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Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown
The case for the inevitable failure of a paper money economy and what that means for the future
All paper money systems in history have ended in failure. Either they collapsed in chaos, or society returned to commodity money before that could happen. Drawing upon novel new research, "Paper Money Collapse" conclusively illustrates why paper money systems--those based on an elastic and constantly expanding supply of money as opposed to a system of commodity money of essentially fixed supply--are inherently unstable and why they must lead to economic disintegration.
These highly controversial conclusions clash with the present consensus, which holds that elastic state money is superior to inflexible commodity money (such as a gold standard), and that expanding money is harmless or even beneficial for as long as inflation stays low. Contradicting this, "Paper Money Collapse" shows that: The present crisis is the unavoidable result of continuously expanding fiat moneyThe current policy of accelerated money production to "stimulate" the economy is counterproductive and could lead to a complete collapse of the monetary systemWhy many in financial markets, in media, and in the policy establishment are unable (and often unwilling) to fully appreciate the underlying problems with elastic money
This compelling new book looks at the breakdown of modern economic theory and the fallacy of mathematical models. It is an analysis of the current financial crisis and shows in very stark terms that the solutions presented by paper money-enthusiasts around the world are misguided and inherently flawed.
318 pages, Hardcover
First published August 31, 2011
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207 people want to read
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Displaying 1 - 7 of 7 reviews
May 11, 2016
When it was announced that Andrew Jackson would be taken off the twenty dollar bill, social media pundits began to remark on the irony of his being on a bill in the first place, given his hatred of paper money. Intrigued by the notion of someone being against paper money on principle, I decided to educate myself. First I read Jackson's farewell address where he outlines his vision of the future if the government should be allowed to print paper money. Then I went further back to the U.S. Constitution, where Section 10 of Article 1 states that "No State shall [...] make any Thing but gold and silver Coin a Tender in Payment of Debts." Then forward, to the "Nixon Shock" of 1971 where the president issued an executive order that suspended one's ability to exchange a dollar bill for its equivalent worth in gold. I was getting a feel for the general history of American currency, but I did not understand the underling economic theory or its implications. So I searched my library catalog for "paper money" and came across this book, published only a couple of years ago, and decided to read it in hopes of understanding Jackson's motivation.
With a title like "Paper Money Collapse", I was expecting the gist of the book to be, "The sky is falling! Invest in gold!" I was thus pleasantly surprised to find a highly academic and orderly account of this history of money. Although I skimmed or skipped over some of the more detailed sections (I was only interested in a general introduction, and this book goes much deeper) nonetheless I came away with a basic understanding of concepts like, e.g., fractional reserve banking. The economic theory adopted by the author is that of the Austrian School, specifically Ludwig von Mises, if that means anything to you.
Schlichter (the author) doesn't spend much time drawing conclusions from the history of money he presents, other than to say in a general way that a "fiat money" backed only by the assertion of the state that it ought to be used for trade is, ultimately, doomed to collapse. As a historian this conclusion did not surprise me, since it closely parallels what happened to the economy of the western Roman Empire at the time of its decline and fall (something the author, unfortunately in my view, does not point out). Schlichter does, however, spend a little time exploring the future of money, including cryptocurrency like Bitcoin.
Having only ever read one book on the subject of economics, I am the least qualified person to say whether or not this is a good book. But I found it accessible and persuasive (although admittedly the first answer one hears to a sticky problem is often initially persuasive). If you want to understand why and how money functions, from its basic origins as a replacement system for barter to modern banking, this would not be a bad place to start.
With a title like "Paper Money Collapse", I was expecting the gist of the book to be, "The sky is falling! Invest in gold!" I was thus pleasantly surprised to find a highly academic and orderly account of this history of money. Although I skimmed or skipped over some of the more detailed sections (I was only interested in a general introduction, and this book goes much deeper) nonetheless I came away with a basic understanding of concepts like, e.g., fractional reserve banking. The economic theory adopted by the author is that of the Austrian School, specifically Ludwig von Mises, if that means anything to you.
Schlichter (the author) doesn't spend much time drawing conclusions from the history of money he presents, other than to say in a general way that a "fiat money" backed only by the assertion of the state that it ought to be used for trade is, ultimately, doomed to collapse. As a historian this conclusion did not surprise me, since it closely parallels what happened to the economy of the western Roman Empire at the time of its decline and fall (something the author, unfortunately in my view, does not point out). Schlichter does, however, spend a little time exploring the future of money, including cryptocurrency like Bitcoin.
Having only ever read one book on the subject of economics, I am the least qualified person to say whether or not this is a good book. But I found it accessible and persuasive (although admittedly the first answer one hears to a sticky problem is often initially persuasive). If you want to understand why and how money functions, from its basic origins as a replacement system for barter to modern banking, this would not be a bad place to start.
May 15, 2019
I read this book as research for my upcoming novel The Internet President: None of the Above. I was researching the economics of a total collapse of the global economy, a backdrop of my book. So far my favorite book in this category is Deep Freeze about the collapse of Iceland.
