The problem with gold is that it doesn't scale to economic growth. It's limited supply arbitrarily restricts growth...the upside of that is that it preserves value-- too well. A growing economy will suffer deflation if the supply of gold doesn't adequately scale to economic output. That would incentivize hoarding gold itself over engaging in risk enterprise that produces real wealth.

Ideally, a currency must be able to immediately scale to economic growth. Fiat currencies are able to do this. In that sense, fiat currencies are not inherently bad.

However, there are serious issues when fiat currency is centrally controlled. Those who control the printing press have the absolute power to shape the direction of the country by contracting or expanding the flow of credit, and by providing credit accommodation to the entities that are most likely to carry out their objectives. Centralization also has the nasty inherent side effect of concentrating a maximum amount of wealth in the fewest possible hands.

You can achieve instantaneous scaling and decentralization by making production itself into currency.

Bit of a mind fuck?

Consider this: In the days of barter, what you produced was your money to trade for the things you needed. This is the core strength of the barter system. Barter fails because a specific produced good or service does not have recognition of universal value amongst all participants. Meaning, I might be able to trade my goats milk for some coconuts, but I can't trade it for the fish I want because the fisherman already has more goats milk than he needs. If there was an item of universally recognized value, like say gold, I could trade my goats milk for gold, then trade the gold for the fish.

But we're moving away from gold... so we concentrate instead on trying to achieve something of universally recognized value. The individual things we trade for are not of universal value as separate parts. But as a whole, they are much closer. That is to say that a piece of paper that represents a basket of the things you trade most often for would hold close-to-universal value.

If you allow a union of producers to consensually appoint a company to administer a currency that is exchangeable for any good produced within the union, you will have a currency that captures the best qualities of the 3 systems outlined.

[*]A near universally recognized value is achieved by making the currency tradable for the products of many different producers.

[*]It retains inflation-free value because it is explicitly backed by the production of real goods and services.

[*]The controlled, but technically fiat nature of the currency allows it to scale instantly to economic growth.

[*]Since the managing entity of the currency union is by consent, and other unions are able to form without interference, the currency manager is decentralized by competition, and incentivized to return a maximum amount of value & utility to individual currency users rather than hoard value for itself.


If shenanigans did ensue, the currency of one entity would still always be exchangeable for another on the open market. I can trade a home depot card for an amazon card, for example. Truer to the example, if the card represented Home Depot, Amazon, Apple, Google, and Netflix and for some reason they decided to close their union off to others, I could still take the card and trade it for a Lowes, Ebay, IBM, Yahoo, Blockbuster card at a market determined exchange rate. Or I could simply trade it to somebody who wants something from Home Depot, Amazon, Apple, Google, and Netflix, etc. Currency users will reward the systems that empower them the most.

[*]Gold: +Retains Value, -Supply Doesn't Scale to Production, +Universally Recognized Value, +Resistant to Centralization.

[*]Fiat: -Loses Value, +Supply Scales to Production, +Universally Recognized Value, -/+ Neutral to Centralization.

[*]Barter: +Retains Value, +Supply Scales to Production,-No Universally Recognized Value, +Immune to Centralization.

[*]Production Based Consensual Currency Union: +Retains Value, +Supply Scales to Production, -/+Near Universally Recognized Value, +Resistant to Centralization.