The Fiat System

As we saw in the previous chapter, inflation --- understood as rising prices --- is a direct consequence of the creation of new money.

When money was gold, only the discovery of new gold increased the quantity of money, meaning prices could not rise very much, since they were constrained by the natural scarcity of gold. After the emergence of deposit banking and the onset of fractional reserve banking, the quantity of fiduciary money in circulation (paper money representing a certain quantity of gold) became decoupled from the quantity of gold, and it became possible to create more money than there was gold. Although this, as we have seen, is a fraud, there was a limit to that fraud since money remained backed by gold. This fractional reserve practice was risky, since whenever rumours spread that a bank had liquidity problems, customers rushed to withdraw their gold, and a bank panic sometimes led to the bank’s collapse. The phenomenon was very dangerous because even customers of other banks might begin withdrawing their gold out of fear, thereby putting the entire financial system at risk. To minimise this phenomenon of bank panics, we have central banks today.

Central banks have existed for a long time. The Bank of England was founded in 1694 and is considered the second oldest central bank, after the Bank of Sweden, founded in 1668. Its initial operation was not comparable to that of a modern central bank, though it did share one common characteristic: its purpose of lending money to the government.

After the overthrow of King James II of England in 1688, the new monarch, William of Orange, found himself with a bankrupt State and needed money to finance the war against France. A group of merchants and bankers created a bank --- the Bank of England --- with the objective of lending one million two hundred thousand pounds sterling to the government. Following the success of that loan, the Bank of England became an important financial institution and continued to lend money to the British government to finance subsequent wars. From 1709 onwards it received authorisation to lend money to businesses and individuals as well. The bank was originally private, with State ownership not exceeding 20%, and was not nationalised until 1946, at which point the Bank of England became a public institution.

The current central bank of the United States was created with the passage by Congress of the Federal Reserve Act of 1913. It is the third central bank of the United States, although the first two barely lasted twenty years each. The Federal Reserve Act was Congress’s response to the numerous banking crises of preceding decades and significantly changed the way monetary policy and financial regulation were handled in the United States. The fundamental objectives of that act were to promote financial stability and control the money supply, given that the fractional reserve system was extremely fragile. To prevent the crises that had occurred in previous decades, the Federal Reserve would perform the role of lender of last resort. This minimised bank panics because the Federal Reserve could lend money to a bank experiencing liquidity problems, preventing its potential collapse. Another critically important provision of this act was the prohibition on other commercial banks from issuing banknotes. From that moment on, the Federal Reserve became the only bank with the legal authority to issue banknotes.

Although most central banks predate the era of fiat money, the power of central banks in the pre-fiat era was far less than what they hold today. They could abuse --- and in fact did abuse --- the issuance of banknotes, but since paper was an obligation to pay a certain quantity of gold, the abuse they could commit always had some limit. By contrast, today’s central banks issue fiat money and face no restrictions whatsoever, being able to create money out of nothing in a practically unlimited fashion.

The word fiat has its origins in Latin and means “let it be so”. Fiat does not mean that something is made of paper. If paper represents a third party’s obligation to deliver a certain quantity of gold, that paper is fiduciary money but not fiat money, however poor the paper quality and however unreliable the commitment to deliver the gold. We call the money we know today fiat money because it has value by decree, by authority --- because the State says so.

While the various fiduciary currencies had already become fiat currencies in some countries years earlier, it was on 15 August 1971 that the dollar definitively became a fiat currency when President Nixon made the following announcement[@AdreessTheNation]:

I have directed Secretary Connally to suspend temporarily the > convertibility of the dollar into gold or other reserve assets, except > in amounts and conditions determined to be in the interest of monetary > stability and in the best interests of the United States.¹

— Richard Nixon

This declaration blew up the Bretton Woods agreement and fired the starting gun for the form of money we know today: fiat money. But what was the Bretton Woods agreement, and why did Nixon put an end to it?

