It was only forty years ago that the US$ (and by extension £ sterling) became a 100 percent fiat currency.
Until then, government could not issue quite as much money as politicians and officials might have found convenient. Rather, they needed some measure of gold reserves to back it up (or due to the Bretton Woods agreement had their currencies linked to those who did). The last tie between the US$ and gold was cut in 1971.
Since that time, the only real constraint on the amount of money government issues has been government.
Many other public policy innovations from the 60s and 70s - such as child-centred learning, or housing people in tower blocks - have since been discredited (if not necessarily discontinued by our sclerotic state). So, forty years on how is the experiment in 100 percent fiat money working out?
Here is a graph showing the value of paper currency US$ relative to gold over the past forty years. Notice anything?
By debauching the currency (inflation targets), some might suggest that government has managed to transfer vast amounts of wealth from the private to the public sector - and in a way that would never have been tolerated if undertaken through more straight forward taxation.
Looking back, cou ld the way we run our currencies have anything to do with our diminishing propensity to save and produce things, and our growing overconsumption and over indebtedness? Just wondering.
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