Fiat money is paper currency that you must accept as payment because the government says so. Known as "legal tender," it has no intrinsic value beyond the backing of a government fiat, or decree.
Gold-backed currency, on the other hand, allows you to redeem your bills for a fixed amount of gold.
Historically, fiat money has found detractors who maintain that it fosters economic instability and political unrest. Among them was the late Howard Buffett, a U.S. congressman from 1942 to 1952 and the father of Berkshire Hathaway Chairman Warren Buffett.
"So far as I can discover, paper money systems have always wound up with collapse and economic chaos," Howard Buffett said in a speech later printed in a 1948 issue of the Commercial and Financial Chronicle.
Buffett also maintained that the public's right to control government spending - and in turn, to control its leaders - had been wrested from it with the transition to a fiat money standard.
"When you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership in gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty," Buffett said.
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