Fiat Currency is not the Problem with the Fed

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Stop me if you’ve heard this story before. On August 15th, 1971, US President Richard Nixon effectively took the United States off the “gold standard” and lit the economy on fire. Rather than having a currency backed by a naturally limited commodity, the government could just make as much money as it wanted by “fiat”, hence the term “fiat currency”. Thus freed from restraint, the government could expand unchecked financing of debt through inflation which has in turn caused economic crisis after crisis, soaring wealth inequality, and every other economic issue you can imagine.

You may have heard this story from a large contingent of extremely online people who will shout it from the rooftops at any opportunity including deluging my comment section. Of course, the problem is that none of it is true. The economic crisis of the 1970s was kicked off not by fiat currency, but by the OPEC oil embargo that started in 1973 thanks to the Yom Kippur war (as I talked about in Gravity’s Rainbow Over Palestine). Meanwhile, the period of “Great Inflation” that’s often pointed to when talking about fiat currency actually began in 1965, well before the switch to fiat.

Of course, the Fiat Currency complainers don’t stop with the 70s. The site WTF Happened in 1971 shows a parade of graphs that show *at some point following 1971—*though rarely actually starting there precisely—a number of things started happening, including falling worker pay and wealth inequality, increasing housing prices, hyperinflation (though most of the hyperinflation it shows is linked to the collapse of the former Soviet states around 1991), the institutional concentration of Nobel Laureates for Economics (okay?), increased occurrence of the word “peer reviewed” (not sure what kind of conspiracy theory business that’s about), banking crises, soaring Federal Debt, increasing military aid to Israel (gee, I wonder what they’re trying to imply with that), off kilter S&P price-to-earnings ratios, expanding market capitalizations, dwindling personal savings, increasing energy consumption, increasing political polarization, simpler language in political speeches (yes, really again), non-European immigration because why hide the racism, and just on and on and on. And this all finishes with a quote from Austrian economist Friedrich Hayek about the need to “take money out of the hands of government”.

And, I mean, this is all reductive to the point of comedy and thick with implied conspiracy theories. These graphs don’t actually show that something sinister happened in 1971, though some of them do show some bad things that happened sometime after 1971. The whole thing is dumb.

But also if you’re a leftist you look at these graphs and feel like you’re staring into one of those looking glasses to a twisted version of reality that Naomi Klein talked about eloquently in her book Doppelganger: A Trip into the Mirror World (2023). Because we know what caused the depression of real wages and the divorce between wage growth and productivity and it sure as hell wasn’t fiat currency. It was the rise of Neoliberal Economics that started in the 1970s and achieved political dominance in the US with the election of Ronald Reagan in 1980 (and in 1979 in the United Kingdom with the election of Margaret Thatcher). The policies of deregulation that allowed unchecked corporate consolidation, the crushing of unions, massive reductions in taxes on the highest earners, as well as the outsourcing of manufacturing work by those same consolidated corporations seeking ever greater profits created the economic conditions where workers wages were squeezed and profits accumulated straight to the top. But I’ve talked about all that at length before. Of course, the anti-fiat crowd can’t point out any of that or even believe in it, because tax cuts and deregulation are exactly the things they like and think will somehow create more economic equality instead of less.

The balooning in Federal Debt they so deplore can be traced directly to the enormous tax cuts of Ronald Reagan, George W. Bush, and Donald Trump, forcing the government to take on more debt to fund spending, which of course rich people actually love because they’re buying the government bonds that make up that debt and getting paid interest on them out of our taxes instead of being simply taxed of the surplus money they’ve basically been stealing from their workers.

Meanwhile, as I’ve mentioned before, housing can only get more expensive for people as long as it is seen as an investment that must rise in value faster than inflation, which means the people who own housing will fight tooth and nail against building new housing or more dense housing because it might hurt their own property values. But of course, private ownership of housing used as a investment is another thing these same folks like and can’t imagine an alternative to.

