Man oh man. I really love having published something to a large audience, because it produces so many more interesting comments and great questions. (Yes, it also produces more stupidity and hostility, also, but the great emails more than make up for the awful ones.)
Here’s the great email I got tonight, with his questions in light blue and my reply in the usual color:
When the government fears the people, there is liberty. When the people fear the government, there is tyranny.
I like your TJ quote, although I think TJ was wrong. The government always fears the people, and yet we rarely have liberty. And in fact, I think we have tyranny right now, and I know too few who fear the government. I wish TJ had been right.
Anyway, to your question, which I don’t think is dumb at all. In fact, I think it’s a really insightful question. Thank you.
I just finished reading your entertaining monetary piece and I have one dumb question. Did the relative value of the Iraqi dinar denominations stay the same when it became post-fiat money, i.e. Was a 20-dinar note still worth 20x a 1-dinar note? If so why?
As far as I know, there were only two denominations of Saddam Dinars still in circulation. I know even less about the history of the Swiss Dinar which preceded it.
And as I understand it, yes, the differently denominated notes remained constant relative to one another.
But why? Why is this any different than my example of the Professor marking leaves with different denominations and expecting people to treat a 10-leaf as ten times more valuable than a 1-leaf?
I don’t know, but I have two guesses, and I think the second one is stronger on theoretical grounds.
(1) It might be the case the post-fiat money will work, but only temporarily. On my blog, I give some candidates that other readers have offered for post-fiat moneys that preceded the Swiss Dinar, and all the examples, of course, are temporary. Some new money eventually comes along and beats out the post-fiat money. So far, it’s always a fiat money replacing the post-fiat. Some day, however, it will probably be a commodity money replacing the post-fiat money, and then we’ll be on sound footing again.
So why do I emphasize that post-fiat money is temporary? Well, because a shared cultural understanding that, for instance, a 250-dinar-note is worth one quarter what a 1000-dinar note is worth, might lead to exchanges at that ratio. But only for a while, which is why I prefer guess #2:
(2) I strongly suspect that fiat money is printed in roughly appropriate ratios to its denominations. In other words, I suspect that for every $20 bill, there are twenty $1 bills, for every $100 bill, there are five $20s, etc. If my guess is correct, then simple supply-and-demand can explain why $1 bills are worth so much less than $20s and $100s, even in a post-fiat market.
Thank you for your question, and if you learn any more than I’ve offered you here, please let me know.
He wrote back:
As far as my Jefferson quote goes, I think it was more accurate at the time it was written than now. I’m pretty sure he meant the government would fear the actual forcible removal by the people, which really doesn’t apply any more. I also believe that more and more people are starting to fear their government thanks to King George. I know I am one.