Bretton Woods

During the Second World War, the United States and the United Kingdom exchanged a series of proposals and documents laying out their visions for the post-war international economic system, as they believed that the monetary conflicts of the 1920s and 1930s had been one of the principal causes of the Great Depression and the Second World War. In July 1944, while the Second World War was still ongoing, the United Nations Monetary and Financial Conference took place in Bretton Woods, New Hampshire, attended by 730 delegates from 44 allied nations. The objective of the conference was to establish an international monetary system that would promote trade and economic growth while guaranteeing stability in exchange rates between countries’ currencies and preventing competitive devaluations. The final agreement --- the Bretton Woods system --- was based on the following key points:

• The dollar would be the global reserve currency and would be backed by the United States at a rate of 35 dollars per ounce of gold. This meant a return to the gold standard, albeit a “restricted” one, since the commitment to convert dollars into gold was a commitment exclusively to the central banks of other signatory States --- not to individuals or businesses in those States. Other countries could hold dollars in their reserves instead of gold, or in addition to gold, which was more flexible for international trade.

• A system of fixed exchange rates was established, in which currencies were pegged to the US dollar. All countries committed to maintaining their own currencies within a fixed relationship (plus or minus one percent) with the dollar, such that indirectly all currencies were backed by gold.

• The creation of two new financial entities was agreed upon: the International Monetary Fund, originally to monitor currency exchange rates and provide financing to countries with balance-of-payments deficits, and the International Bank for Reconstruction and Development², whose original mission was to finance the reconstruction of countries devastated by the Second World War.

For almost thirty years the world operated under this agreement --- a system in which currencies remained promises of a certain quantity of gold. This gave the United States a central position in the global economy, since the dollar became the primary currency used in international trade and various countries needed to maintain a certain level of dollars in their reserves. As a result, most of them sent large quantities of gold to the United States in exchange for dollars: the United Kingdom sent around 2000 tonnes, France around 2500. Italy, Germany, the Netherlands, Japan, Canada, Australia, and others also sent significant quantities of gold. The United States came to hold approximately 75% of all the gold in the world.

With a system so beneficial to the United States, it is reasonable to ask why Nixon made such an announcement that blew up the system. The reason is simple --- the same old reason present throughout the history of money: the temptation to embezzle. The United States needed money to finance the wars in Southeast Asia (Korea, Indochina, and Vietnam) and, having the power to create dollars, had abused that power, creating far more dollars than it could have redeemed in gold at the agreed exchange rate.

The French government was well aware of the enormous advantage the dollar afforded the United States, as demonstrated by the fact that the French finance minister, Valéry Giscard d’Estaing, referred to it as an exorbitant privilege. The President of France himself, Charles de Gaulle, at the press conference of 4 February 1965, expressed his concern about the growing quantity of dollars in circulation without the corresponding proportional gold backing.

The fact that many countries accept dollars in addition to gold to > offset the balance of payments deficits of the United States leads to > a situation in which the United States is heavily indebted and does > not have to pay. In fact, what it owes to other countries it pays, at > least in part, with dollars it can simply issue at will.³

— Charles de Gaulle

Faced with this exorbitant privilege of the United States, France began to redeem a large portion of the dollars held in the Banque de France’s reserves and to transport the corresponding gold from the United States to France, a process it carried out from late 1963 until just before Nixon’s announcement⁴.

Some European countries, also seeing that the United States had abused its dollar creation well beyond its gold reserves, began to grow nervous and in turn started to redeem their dollars for gold, which further reduced US gold reserves. In the book What Has Government Done to Our Money?[@QuéHaHechoelGobierno], Rothbard estimates that by the end of the 1960s there were more than $80 billion in Europe while the United States only had enough gold to back $9 billion. In August 1971, France went so far as to send a ship to repatriate the remainder of its gold held in the United States, and on the 11th of that month England requested that the United States prepare the gold equivalent of three billion dollars.

If the British, who had set up the system with us, and who had fought > so hard to defend their own currency, were going to take gold in > exchange for their dollars, it was clear that the game was up.⁵

— Paul Volcker

This was the event that ultimately triggered Nixon’s announcement.