And fiat haters have been constantly screaming from the hills that the US is on the brink of hyperinflation, hyperinflation is perpetually just around the corner and soon we’ll be rolling cash around in wheelbarrows just to buy a loaf of bread like back in the Weimar Republic. But of course the hyperinflation never arrives because their concept of how inflation works is fundamentally broken and reductive. They imagine a simple relationship between increasing the money supply and inflation and between inflation and recession. Thus, since (as I’ll explain in a bit) the Fed responds to recession by taking measures that tend to enlarge the money supply, there’s a vicious cycle of recession and money printing that leads inevitably to hyperinflation.

But there’s multiple issues with this analysis. One is the idea that enlarging the money supply alone causes inflation. The notion is that if you add more money to the system, people have more money they want to spend but the same amount of goods to spend it on, so sellers end up raising their prices to meet demand, the same way more bidders in an auction tends to make the auction price go up.

But more money doesn’t necessarily mean more demand. For example, if people are saving their extra money instead of spending it, or if the economy is growing at the same rate as the money supply, then there’s no inflation. In other words, in economic terms you have to be concerned not just with the amount of money in the system, but with the velocity of that money, and if the velocity doesn’t increase neither do overall prices.

Ironically, this means that the K-shaped economy we’ve developed actually works against inflation, because people at the top have a limited amount of money they can possibly spend (in economics this is called the “marginal propensity to consume”). And so if ever more of the money is captured by those at the top while wages for everyone else stagnates and the cost of basic goods like housing and food increase, well, those people at the top are just going to save more and everyone else will have less to spend. (And no, they’re not just investing it things that make the economy go when no one else has money to spend on new goods and services, which is why so many major companies are doing stock buybacks instead of expanding their businesses, and which is why there’s so much money in money-losing AI right now— because there’s nothing else to invest in that promises big returns.)

Of course, this doesn’t mean we shouldn’t fight for higher wages and wealth redistribution. Because the other side of that is that when working people actually have money and do spend it, that’s what creates economic growth, particularly in the kinds of businesses that provide basic, affordable goods and services, as well as allowing people to do things like go to university to get better jobs and so forth. Which is the other problem with this “money supply alone makes inflation” idea, when the velocity of money increases that can create a concurrent rise in economic growth which in turn slows the velocity of money back down.

It’s extremely seductive to think there’s a simply, easy answer to understanding inflation and fixing it, but inflation is actually complex and economists constantly debate about the underlying causes of various instances of inflation. Still, as for our current inflationary troubles, well, we know the money supply isn’t the only cause when we look at the news and see what the current administration’s mass tariffs and idiotic wars are doing. Like you don’t have to be a Nobel-prize winning economist to understand that when someone puts tariffs on everything, prices go up.

And while the anti-fiat crowd will claim that fiat currency allows the rich to manipulate the government to their own benefit, creating even more money for them to capture, there sure seem to be a lot of extremely rich people who very publicly hate fiat currency. The richest person of all, open white nationalist Elon Musk hates fiat currency. And Project 2025 calls for abolishing fiat currency and exploring the elimination of the Federal Reserve. Project 2025 of course was created by the Heritage Foundation, the right-wing think-tank funded by a parade of billionaires, including the Coors family, Charles Koch, Richard and Elizabeth Uihlein, the Scaife family, Barre Seid, and the Bradley family. And lots of other billionaires love hating on fiat, like Ricardo Salinas, Ray Dialo, and of course real-life supervillain Peter Thiel.

Obviously, it’s not true that all billionaires hate fiat currency. However, it sure is funny that if fiat currency is so good for rich people that would so many of the richest people in the world hate it so much. And to understand why this might be the case, let’s look for a moment at alternatives to fiat currency.

The most obvious one is gold, the standard we more-or-less had before fiat. The idea here is that we guarantee all money can be exchanged by the government for its value in gold, which will prevent the government from creating more money than it has gold in reserves and thus constrain the money supply. But, you know, that’s not necessarily what happens under the gold standard. After all, the main reason Nixon got us off the gold standard was because trade deficits and lending had created more US money in circulation than we actually had gold to back it up, with France in particular trying to exchange massive quantities of its dollar holdings for gold which threatened to bankrupt the country.

