Austrian Gold Coins
Typically the introduction of debased or fiat money begins slowly at first. The appearance of sound gold-based money is contrived, but the substance is gradually stolen and replaced with counter- feits: debased coin or fictitious receipts. However, the public is seldom deceived for long. Gresham’s Law goes into effect: what good coin remains in circulation is quickly hoarded (it becomes a race between the government and its citizens to see who can hoard the most).' People become more and more reluctant to exchange their goods and services of recognizable value for money of doubtful or questionable value. Prices soar; inflation rages. With money no longer a trustworthy standard of value or measure of wealth, al- ternative means of preserving capital are sought. Works of art, precious metals, jewels, real estate, securities, and valuable objects of all kinds take on a new meaning (or perhaps regain an old one) as stores of value." Speculation becomes a way of life. (Sound familiar?) The Color of Gold 53 Once the momentum of debasement and inflation has begun, it is seldom if ever checked before the final destruction of the whole monetary system and the government responsible for it. The second phase of currency debasement is far more drastic than the first. Having been discovered in its deception, the government, if it wishes to pursue the delusion of fiat money further (and once started it invariably does), has only one option left—the uncertain powers of coercion. In this phase, wage and price controls are imposed, citizens are forced to accept the government’s money under threat of severe punishment for refusing it, gold and silver are ordered to be surrendered, “hoarders” are threatened with arrest, citizens are forbidden to travel abroad, foreign investments are forbidden or curbed severely, tariffs and penalties are raised against foreign imports, exchange controls are instituted, and limits are put on interest rates. The results of these measures are always the opposite of what is intended; trade stagnates, prices rise even faster, black markets de- velop, gold and silver disappear entirely, speculation becomes frantic, evasions and dishonesties are commonplace and all remain- ing confidence in the government evaporates. The government itself becomes the victim of its own inflationary debasement.
Tax revenues decline due to the erosion of legitimate trade, the diversion of goods to the black market, and the pouring of money into non- productive speculation. The costs of government rise rapidly and the burdens on it increase as a result of economic instability. In the end the government is obliged to create still more fiat money or debase the currency still further in order to finance its own operation—and the spiral gets another vicious twist. With each turn of the cycle the descent becomes more rapid. There is no way out except to return to the discipline of gold, and this requires that the debased purchasing media be officially devalued in terms of their gold equivalent or written off entirely as in a bankruptcy.