I hear from time to time people equating fiat currency to gold or things that took desired work i.e. wealth to produce, perform or cultivate. There is a big difference when it comes to fiat currency and real wealth. The most significant difference is the fact that there is no human shortcut to producing, performing or cultivating desired work i.e. wealth out of thin air. On the other hand with the advent of computers it is possible to create fiat currency out of thin air. In fact with the banking system most nations have in place today, the process of creating currency out of thin air is institutionalized with fractional reserved banking.

The reason why all fiat currencies eventually become worthless is human nature. It is human nature to seek the maximum amount of benefits for the least amount of work. Fiat currency gives the person or persons in charge of it the ability to covertly steal the desired work i.e. wealth of anyone who puts their trust in it as a medium of exchange. Since it is human nature to seek the maximum amount of benefits for the least amount of work, the people in charge of that fiat currency will inflate until all trust in the currency is eventually lost.

The reason this scenario plays over and over again in history is the fact that when first inflating a currency the benefits are easy to see compared to the drawbacks. After a while prices rise as the growth of currency out paces the growth of goods and services. Governments rather than see the inflating of the currency that gave them the initial benefit as the cause to the high prices; will usually blame the private sectors greed and continue to inflate until the currency becomes worthless.

Gold unlike fiat currency can not be conjured out of thin air at the whim of bureaucrats or an insolvent banking system, so its ability to hold desired work i.e. wealth is independent of government or banking and is time tested. This is one of the many reasons why gold has and is used as money. The equating of fiat currency to gold or any other thing that took desired work i.e. wealth to produce, perform or cultivate is a mistake done by many in history; and sadly many today.