But this is far from the only problem. Gold is just another market commodity, which is what the goldbugs like about it, its price is determined by the holy invisible hand of the market. But of course the value of gold on the market has varied wildly over time, and so if your money is pegged to gold that means the value of your money also can vary wildly. When we had a gold standard during the Gold Rush of 1848-1855, the flood of gold on the market caused massive inflation. Meanwhile, in the 1870s and 80s, the US saw a period of sustained deflation and economic depression. And deflation is one of those things that sounds good when you first hear about it—the money I’ve saved is suddenly more valuable! That’s great! And it is great, if you have a lot of money. If, in other words, you’re a rich person. However, it’s terrible for debtors whose incomes decrease but debts stay the same. And during this period, farmers engaged in mass protests because the money they were taking in for their goods (which had deflated in price) was now not enough to pay their mortgages and they were losing their farms. Wages go down with deflation because businesses are getting less money for their goods and services. And this is actually why over a long term, far from the Libertarian line that inflation is an attack on America’s poor, inflation is actually good for debtors, but it’s bad for the wealthy and creditors, which is another reason they hate it. Yes, short term inflation can be bad for the poor as prices go up faster than wages, but over the long term wages go up but debts stay the same, so your monthly mortgage payment or whatever stays the same but you have more money to pay it. In fact, periods of hyperinflation—which are awful for all kinds of reasons—do have the upside that they completely wipe out debts like a biblical jubilee. This is in fact part of the conspiracy theory about the Fed and inflation as mentioned at the beginning, that they intentionally want to create inflation to make the Federal debt easier to pay off. But part of the conspiracy is that they’re doing this at the behest of the rich and powerful, even though as mentioned the rich and powerful actually hate inflation. And of course if the Fed really wanted to make inflation on purpose it wouldn’t be raising interest rates during periods of high inflation, but I’ll talk about that in a bit.

Moreover, gold is vulnerable to speculation bubbles and busts like any other commodity, and its price can also be manipulated by actors with enough money. For example, if the US went back on the gold standard, you could imagine a situation where China or Russia or whoever wanted to punish us could buy up mass quantities of gold and potentially deflate our currency or flood the market with gold reserves and potentially inflate our currency. In other words, the money supply comes completely out of any kind of management or control.

But this lack of control by the government is the real reason these rich goldbugs and their followers like it, because their hatred of fiat currency isn’t really about fiat currency per se, as per the Hayek quote I mentioned, it’s really about hated and distrust of the government. They’ll claim that the government is subject to manipulation by the rich through regulatory capture, and regulatory capture is a real thing. But as I talked about in the Technofeudal Roadmap to Socialism, the government in a capitalist democracy is actually a battlefield in the class war, which is why some of the things it does benefit the rich and powerful while other things benefit the people and are hated by the rich and powerful, like Social Security and Medicare. Markets, on the other hand, naturally favor whoever has the most money buy things within them, and so by freeing the money supply from even the semblance of democratic control you open it up for domination by wealthy actors, namely the billionaires lined up behind the anti-fiat effort.

Which brings us to the other thing that people propose as an alternative to fiat, cryptocurrency.

At first blush, the anti-fiat people liking crypto seems a little strange. After all, if fiat currency has no intrinsic value because it’s made up, neither does crypto, which represents nothing of real value in the world except strings of binary code. At least gold can be made into jewelry and things. But of course, it’s not being a “made up thing with no intrinsic value” that these folks actually don’t like about fiat currency, it’s that it’s controlled by the government. Crypto meanwhile is again only governed by markets.

But of course, if gold has a problem with stability, crypto is… so much worse. Bitcoin, for example, has been known to quintuple in value in the space of a couple years and then half in value again in a few months. Imagine trying to manage your finances if your currency did that. No, cryptocurrency is so unstable that they literally had to invent something called “stablecoins” which are stable because they’re pegged to fiat currency! At which point maybe you should just use the fiat currency, it’s simpler for everyone.

