George:
A few clarifications are in order.
There are only individual people trading things for things.
I view this as primary. A trade is just two individuals mutually causing a change in their state of affairs. Before a trade, Alice is in state X and Bob is in state Y. After the trade, Alice is in state X' and Bob is in state Y'. If in Alice's judgment X' > X, and in Bob's judgment Y' > Y, then that trade is what you call a "win-win." Most honest trades have this characteristic, otherwise neither Alice or Bob would be motivated to make the trade, but of course buyer's or seller's remorse is always possible.
For example, before a trade, Alice has three trays of flowers and her hair needs styling. Bob needs three trays of flowers and he is a hair stylist with an hour free next week. After the trade, Alice has a promise from Bob to style her hair next week, and Bob has three trays of flowers with an extra hour blocked out on his calendar.
The possibilities are endless. You can use fiat tokens, gold, notes redeemable for gold, physical assets of any kind, direct services, "Ithaca hours" (what Hettinga not so fondly calls "labor theory of value Marxist happy horseshit"), promises to deliver services in the future, whatever you like. It is none of my business how you or anybody else trades. If Alice wants to print up a fiat certificate of some kind, and give this to Bob in exchange for a hair style, then more power to her. If she defrauds or forces Bob into the trade, then I certainly sympathize with Bob but it's generally no business of mine unless I know Alice or Bob in some way.
Now here is another example, and perhaps some of you can see where I am going with this. Let's say Alice issues fiat tokens. On occasion, Bob wants to borrow some tokens from Alice. So Bob issues a bond and trades that to Alice in exchange for some new tokens. Bob promises to repay Alice in tokens with interest.
So far so good. I don't have a problem with it. LET IT HAPPEN. It does not threaten me, my loved ones, or my property in any way.
Yet this is exactly what the US fedgov does, with the Federal Reserve in the place of Alice, and the US Government in the place of Bob. So why should I have a problem with that, if I don't have a problem with private individuals or companies doing it? Or rather, what exactly would Alice or Bob have to do to cause me to object?
I can only think of two things.
1. Bob would have to approach me and demand that I pay him some Alice tokens, on pain of imprisonment, loss of property, injury, or death.
2. Bob would have to approach me and demand that I not trade in anything except Alice's tokens, on pain of imprisonment, loss of property, injury, or death.
In various ways and at various times, this is exactly what the US Government has done. They demand taxes paid in tokens, and they forbid many forms of trade. At various times they have forbidden the ownership of gold, the stating of legal contracts in terms of gold settlement, and even the production of metal coins "of original design" with the intent to use them as "current money:"
http://www4.law.cornell.edu/uscode/18/486.html
So as long as Bob didn't do (1) or (2) above, I would not have any objection to his and Alice's cozy little arrangement. However, because Bob (the US Gov't) does threaten (1) and (2) above, and not just to me but to everybody in the US and some outside the US, Bob is effectively forcing people to accept Alice's tokens in trade, to avoid other forms of trade, and to toil their lives away in pursuit of the tokens.
This is what people mean when they say that US Gov't bonds are backed by the sweat of taxpayers, and that Federal Reserve tokens represent the debt obligations of taxpayers and are not true assets in themselves.
Note that I do not think "fractional reserve lending" is the source of the problem. As I pointed out with a detailed example many months ago, and as Greenspan points out in his 1966 article, fractional reserve lending is entirely possible even within a monetary system based entirely on gold. But even here the Federal Reserve enters the stage, magnifying the otherwise morally neutral practice of fractional reserve lending into a major engine of monetary inflation.
-- Patrick http://fexl.com
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