My latest piece for the Commentator looks at the way we have relied either on gold or politicians to give us Honest Money down the ages (almost invariably with disastrous results in the latter case), and wonders whether the time is coming to create a new form of money based instead on crowd-sourced trust:

Honest money rests on trust. For most of human history people have trusted in the value of things (gold, silver, rare shells) rather than the reliability of other people. For good reason. There is scarcely any example of a fiat currency (i.e. one backed only by the authority of government) that has not eventually been debauched.

The British pound stood proud for a long time as a store of value. When I was growing up in the 1960s penny coins dating back a 100 years were still found in one’s change at the sweet shop. Then came bigger and bigger government, and the temptation to trash the currency became overwhelming.

The US dollar likewise was built upon robust principles. The Founding Fathers were conscious of the tendency of European kings and queens to wreck the value of money through greed or stupidity. They made it a capital offence to debase the currency. As late as 1968 US silver coins still contained some silver. President Lyndon Johnson finally ended that noble tradition, and alas was not executed for doing so.

The value of any fiat currency rest upon popular trust in the present (national assets, infrastructure) and in the future (education, innovation, demographic profile). No one wants to be paid in North Korean won and chon: Those scraps of paper represent nothing serious, honourable or reliable. Above all a currency’s value stands or falls on the trustworthiness and reputation of the people who take decisions about the value of that currency…

… We still look at money through the prism of logic understandable to people 2000 years ago. In those days there was no choice but to focus trust on things (gold) or leaders (kings or emperors).

Now, thanks to new technology we have a completely different sort of choice that has never been possible before. Instead of focusing trust in money very tightly, we can crowd-source trust in money very widely. All sorts of different Internet-based ways of inventing and using new forms of money are emerging.

Bitcoin is the most notable example, but there are many others. Once Google or Apple or Amazon find a way to use their huge market-place advantages to create new forms of trading, reasons to trust any government’s role in money could be eroded from below and decline precipitously.

These new formations all have their problems. Who ‘ultimately’ is in charge and takes decisions? How to stop fraud? Once money is completely digitalised, what does it signify, and can it be trusted?

Good questions all. But they apply just as much to our current regimes of fiat currencies, where in both the USA and the Eurozone we are seeing reckless attempts to prop up the threats to the currency from rampant state spending by simply inventing more of it.

The direct and indirect costs of these policies are beyond calculation, but surely system-threatening in the long run (and if Spain is anything to go by maybe in the not-so-long run).

Sooner or later a bold country in Europe (or perhaps in Africa) is going to take the plunge and opt for a crowd-sourced currency based on democratic trust between millions of people that no government or central authority can debauch. If that new money – unlike any other form of money ever invented – is as honest as Henry I’s tally sticks it will prosper. And start to change the world.

Via a circuitous but happy route this article has put me in touch with Dr Tim Evans at the Cobden Centre, an increasingly influential  think tank arguing that phoney paper money is dragging our civilisation towards disaster.

Tim and I had a good discussion this afternoon and he pointed me to this fine website where Detlev Schlichter looks at some of these highly specialised financial issues and gives clear, ruthless analysis on what is going wrong. Check it out if you want to learn something – his book on Paper Money Collapse is available here: 

Basically, it seems to me as debts pile upon debts that far too many Western governments are like those cartoon characters who walk purposefully over the edge of a ciff and keep walking on air before they realise that they are not attached to anything solid. Then they plummet to disaster. is

But what do I know? I’m just one of those old-fashioned people who believes in gravity.