And Bitcoin, the most well-known cryptocurrency, is also a ticking time bomb by design. Bitcoins get progressively harder to mint over time until eventually it becomes literally impossible and the supply becomes fixed, no more new Bitcoin But this is the thing: if the economy and the velocity of money grows but the money supply doesn’t grow with it, then you have more demand for currency than you have actual currency and the result is deflation. Which means, at least as long as we have economic growth (which of course these same market mavins think can continue literally forever), if you actually used Bitcoin as your currency you’d have unending deflation, further enriching the rich and crushing the poor.

And this all just underlines the way crypto is a scam to its bones, something that doesn’t actually do anything better than regular money except make rich people richer by giving them an arbitrary commodity they can buy up and control, deflate the value of (which also makes it more valuable as a speculative investment), and perform brazen market manipulation and rug pulls with in order to further redistribute money to them and from everyone else, and of course do rampant crime, tax evasion, and money laundering. That’s all it’s good for.

And yet the proponents of crypto will spin this weird mirrorworld narrative where crypto will help redistribute power from the rich to the little guy, the exact opposite of reality, playing into people’s fears of the government for their own benefit.

Which brings us back to fiat currency and the US Federal Reserve. Because here’s the thing. There actually is a huge problem with the Fed. But its not fiat currency.

And now I actually have to talk for a second about how fiat currency in the United States actually works because it may not be how you think it does. Like it if you look at how it’s commonly discussed, it seems like the Federal Reserve sticks its head out the window, thinks “we need some more money in the system”, and pushes the money printer button. But that’s not quite it. I mean, the Treasury Department is where the actual physical money is printed, but nearly 90% of the money supply isn’t physical money, it’s numbers in computer databases at banks and financial institutions and whatnot. But most money still isn’t created by the Federal Reserve at all, it’s created by private banks. {whu whuuuut} And honestly this is really weird when you first hear about it, and there’s lots of confusing explanations online especially for some reason from MMT people. But explaining MMT or Modern Monetary Theory and its issues would take a whole other video, let me know in the comments if you’d like me to do that it’s a bit of a ride.

The traditional way this is explained is called the Money Multiplier Effect and basically it’s like this: Let’s say I have four quarters, one dollar. Now, I put that money in a bank. The bank holds one quarter in reserve and lends out the other three quarters to someone else. But technically I still have four quarters to my name, that’s part of my wealth, those four quarters are still in the system, but now there’s three other quarters that have on paper been created out of nothing. And whoever gets that loan deposits it in a bank and that bank now lends out two quarters. So now there’s nine quarters—$2.25—in the system where before there was only $1.

The thing is, and this is the thing that MMT economists point out at nauseating length, in practice today loans don’t actually come out of deposits at all. They’re literally just a number in a database that the bank inputs. The bank just creates the money.

And while this is technically true, a bank still can’t legally lend out more money than it has in deposits without taking out loans of its own or raising money through other investments (which it can do thanks to the repeal of the Glass Steagal act, the bank can just gamble your money in the stock market). So saying it’s not “lending out your deposits and other assets” but actually “not being able to lend out more than deposits and other assets” seems like a distinction without difference.

And the point here though is that as I mentioned, when the economy grows you want to increase the money supply with it to prevent deflation. And part of an economy expanding is people taking out loans to do things like start or expand a businesses or buy a home or go to college or whatever. And so with the Money Multiplier Effect, when the economy expands there’s more loans and therefore more money is created and when the economy slows down, fewer loans are made and the money supply contracts, and so in theory the money supply naturally matches economic growth preventing undue inflation or deflation. And there’s a certain elegance to this idea.