The Birth of the Fiat Dollar

In his televised announcement, Nixon said “temporarily” --- but we have now had more than fifty years of this temporary suspension. Moreover, what does this “suspension of convertibility” actually mean? That temporary suspension is nothing other than a default. The dollar was until that moment a debt, an obligation by the United States to pay one thirty-fifth of an ounce of gold. It can be said, without risk of exaggeration, that this “suspension of convertibility” was the greatest default in human history. They announced to the entire world that from that moment on they would no longer pay anyone and that they were keeping all the gold. The coded message said “suspension of convertibility”, but the message in plain text was “don’t come for the gold --- we are not paying anyone any more”. And since they possessed the world’s largest army, the other countries had no choice but to continue using the dollar as if nothing had happened. On 16 August 1971, a dollar was something very different from a dollar on 14 August. Two days earlier, a dollar was fiduciary money --- the promise of one thirty-fifth of an ounce of gold --- whereas on 16 August a dollar was just a dollar, nothing more, with no promise to redeem it for anything: fiat money. From that moment on, the United States had the ability to create dollars at will, with no restrictions, no limit tied to anything physical, and at no cost. Exactly as happened with the German mark during the Weimar Republic.

A direct consequence of Nixon’s declaration is that it also affected all the currencies that had been in a fixed relationship with the dollar since 1944. Since all of them, through one additional step, were also backed by gold, on 15 August 1971 the currencies of the 44 countries that had signed the Bretton Woods agreement became fiat money. 15 August 1971 is a key date, as it can be said to mark the beginning of the fiat system “on a global scale”⁶.

As we can see, the fiat system we have today is not an invention that someone came up with with the aim of improving the economy. There is no white paper for the fiat system, proposing something like: “Proposal for the creation of a type of money that can be created without limit, at zero cost, backed by nothing, which everyone is legally obliged to use”. That is not how it happened. Such an invention would have been immediately rejected as utterly absurd and profoundly unjust.

The fiat system was born out of a series of measures that seemed good at first glance but had the side effect of centralising power. After centuries of power concentration, all of these measures gave rise to the greatest default in human history, and as a result of that default, a system in which the cost of creating new money is zero. The cost is literally zero, since it does not even carry the cost of ink and paper, given that today more than ninety percent of the global money supply consists simply of numbers in a computer⁷.

Understanding that the fiat dollar is currently nothing more than the legacy of a default, we might ask why it retained any value the following day. After all, any promissory note from a bankrupt company that cannot be collected is worth nothing. Another way to look at it is this: if Nixon had said they were beginning to redeem dollars at a new rate of 70 dollars per ounce instead of the 35 dollars per ounce in force until then, we would certainly have said that the value of the dollar had fallen by half, since it now represented half as much gold. And this would not have been something new --- it had already happened in 1934. Executive Order 6102[@EO6102], issued in 1933 by President Roosevelt’s government, required citizens to surrender their gold to the government at the exchange rate of $20.67 per ounce of gold, the ratio that had been in force for nearly a century. Through the Gold Reserve Act of 1934, a year later, once the government had seized all its citizens’ gold, the value of the dollar was changed to $35 per ounce⁸. What happened to the value of the dollar? It was still backed by gold, but a dollar was redeemable for 42% less gold than in 1933, and therefore worth 42% less. If instead of going from one twentieth of an ounce to one thirty-fifth of an ounce, we perform the same calculation for the move from one thirty-fifth to zero, we find that the devaluation is 100%, as logic dictates, and therefore the new value should be zero… and yet its value did not fall to zero! People continued to accept it as a means of payment with some value. This is paradoxical, since not only is it a real 100% devaluation --- it is also the case that as the fiduciary money it was, its value resided in a promise, and that promise had just been blown to pieces. Not partially broken: totally and absolutely broken.

