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G. Edward Griffin: a fractional gold standard always leads to “pure fiat money”

October 9, 2011

G. Edward GriffinG. Edward Griffin, in providing a chapter-by-chapter summary of his 1994 book, The Creature from Jekyll Island, made this claim in the summary for chapter 8:

Fractional money is defined as paper
money with precious-metal backing for part, not all, of its stated
value. It was introduced in Europe when goldsmiths began to issue
receipts for gold which they did not have, thus only a fraction of their
receipts was redeemable. Fractional money always degenerates into pure
fiat money.

The reason for this, which he doesn’t mention, is that whenever new
money is created, only the principal is created, and never the interest.

Compound interest charges will always eventually outstrip the supply of new precious metal.

Griffin admits that a fractional gold standard is inherently flawed,
and, therefore, the Federal Reserve wasn’t the ultimate cause of the
failure of the gold standard in the U.S. in 1933.

Be wary, therefore, of anyone who does advocate a gold standard with less than 100% backing.

For more on the gold standard, see my article, The gold double standard.

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