But this doesn’t mean that the Federal Reserve has no influence over the money supply. Au contrair! I have a tie, I’m sophisticated now which means I speak French. Oui oui. (Je non parle pa françes du tont. Shhh.) You see, back before the Fed and the FDIC, banks didn’t have to keep any money in reserve for withdrawals, and if enough people wanted to withdraw their money at once and the bank didn’t have it, the bank could fail and if the bank failed anyone with deposits in it would lose all their money. Because of this, if it seemed like a bank might fail or lots of banks might fail, people would run out and try to withdraw all their money so they wouldn’t lose it, which of course made it much more likely that the banks would fail, and this is called a bank run. This is actually another example of what I talked about in “The Technofeudal Roadmap to Socialism” where without government intervention capitalism is inherently unstable and fails badly and repeatedly.

In 1907, the US witnessed a huge bank panic, where Wall Street shenanigans caused the failure of a major bank trust, leading to a bank run that caused more bank runs and in the end the stock market dropped 50% compared to the previous year. In response, the US created the Federal Reserve Bank and made a law requiring all banks in the United States to keep a certain percentage of their deposits in reserve and not lend them out, to make bank failures less likely, and a fraction of these reserves would be kept in the Federal Reserve Bank for safe keeping (hence the name). And since the Fed is a bank, it also pays interest on those reserve deposits, using money the Fed gets from the mortgage securities it owns as part of the whole Fannie Mae/Freddie Mac program that I’m not going to get into here, as well as any US Treasury bonds it owns whose interest is in turn paid by the US government which I’ll actually talk about in a second.

In 1933, during the Great Depression, which also saw lots of bank runs, the rule was changed such that all of the banks’ reserves had to be kept at the Fed, and the FDIC was created which insured private bank deposits to help to prevent bank runs.

Now, because banks can park money at the Fed and get interest on it, that means that banks can make money without lending anything out. They can just put it in the Fed. But this also means that the interest rate a bank will charge for loans to other people is always going to be higher than the interest rate at the Fed, because the loan is only worth it if they can make more money from it than they can from the Fed. And this means the interest rate the bank gives for deposits is always going to be less than the interest rate they can get from the Fed, since the amount of money they can make from the deposit has to be less than the amount of money they can get from their investments in order to make a profit. This is also why only banks can put money in the Fed, not ordinary people, because if you could get a higher interest rate from the Fed why would you continue to use some bank that’s making a profit off you by paying you less than they can get from the Fed?

So this all means that when the Fed raises interest rates on its reserves, private banking also raises interest rates on loans, and likewise when the Fed lowers interest rates on reserves, private banking also lowers its own interest rates. And when interest rates on loans go up, people generally take out fewer loans because they’re more expensive, and when interest rates go down, loans generally increase. And since the amount of money in the system is literally created by the amount of loans being made, the Federal Reserve can influence the money supply by increasing or decreasing the interest rates on reserves. And so when the Fed thinks growth is slow and currency is deflating, they drop interest rates, while if the Fed thinks there’s too much inflation, they raise interest rates to slow it down which. And the Fed actually tries to target a 2% interest rate to disincentivize saving just a little bit and encourage people to spend into the economy, increase its velocity, and make it grow.

But it’s important to understand that none of this is a simple one-to-one relationship where the Fed lowers interest rates and now there’s more inflation and vice versa; often the Fed changes interest rates without seeing the desired result or enough of a desired result. And that’s just because the economy is complicated—for example, if housing prices went down even if interest rates went up, you’d probably still see an increase in home loans. Or, as mentioned, if you put tariffs on everything, prices are just going to go up no matter how high interest rates are.

Oh, and sorry, actually did I say the banks had to keep a percentage of their deposits as reserves? That requirement was actually dropped in 2020 as a reaction to the pandemic in order to also encourage more economic activity. So that’s not worrying at all. But to be clear there are still capital requirements and the difference between capital requirements and reserve requirements is confusing, but it basically still means the bank has to have a certain amount of assets on hand.

