with the New Deal, so not only was Roosevelt putting unemployed labor back to work, but unemployed capital, as well. So possibly he wasn’t quite the ‘traitor to his class.’ That ‘saving capitalism from itself’ might have had a deeper meaning, than just preventing socialist revolution.

Then consider the late 70’s, early 80’s; Volcker is credited with killing inflation, by raising interest rates. Yet while higher rates might have reduced the flow of fresh money into the system, it would have been mostly to those trying to start and run businesses and buy house, cars, etc. All the things that would grow the economy and increase the need for more money. Meanwhile those already sitting on piles of cash, ie, money already in the system, would be getting better returns simply parking them in bonds.

Inflation didn’t start to come under control until 82, the year the deficit under Reagan reached 200 billion. Consider that one primary method the Fed has of raising interest rates is to sell bonds they bought to create the money in the first place, drawing it back out. So the only difference with the treasury issuing more debt is that rather than retiring the money, it gets spent in ways the private sector would never dream, because there is no profit motive, like building up a larger military. Of course it could have been spent in ways which improved the basic infrastructure, but highway engineers and school and hospital administrators were not the ones dictating policy preferences, as much as the ‘military industrial complex.’

So the money was being spent back into the economy, creating jobs and their resulting political bases, even if the over-all functions were counter-productive.

Then the pesky Soviets quit and the military had to find other reasons to suck up money and keep the banking system floating on endless flows of treasuries.

So my argument is that focus on the gold versus fiat debate obscures the larger relationship between public debt and private wealth. As does socialism on the left. The real value creation has to be diverted away from the notion of money as anything more than an accounting device. Giving children an account only means ways have to be developed to store it, until they specifically need it, further facilitating the finance industry.

Rather if banking operated from the ground up, with local banks dealing with local needs, as people developed needs, they could go to the community bank and it would be decided if this served a function to the broader community and what degree. Then paying off the debt would be graduated to the degree it both served the community and generated further profits. Such as raising a child requires investment that is not easily quantifiable, but necessary to the community, so there might simply be social grants towards having children. While starting a business might be more of a loan.

Which all goes to the fact that evolution is a bottom up process and that top down dictates are a function of structural management, not handed down by God, or the ‘divine right of kings. Obviously this starts to become a very complex discussion, as that is how nature actually functions and nature evolves quite complex organisms and networks/ecosystems of organisms/individuals.