The current economic crisis is bringing monetary reform movements such as End The Fed, to the fore. These movements bring to light what is wrong with our current monetary system, i.e., it is the instrument by which people are held in debt slavery.
But these movements often call for a return to the backing of paper money with gold and silver. In other words, that we should be able to redeem our paper money for gold and silver though I can't think of why we would want to do that;. gold and silver are too heavy to carry around. No more paper currency should be in circulation than can be backed by precious metal, according to the proponents of "real money."
But returning to a gold/silver standard for currency will not stabilize our economy. The real problem with our currency is not its fiat nature. Gold and silver are themselves fiat currencies. Long ago, certain cultures decided that these metals were valuable and could be used to transact business. Cultures that did not have access to these metals used something else: shells, feathers, rocks, etc. to facilitate exchange. The decree of some ancient king to use gold and silver as currency is just as much a fiat as the decision of the US Government to use Federal Reserve Notes. We just don't consider gold and silver as fiat currency because the decision to use them as currency was made millennia ago. The value of gold and silver is a fundamental assumption, part of our "racial memory" that we do not question. But there is nothing in the natural order of the world that decrees that these metals are valuable. It is only an ancient consensus, still honored, that makes them so. Thomas Nast, the great 19th century American political cartoonist, and a "hard money" enthusiast, was right when he drew a picture saying that Congress could declare soft soap to be the currency. Indeed, if Ancient Greece and Rome had made such declarations, I wonder what we would be washing ourselves with today.
The immediate problem with our currency is not its fiat nature. The trouble with money is interest. Ancient religions forbade interest-Islam still retains that proscription-they saw time as a gift from God. But that consensus broke down and interest as a payment for the time a lender would be without his money came into being. Interest is what has made every business transaction into one of debt. It also requires the world's economy to be in a state of permanent growth because growth is needed to expand the money supply in order to pay back loans PLUS interest. If there were no interest and people with surplus money loaned it to those who needed it, the repayment would simply be the return of the sum loaned and the money supply would not need to grow just so that each loan can be repaid with interest. This is not unheard of; it's something friends do amongst each other.
As the foes of fiat currency correctly point out, increasing the money supply decreases the value of each dollar in circulation. They would propose to limit inflationary increases in the money supply by tying paper currency to the limited supply of gold and silver. But that could cause the problem of needlessly restraining real growth because of an insufficient money supply. I say, attack the problem of inflation at the taproot by abolishing interest. (A way to eliminate interest and still provide incentive for money to circulate is the focus of the book "Interest and Inflation Free Money: Creating an exchange medium that works for everybody and protects the earth" by Margrit Kennedy. It's published by New Society Publishers).
The need to always grow the economy to pay interest is unsustainable. No system grows forever. The linear view of the Universe is not natural. Nature operates in circles and spirals, not in straight lines. The human hubris that we have dominion over the earth and can subdue it is folly. Mother Nature bats last. We are playing on her field.
And Her game is about resource depletion--not just oil, but other resources, such as potable water--brought about by a species that thinks that infinite growth on a finite planet is possible and desirable. Interest is how that species puts its belief into action.
Ecology and economy are two words that come from the same root. We must remember this whenever we hear politicians say that we can't take certain measures to protect the environment because they will hurt the economy. Without the environment there is no economy. Therefore, we must abandon the belief in the possibility and desirability of infinite growth. We must also abandon the demand for compensation for every instance of use of anything valuable that we possess including and especially time. (Contrast the copyright battles over usage of one digital product across several pieces of equipment with the way you freely share time and resources with your social circle). Once we abandon those old ways of thinking, the wisdom of eliminating interest, which is based on those old ways, will be self-evident.
And what will happen to the people who make their living from lending at interest? I say to them what the working class has been told time and again in the face of outsourcing: RETRAIN.
Of course, the elimination of interest is only one step toward what should be the ultimate goal: the elimination of money. That, too, can be accomplished with a massive change of thinking leading to a new consensus that no longer supports monetary systems. But for now, one thing at a time.