Anyway, The Fed is tasked with managing inflation but it doesn’t really have a lot of tools other than raising and lowering interest rates. Though it does have at least one other tool. In 2008 and 2020, the interest rate had already dropped to nearly zero, but thanks to… what was going on in those years… economic growth had slumped and stagnated and the Fed decided it needed to add some more juice. Enter “Quantitative Easing”, which is just a fancy way of saying that the Fed buys Treasury Bonds (or mostly Treasury Bonds, it can also buy some other things, but Treasury Bonds are the big ones). Now the Fed buys these Treasury Bonds with money it essentially creates out of thin air, or “money printing” as the anti-fiat crowd would have it, and man, this stuff really drives them crazy and gets the hyperinflation claims going. And it is kind of wild that the Fed can essentially just make more money whenever it wants.

Technically, though, it’s taking something out of the market (the bonds) of equivalent value to what it’s putting in, so it’s not quite like it’s just throwing money into a crowd. It’s not actually doing this because it wants to just increase the money supply. So why is it doing it?

Well, first you have to understand what Treasury Bonds are. They’re government debt. When people talk about how the debt levels are crazy high, what they’re talking about is the value of Treasury Bonds the government has sold in order to make up for the money they’re not getting in taxes. And the government pays interest on those bonds, which also comes out of money they either have to cover in taxes or sell more bonds for, which of course is another reason goldbugs are so concerned about the debt, because it often gets paid for with more debt.

Of course, this is a little funny. The Fed is a quasi-independent government entity and so it’s basically the government buying its own debt. Normally, if you buy you’re own debt you cancel it, that’s just paying off your credit card bill. But the Fed doesn’t cancel the debt. It keeps it.

The reason the Fed buys bonds is to drive up the value of bonds which also effectively lowers interest rates (since the amount of interest on the bond is fixed so the government paying $100 on a $1000 bond is a 10% interest rate while paying $100 on a $2000 bond is only a 5% interest rate). And just as the Federal Reserve is a baseline on what banks can make and so the reserve interest rate affects overall loan rates, the interest rate on bonds also represents a baseline for returns, since investors can just buy more bonds, and so lowering those rates effectively also can lower interest rates on private loans. So effectively this is just another way to try to juice the economy by lowering interest rates.

Meanwhile, the government is paying interest on those bonds to the Federal Reserve. As mentioned, the Fed can use that interest to help pay interest on reserve deposits to banks, along with the returns from the mortgage holdings of Freddie Mac and Fannie Mae. And if it has money left over after paying the interest, you know what happens to it? It goes back to the Treasury and counts as revenue against government spending so at least that bit of interest payments does effectively get canceled out.

And then when the Fed thinks the interest rates should go up again, it sells the bonds back into the market (which is called “Quantitative Tightening”) and the money it gets from those sales is destroyed, which basically cancels out the money it created to buy the bonds in the first place.

So what’s the actual problem with this method of managing inflation and economic growth if it’s not money printing fiat currency leading to inflation? Well, the thing is raising and lowering interest rates isn’t something that effects everyone equally.

After all, what is the Fed actually doing when it raises interest rates? It’s making loans more expensive, including mortgages. Which means its effectively making purchasing and refinancing homes more expensive, and this effects not only homeowners but renters whose landlords pass on their additional costs to them. (And this is worse in countries like Britain that don’t have mortgages whose rates will stay the same for their whole 30-year terms, something we take for granted in the US but very much only exists thanks to policies created and backed by the government specifically to make home-buying easier—that’s actually part of that whole Fanny Mae/Freddie Mac thing I alluded to.) But it’s not just homes that become more expensive, because the ground rent on businesses goes up (and commercial properties don’t get those sweet 30-year mortgages), so do the costs of the goods and services those businesses produce. So how is this reducing inflation exactly?

Well, the answer comes in the form of something in economics known as the Phillips Curve. (Footnote: Escape from Capitalism, pg. 100) The Phillips Curve explains that there’s a direct relationship between employment levels and inflation. When there is low unemployment, businesses have to pay workers more to hire and keep them because they have fewer options to replace them. When there’s high unemployment, though, workers are more replaceable and wages go down—if someone won’t take the pay you offer you can find someone else who will. And wages are a cost center for the business, and so if wages go up so do prices, and now you’re caught in what’s referred to as a “wage-price spiral”, where prices go up so workers demand higher wages which makes prices go up more.