Why did it retain any value at all? More to the point, why does it have value today? The dollar has value today because it was once backed by gold --- the very thing that the free market had adopted as money after thousands of years. The valuation of something as money at any given moment rests on the confidence that that something will continue to hold value in the future. Whether something is money or not is somewhat subjective, since in essence it depends on whether one accepts it as a means of payment. In 1971, after nearly thirty years of global use as a reserve currency, the inertia of confidence in the dollar as a medium of exchange was immense, and that is why its value did not instantly fall to zero.

We can think of a fiat currency as a kind of motorless glide, in which the value of the currency is the altitude at which the glider flies. Once a powered aircraft tows a glider to a certain altitude, it can release it and the glider can fly for a time. Analogously, once a State backs a currency with a certain quantity of gold, it can stop backing it and the currency can “fly” or hold value for a time. Since 1971 the dollar has been like a motorless glide. It does not plummet --- it glides.

Following the analogy, we might ask how quickly a fiat currency loses value. For a glider, it is the glide ratio that indicates how many kilometres it can travel for every kilometre of altitude. A glide ratio of 30 means the glider can travel 30 km if released from 1 km altitude, or 150 km if released from 5 km. What would be the equivalent of the glide ratio for a fiat currency? Any currency loses value to the extent that the total quantity of that currency increases. The issue with fiat money is that the capacity to create new money is infinite. And if money is created at a very fast rate (Venezuela, Zimbabwe, the Weimar Republic…), then the glider loses altitude very quickly and crashes (hyperinflation).

Although this analogy is not perfect, if we stretch it a little further, we can think of the United States releasing the dollar in 1971 at an “altitude” of 888 milligrams of gold⁹. The altitude at which the dollar was flying in September 2025 is 8.7 milligrams.

A saver in dollars has seen more than 99% of their savings evaporate over the past 54 years. What was the point, for a twenty-year-old in 1971, of saving dollars for retirement today? For every dollar they saved in 1971, they now have the equivalent of 1 cent. The rest has been stolen from them.

The Worst Money

In the first chapter we saw that gold established itself as the best money over many centuries because it was the most costly to produce (to extract from the earth) and therefore an increase in its value did not cause its production to rise very much. This inelasticity of supply is what we call “scarcity”. Through a series of measures concentrating power, we have arrived at fiat money --- the easiest-to-create money in human history. If humanity reached a consensus that gold was the best money primarily because it was the most costly to produce, how is it that we now have the easiest to produce? And furthermore, would this not mean that fiat money is the worst of all types of money? Not only is this the logical conclusion --- it is also the reality. It is the worst money humanity has ever used and, in fact, it brings with it the worst consequences. The fiat system provides enormous power to whoever has the capacity to create money out of nothing. Commercial banks under the fractional reserve system already held that power, amplified by the central bank’s lender-of-last-resort function, but they could not create as much money as they wished because the existence of gold reserves ultimately limited the extent of the fraud. Today that limit no longer exists.

Neither a State nor a bank ever has had the unrestricted power of > issuing paper money without abusing that power.¹⁰

— David Ricardo

Due to human nature, this power is continually abused and, unfortunately, ever more so, since by making money fiat all limits on abuse have been removed. Moreover, the excuses for the abuse are very easy to justify to the population --- the very population being robbed. The benefits of printing money are obvious since, at first, the economy in general receives a boost. If the State announces a programme to improve education, who would not want a better education system? If the programme is to improve railway infrastructure and roads, who would not want better trains and better roads? I am sure you can think of many good things you would do if you had unlimited money.

Obviously, only the positive consequences must not be considered. The serious negative effects must also be weighed. We might ask what the negative effects are, but the question of whether stealing has negative effects would not occur to us, since it obviously does --- for the victim of the theft. If we are capable of asking the question, it is because the identity of the victim of the theft involved in creating money out of nothing is not obvious. After all, nobody has their money taken away, and a theft without a victim of the theft would not be understood. Strictly speaking, nobody has their money physically taken from them, but the effect is completely equivalent, since the value of money is its purchasing power, and what is taken away is the purchasing power of one’s money. As we saw in the previous chapter, the more money is created, the less purchasing power money holds. Thus, a 10% decrease in the purchasing power of your money is completely equivalent to having 10% of your money stolen, since in both cases you can buy 10% fewer goods and services. And this is precisely what happens.

