> Historically, a number of cultures have attempted periods of paper currency, issued by the government and backed by nothing. Often it was the result of currency that was once backed (a gold standard or silver standard), but the government created too much of the paper due to war or other issues, and had to default on the metal backing by eliminating its ability to be converted back into the metal upon request.

In the late 1600s and early 1700s, the American colonial assemblies directly issued paper money to provide liquidity for farmers, so they did not have to barter with commodity crops such as tobacco. There was no prior government currency backed by gold, farmers paid tax in farm products.

> In that sense, currency devaluation becomes a form of tax and/or wealth confiscation. The public holds their savings in the paper currency, and then the rug is pulled out from under them.

There was no substantial devaluation or inflation of paper money in the colonies which emitted money using the public land-loan office system with no gold or commodity backing. In Pennsylvania the currency held most of its value for the 45 years the colony was permitted to issue it. It only declined 20% over its entire life time relative to the metal backed British Pound despite new currency continually being placed into circulation for immigrant farmers at low interest rates of 3-4%.

> Fiat currency is interesting, because unlike the history of commodity money, it’s a step down in terms of scarcity. Gold beat out all of the other commodity monies over centuries of globalization and technological development, and then gold itself was defeated by… pieces of paper?

In Poor Richard's Almanic, Benjamin Franklin explains the labor theory of value, and how if farmers spend their time digging holes to search for Spanish gold they will be poorer than if they had spent their time plowing their fields.

> Fiat money, if you like, is backed by men with guns.

When money is issued as credit, the value of the money is backed by the personal property and assets which the borrower stands to lose if they do not collect back money in the same unit of account after spending and investing it so that they can avoid a default or foreclosure.

> The answer is that it doesn’t have to, but it wants to. By issuing its own currency, it profits from seigniorage, which is the difference between the face value of the money and the cost to produce and distribute it.

In the land-loan office system, the government profits from interest. When it places new money in circulation by issuing credit to create liquidity it is acting as a public bank. The interest on loans which place new currency into circulation acted as a tax spent on infrastructure and public services, which was paid to the state rather than a private financial sector, which even Adam Smith admitted in the Wealth of Nations was sufficient to for most of the expenses of the state.

It's always surprising when American authors omit a discussion of American colonial money from a discussion of the history of money, given that American colonies were the first western governments to issue paper money and conduct extensive experiments on the subjects.