Schlichter uses a valid educational approach of layering. He starts with a simple abstraction and adds more elements. He assumes he's proven his point, but that wasn’t always the case. He follows the standard trajectory of these sorts of books, starting with the history of paper money (from Chinese paper money and later European gold smiths) and the resulting disasters. I really enjoyed his coverage of that section. He rightly points out the consistently tragic history of paper money. I’m not sure if I agree about his reinterpretation of the Great Depression, but it was well presented.
I didn’t enjoy his more abstract economics sections as much. I would have preferred more concrete examples than talking about 150,000 units of ‘p’. How about widgets, at least?
He placed a lot of importance on the time preference of consumers (willingness to spend later instead of now, like marshmallow experiment in psychology, or savers). That seems to be the path to true prosperity. If all people were given 10% more prices would rise 10%. Only in the complete abstract. People aren't arbitrage machines. Most humans would still go off nominal valuations until the changes got large or frequent.
He does make good points like lowering interest rates tend to go to recipients who were marginally unprofitable under the previous rates. Otherwise, they would already have loans. That explains the malinvestments that happen in booms that has to be cleared out in busts. However, in that same section, when talking about money pumping by central banks vs. Holistic savings, he writes: “The lowering of interest rates on the loan market has fooled entrepreneurs into thinking that consumers have decided to consume less and save more.” So he’s telling me that business people are fooled by the actions of the Fed? The reality is quite the opposite. Businesses play along as long as the music lasts.
Like many of the books on this topic, he seems to be a libertarian goldbug. See my none of the above bookshelf for more books on this topic if you want a more in-depth comparison.
Schlichter uses a valid educational approach of layering. He starts with a simple abstraction and adds more elements. He assumes he's proven his point, but that wasn’t always the case. He follows the standard trajectory of these sorts of books, starting with the history of paper money (from Chinese paper money and later European gold smiths) and the resulting disasters. I really enjoyed his coverage of that section. He rightly points out the consistently tragic history of paper money. I’m not sure if I agree about his reinterpretation of the Great Depression, but it was well presented.
I didn’t enjoy his more abstract economics sections as much. I would have preferred more concrete examples than talking about 150,000 units of ‘p’. How about widgets, at least?
He placed a lot of importance on the time preference of consumers (willingness to spend later instead of now, like marshmallow experiment in psychology, or savers). That seems to be the path to true prosperity. If all people were given 10% more prices would rise 10%. Only in the complete abstract. People aren't arbitrage machines. Most humans would still go off nominal valuations until the changes got large or frequent.
He does make good points like lowering interest rates tend to go to recipients who were marginally unprofitable under the previous rates. Otherwise, they would already have loans. That explains the malinvestments that happen in booms that has to be cleared out in busts. However, in that same section, when talking about money pumping by central banks vs. Holistic savings, he writes: “The lowering of interest rates on the loan market has fooled entrepreneurs into thinking that consumers have decided to consume less and save more.” So he’s telling me that business people are fooled by the actions of the Fed? The reality is quite the opposite. Businesses play along as long as the music lasts.
Like many of the books on this topic, he seems to be a libertarian goldbug. See my none of the above bookshelf for more books on this topic if you want a more in-depth comparison.
May 15, 2017
There is less of a distinction now between the global world of finance & banking, and national governments. The blurred distinction is exacerbated by the pernicious influence of central banks. The sub-title of this book serves explicitly to explain the author's premise… that the banks have come to position themselves in society such that their very existence and their performance has now placed a vice-grip on the fiscal and monetary policy of nations and that the contemporary manipulation of national currencies is going to end in tears. Schlichter is contemptuous of the slippery, self-serving (for the 'money elite'... and the monied elite) machinations that are the subject of what this reviewer thinks is the colossal and most cynical euphemism--quantitative easing--coined by this same elite, for an economic practice that even this non-economist can see will only end in disaster for the 'great un-ready'… i.e. most of us. A difficult read, especially at bedtime… but riveting nonetheless.
August 16, 2025
Damaging
August 11, 2014
One of the easier reads that lays out the case for commodity-backed inelastic money. While the logic is sound, and I agree with its premise "in most cases", what the book fails to address is what happens if EVERYONE agrees to partake in an elastic money scheme. With the advent of globalization, and since the US dollar is considered the world's reserve currency, it is actually treated as if it was a safe commodity that everyone agrees has worth (just like gold or silver). It is what allows the US to keep running deficits, while other countries like Greece and Iceland are forced to live within their means. If that aspect was addressed, this would be a 5-star book.
April 4, 2013
“Paper money has never worked in the history of civilization. Government-backed money gives them control and is generally used to finance wars. The endgame is always massive inflation and loss of confidence in the paper.
Buy gold. Or Bitcoins, apparently.
Buy gold. Or Bitcoins, apparently.
April 13, 2012
It's hard not to agree with Schlichter - the end of elastic money, one way or another, is coming.
Displaying 1 - 7 of 7 reviews