Among the many problems of the fiat system, we will analyse the following:

• It is based on mass theft.

• It fosters class inequality (the Cantillon effect).

• It disincentivises civilisation.

• It destroys nature.

• It facilitates wars.

• It leads towards totalitarianism.

The Theft

Creating money out of nothing, at no cost, is completely equivalent to stealing, as we have seen. Creating an additional ten percent of new money is equivalent to stealing ten percent from every holder of money. The fiat system is not what enabled the theft. As we saw in the first chapter, the fractional reserve system already enables a fraud by permitting the creation of new money out of nothing, but there is a certain limit --- namely the risk of a bank panic and the subsequent collapse of the bank. The central bank raises the limit on fraud, thereby making the theft even greater. The fiat system removed any limit at all. Strictly speaking, there is one other limit --- far higher --- which is the outright destruction of the currency (hyperinflation), but this limit is equivalent to stealing everything, so one can say, without great loss of precision, that there is no limit to the theft. It is sometimes aptly called the hidden tax on savings, since it is a tax (not voluntary), it is hidden (not something explicitly levied), and it falls on savings --- those with no savings but debts are not affected by it.

It should not be necessary to explain that a system based on unlimited mass theft is something bad, but to internalise it more fully, let us imagine a twenty-year-old who, instead of spending everything he earns, wants to save something so he can live when he is seventy. Aware that the State creates money out of nothing and will continue to do so, he estimates real inflation of $10$% over the next fifty years. The young man calculates that of every 1000€ he manages to save this year, in fifty years he will have the purchasing-power equivalent of $8$€. Another, more optimistic young man estimates real inflation of $5$% and calculates that of every 1000€ he saves he will have $87$€ left. Even if the more optimistic young man’s forecast comes true and average annual inflation is “only” $5$%, the theft is of gigantic proportions. $5$% may seem small, but it is $5$% every year for fifty years --- $5$% fifty times over. Becoming aware of the magnitude of this theft upon which our monetary system is based ought to be reason enough to abandon it immediately. But the side effects of the fiat system do not end there…

The Cantillon Effect

When new money is created, it is not distributed evenly across the population or in proportion to the savings one holds. All the newly created money goes to the State¹¹, which has an obvious advantage over all other economic actors: not only is it the first to spend it, but it also does not need to provide any service in exchange for receiving it. The next to receive the new money are the companies the State hires with that freshly created money. As these first recipients spend the new money, it disperses through the economy competing for the same pool of goods and services that has not grown simply because more money was created --- obviously. This increase in demand causes an upward adjustment in prices. Certain goods and services experience price increases before others because the prices of the goods and services most in demand by the first recipients of the new money tend to rise first. This process causes a redistribution of wealth. Those who receive the new money first can benefit from the old prices, while those who receive the money later --- or do not receive it at all --- face higher prices without a corresponding increase in their income. The last to receive the new money are workers, since wages are generally the last thing to adjust. Workers live for a time with the new, higher prices and the old wage.

In reality it is even worse than this: they do not merely live for a time with the new higher prices and the old wage --- they live this way permanently. It is not the case that money is created in January and the price-update process runs until March, by which point it reaches wage earners. The creation of money is continuous; prices take years to update, and moreover they do not update homogeneously but in a far more heterogeneous fashion --- some things rise more than others --- and of course mixed in with other factors, such as a sharp drop in the supply of a good due to a natural disaster.

For all these reasons, the State and the best-connected politically are the great beneficiaries, while the vast majority of workers are the great losers. This phenomenon is known as the Cantillon effect, named after the eighteenth-century economist Richard Cantillon, who was the first to describe it in his major work Essay on the Nature of Trade in General[@EnsayoNaturalezaComercio].

An increase in the quantity of money in a State gives rise to an > increase in consumption, and this increase in consumption provokes an > increase in prices. The new money deploys gradually and drives up > prices first in the markets where the money is spent, and then, little > by little, affects other parts of the economy.