And so when the Federal Reserve makes loans more expensive and businesses are less likely to start and expand, homes are less likely to be bought and so on, the velocity of money decreases, the economy cools, and unemployment rises and wages go down. This (in theory) short-circuits the wage-price spiral.

In other words, the Fed is intentionally trying to create more unemployment and lower wages. And this isn’t a secret, it’s not some kind shadowy conspiracy. The Federal Reserve is completely open about the fact that they’re specifically targeting higher unemployment and lower wages when they raise interest rates. For example, when Jerome Powell announcing raising interest rates in response to inflation in 2022, he said straight out that his goal was to “get wages down”. And mainstream economics has the concept of “NAIRU” or the “Non-Accelerating Rate of Unemployment” which is sometimes thought of as the “natural” amount of unemployment needed (as if there were anything “natural” about labor and wage relations) in order to have “stable” growth without inflation.

But of course, this all kind of exposes the cruelty at the heart of the system, doesn’t it? As we’ve seen, we have a situation where productivity improvements have made revenues soar with profits accumulating at the top of the economic pyramid while wages stagnate for everyone else, meanwhile the cost of essentials like housing, food, and healthcare climb stratospherically out of pace with the official inflation rate and so you end up with a situation where half of all Americans are struggling to afford food and gas. And yet the Federal Reserve is very concerned about wages being too high and unemployment being too low. Which is to say that while lowering interest rates is extremely beneficial to rich people who are more likely to take out loans to expand their businesses and buy property, raisinginterest rates most harshly punishes the workers at the bottom of the economic pyramid. And as a bonus, lowering wages and increasing unemployment makes work more precarious and workers less likely to risk their employment by trying to do things like unionize or otherwise fight for their rights. Workers instead are often scolded for wanting more and told to tighten their belts and purchase fewer luxuries. As the Bank of England’s Chief Economist Huw Pill remarked in 2023, workers need to just ‘accept’ that they’re poorer and stop seeking pay raises. (Footnote: Why We’re Getting Poorer, pg. 269) And this is now our primary way of managing our monetary policy and inflation.

And all this is also why capitalists like the ones funding the Heritage Foundation also hate unions, minimum wage laws, and basically all workplace regulations because they prevent those businesses from pushing workers into lower wages, longer hours, and worse conditions that allow them to further maximize their profits. But for-profit companies openly exist to maximize profits for shareholders, this isn’t a mystery. The only mystery is why anyone would believe their lies about how getting rid of all these protections would somehow be better for everyone as opposed to just better for those who own the businesses. Likewise any movement off of fiat currency to some sort of commodity would give them more power to control how big that unemployment pool is and how much they can drive down wages, as well as create deflationary scenarios that enhance their own riches at the expense of the poor. And this is the true scam at the heart of the anti-fiat movement.

And the thing is, as economist and former labor secretary Robert Reich has pointed out, there’s another way to think about the wage-price spiral. Because when wages go up it raises costs for business owners, yes. Which means business owners have to raise prices to maintain their own profits. In other words if they don’t raise prices, they’ll have to give a larger percentage of the price to the workers who actually make the goods and services and will have less to hoard for themselves.

In other words, it’s not a wage-price spiral, it’s a profit-price spiral, as business owners seek to maintain or increase their margins at the expense of their workers and customers. But its the businesses and their owners that set prices, not the workers, and so its not the workers creating the inflation, it’s the business owners. Why should workers be forced to pay the price for it?

What economists euphemistically call NAIRU, Karl Marx called the “reserve army of labor”, the ranks of the unemployed and underemployed that a capitalist economy requires in order to prevent workers from having too much economic power so that business owners can keep wages low and workers docile.

