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The Monetary Economics of Thurston Howell III

Posted by michael on from the she-sells-seashells dept.

DLWormwood writes "In what has to be the Strangest... Essay... Ever... The libertarian Ludwig von Mises Institute website has posted an essay which goes way too in-depth over the topic of why the castaways of Gilligan's Island used Thurston Howell III's 'worthless paper' instead of gold or seashells."

3 of 455 comments (clear)

  1. Re:I liked it, but... by Nick+of+NSTime · · Score: 5, Informative
    Within the science of economics, fiat means "having no intrinsic value." So fiat money is paper currency that has no intrinsic value because it is simply representative of something of value. The paper itself has no value. Contrast that with gold coins, which have an intrinsic value outside of the currency (its value in gold).

    The word fiat, IIRC, comes from the Italian word for "in faith." You're taking it on faith that the $20 bill you slap into a stripper's t-back, for example, is actually worth $20, even though you will never see the gold that backs up that $20 bill.

  2. Re:I liked it, but... by Anonymous Coward · · Score: 5, Informative

    Acutally, fiat is straight from Latin, where it means "let it be." Fiat money is used as money because of governmental decree (or fiat), as opposed to commodity money (e.g. gold) which arises from the market.

  3. Re:Gilligan's Island is a "hook", not the contents by ahdeoz · · Score: 5, Informative

    The whole point of government backed "fiat" money (which was completely missed in the article) is that the supply of money is regulated. Current dollars represent an amount of previous dollars, which represented an amount of gold, which represented an amount of coconuts, which were bartered for fish for cream pies once upon a time. The "fiat" is there to primarily to prevent counterfitting to make sure that the supply remains fairly constant (though gradually increasing over time as more wealth is "created.) The money exchange market (and the market in general, i.e., the price of goods and services, and especially loan interest rates) act as checks that the declared value does not exceed the actual value in previous commodities. Dinars doubled in value because there was a fixed amount (as long as counterfitting did not occur -- which is why it could only continue for a short time) and the quantity of dollars in circulation was rapidly increasing. The "post-fiat" dinars were still directly tied to the dollar (gold) standard but there was a massive influx of gold (greenbacks) at the time, resulting in inflation.