— Richard Cantillon

The Cantillon effect divides society into a few beneficiaries --- those most politically connected --- and the rest: the majority of workers, who are the losers. The wealthiest, conscious of this effect, do not store their wealth in the form of money but in scarce assets such as land or property (especially in city centres) --- assets that cannot be created out of nothing at no cost. These assets, when the quantity of money in circulation increases, generally rise at a rate equal to or greater than the CPI, meaning those who invest in them do not lose wealth and may even gain. If inflation can be considered a hidden tax on savings, the Cantillon effect might well be called the hidden tax on labour income. That is, not only is a portion of what we have saved stolen from us, but also a portion of the fruit of our work.

Disincentivising Civilisation

As ever more money is created, money loses value over time, making it impossible to set aside the fruit of our labour for the future. This inability to save makes it necessary to invest in order to try to preserve it, which always entails the risk inherent in any investment, as well as the additional work of gathering information and selecting where to invest. The inability to save brings with it serious additional consequences.

First, it alters people’s time preference. The concept of time preference is key to understanding economics. Human beings live a finite amount of time, and that quantity is moreover uncertain since we do not know when we will die. This creates in people a preference for present satisfaction over the same satisfaction in the future. This preference for the present over the future --- which we call time preference --- always has a positive value. This means we prefer the utility of any good in the present to the same utility in the future. Although it is always positive, it is not constant; its value varies depending on the degree to which human beings discount the future relative to the present. A low time preference means that the future matters greatly to us. A high time preference means what matters to us is the present, while we place little value on the future.

With a low time preference, human beings save to provide for the future. Such savings produce capital goods with which future production increases and humanity progresses.

The decline in time preference is accompanied by a process of > civilisation.¹²

— Hans-Hermann Hoppe

Understanding this relationship between time preference and the process of civilisation is crucial. Fiat money, by making saving impossible, raises people’s time preference and therefore leads to a process of de-civilisation. The increase in time preference affects not only society in general --- which, by saving less, produces fewer capital goods --- but also the individual morality of each person, who places more weight on the immediate reward of an action and less on the future consequences of that action. With a high time preference, criminal acts and violent behaviour become less costly and therefore more frequent.

Another effect of the impossibility of saving is that it makes us dependent on the State. Since individuals lack the mechanisms to preserve the fruit of their labour over time, when the final stage of life arrives we have neither savings nor the ability to provide for ourselves, and it is therefore the State that must take care of us. This dependence on the State makes us less responsible and also less free.

Destruction of the Environment

Another side effect of the impossibility of saving that deserves special mention due to its gravity is the destruction of nature. The natural tendency of each human being to divide the fruit of their labour between saving and spending is artificially displaced towards less saving and more spending. This effect, together with the support of the dominant pseudo-economic science that instructs politicians that the State must correct economic cycles by spending more and encouraging consumption, can be clearly perceived in the generalised consumerism characteristic of today’s world. A manifestation of this is the proliferation of all kinds of trinket shops that catch our eye but barely have any practical use, and which we buy only to put on a shelf at home for a few months before they reach their final destination: the bin. The quantity of clothing we consume is another example.

On the other hand, in Spain for instance, on average it took approximately four to five gross annual salaries to buy a home in 1970, whereas in 2024 it takes approximately eight to ten annual salaries. Why does a person today need to work roughly twice as many years to buy a home?

If we pause to reflect on this fact, a host of paradoxes arise:

• Has house-building technology deteriorated so much that it now takes us far more time to build homes? Of course not. On the contrary, today’s technology is far better than it was fifty years ago and it costs us less time to build them.

• Are we less productive at work? Evidently not. Technology makes us more productive.

• It is not possible to buy a home, yet it is perfectly possible to own twenty pairs of shoes and replace them every two years. Are we in general richer or poorer than we were fifty years ago?

• If we are richer, why do we need eight annual salaries instead of four to buy a home?

• If we are poorer, why do we now buy so many things we did not buy before?