In more social democratic economies, like those of Germany and Scandinavia, workers unions are much more likely to have seats on the boards of companies and as a result have had much better results in negotiating deals in terms of wage vs. profit ratios.

Meanwhile, in the Great Depression, FDR managed inflation with price controls and rationing that forced business owners to keep their prices low, and you may not have heard this, but far from the conventional line it actually worked really well. In 1971, at the same time Nixon went off the gold standard, he also set price controls. And you know what happened? Inflation shrank, the stock market rose, and the economic success helped Nixon get reelected in 1972. Inflation only started going up again when the price controls expired in 1973 (when they became voluntary though they weren’t completely phased out until 1974), and they’ve been demonized by capitalists ever since.

But, of course, these sorts of things are only band-aids on an economic system where most people sell their labor to business owners in exchange for wages. Certainly, economies where enterprises are owned and run by communities (if not national governments) rather than for private profit wouldn’t have to deal with questions like a profit-price spiral. As I noted in “The Technofeudal Roadmap to Socialism”, for example, city-run grocery stores can subsidize the cost of food and make it cheaper for everyone. But you can also deal with this problem without the government, as I described in “The Medievalization of Work and the Cooperative Cure”, businesses that are cooperatively owned and managed, either by their workers as worker coops or by communities as consumer coops, are far less likely to fall into a problem of profit-price spirals. For worker coops, the workers themselves manage what they’re paid and what the prices are, and so can balance the two without the fundamental conflict that drives the worker/owner relationship. And for consumer coops, the consumers have a vested interest in keeping prices low because they’re the ones actually paying them.

And so the problem with the Federal Reserve has nothing to do with fiat currency. The problem with the Federal Reserve is that it’s been given the remit to control inflation using a brute tool that punishes workers and the poor when there is inflation and rewards the rich and powerful when there isn’t. And the idea that maybe this is a shitty way to go about things is far outside mainstream discourse, while huge amounts of money are invested in throwing a wrench in the opposite direction in order to further enrich business owners and impoverish workers by giving effective control over monetary policy directly to the rich and powerful.

As I mentioned, the simplicity of blaming all our problems on fiat currency makes it seductive. The government took us off the gold standard and that’s when all our problems began. But our problems are actually complicated and subject to the influence of powerful people whose class interests are far different from yours and mine. They’ll give you simple solutions—cut taxes, end regulations, get the government out of the way—and then when those solutions fail they move the goalposts and say well we didn’t cut taxes and regulations enough and it’s the fiat currency! The fiat currency is the problem! There’ll be hyperinflation any second now.

And so fiat currency becomes just another scapegoat, like immigrants or trans people or communists, used to distract you from the actual problem which is the economic exploitation of most everyone by the rich.

Don’t let them take you into the mirror universe where the billionaires are actually just looking out for your best interest. They’re not. Don’t let them fool you. Fight back.

Thanks for watching! I’m sure this episode won’t be controversial at all and that I won’t be dealing with oceans of horrible comments telling me how wrong and stupid I am by people who didn’t actually watch the video. Don’t forget to like and subscribe and leave those horrible comments, it helps the algorithm. You can support this channel at Patreon.com/ericrosenfield and get early, ad-free episodes, exclusive author’s notes, and more for only $1. And I’d like to especially thank my $10 Patrons: Nancy S. Rosen, Curtis Shea, K8, Peter Bostrom, Danny Tomicek, Tim Nolan, Mohammad Amer, AnnaLovesRiley, Steve Lewis, Chaos Gritty, Naajaw, Kevin, Jack, Lukas, Rose Vice, Aeris Apperly, Paul Truong, Jonnybyte, Dragos Ristache, Direleech, Ralph Lowenstein, Steven Wright, Justin Jakimiak, Victor, Young Breezy, chundus.com, and Mister A

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Bibliography

Books

  • Escape from Capitalism: An Intervention, Clara Mattei, 2026
  • Why We’re Getting Poorer: An Insider’s Guide to the Economy, Cahal Moran, 2025

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