Something does not add up --- we cannot be simultaneously poorer and richer; something is not right. In addition to technology, there is a key difference in Western countries between the society of 2024 and that of 1970: the purchasing power of the money we use today melts away, and there is therefore a strong incentive to spend it before it does. Unbridled consumerism, which is the greatest environmental problem, is another harmful effect of the increase in time preference caused by the fiat system. We can visualise the fiat system as a kind of giant machine that keeps us running non-stop on a hamster wheel, transforming nature into waste.

It Finances Wars

As we have seen, the American War of Independence was financed through the continentals --- money created out of nothing. The experiment with paper money issuance was both a success and a failure. A success because it allowed the Thirteen Colonies to win the war, and a failure because the colonists felt robbed. Fiat money, like any other scam, is always a success for the scammer and a failure for everyone who is scammed.

But the episode with the continentals is not an exceptional event in human history --- quite the contrary: it is one of a long list. All the European powers abandoned the gold standard when they entered the First World War. England, France, Germany, Italy, and Austria abandoned the gold standard in 1914. Russia abandoned it in 1917. We can see a clear correlation between the dates of abandonment of the gold standard and the dates of the outbreak of wars. And the reason is that by printing money, all the wealth of the population can be extracted to finance the war --- something that would be completely impossible with sound money, since long before reaching a hundred percent tax rate (which is to say, the confiscation of all assets), the population would resist and the war would have to stop. Wars would end far sooner, as soon as one of the States ran out of money, and not only when the population of one side had been entirely destroyed. In short, a strong correlation can be established between fiat money and war. And more than correlation: in this case there is also causation. The gold standard is abandoned in order to finance the war.

It Leads to Totalitarianism

The enormous privilege of creating money out of nothing grants a power never before experienced by anyone in human history. Given human nature, this power is abused always and everywhere, and increasingly so. If we combine this immense power with the Keynesian theoretical framework that encourages politicians in power to spend, we have the perfect cocktail for States to accumulate ever more debt, create ever more money, and grow indefinitely, encompassing an ever-greater share of economic and social activity, thereby steadily shrinking the free market.

With a small State in which taxes were no more than 10%, the number of people troubled by having 10% stolen from them would not be very large. But as that percentage increases, already reaching levels of around 70% in some European democracies, so too grows the number of people who find the level of taxation unjust --- people who logically attempt to prevent themselves from being robbed. Therefore, as the State grows, favoured by the fiat system, the need for greater tax collection also increases, along with the obsession with controlling the population to ensure that “no cow escapes without being milked”. KYC¹³ laws proliferate --- “Know Your Customer” laws that, under the pretext of protecting the consumer, oblige businesses to collect and store the personal data of all their customers and to know all their transactions. These laws are especially serious in the financial system, which has already become a State weapon of population control and surveillance.

As the State grows larger, it first regulates and then completely controls an ever-greater share of economic activity, and privacy and individual freedom progressively disappear. The system of centralised planning is incompatible with individual freedom, and the adoption of that system leads inevitably to a form of serfdom. This is the thesis maintained by Hayek¹⁴ in his masterwork The Road to Serfdom[@CaminoServidumbre], written in 1944.

But we have learned little from the horrors of collectivism, central planning, and the supposed “common good”. Some politicians already speak without inhibition of totalitarian aberrations such as imposing individual quotas on the amount of meat each person may eat per month, or the amount of CO${_2}$ they may generate and therefore what trips they may take, where they may go and where they may not. And the worst thing about collectivist thinking is that it never remains stable. It is a slippery slope that leads inexorably towards totalitarianism.

The fiat system is a great enabler of this path towards totalitarianism by granting those who govern the State a practically unlimited power.

Conclusion

To close this chapter dedicated to the fiat system, we can summarise its main characteristics, divided into three groups: what it is based on, what it promotes, and what it disincentivises or destroys:

• It is based on the mass robbery of the population.

• It destroys civilisation and nature.

• It promotes inequality, wars, and totalitarianism.

It is important to become aware of and internalise these realities of the fiat system before attempting to understand bitcoin and to reason about the implications it will have for humanity.