NEW YORK (TheStreet) -- Argentina defaults, and the cycle repeats once again, exactly as before. After defaulting, the government pegs to the dollar, as tracked in the PowerShares DB U.S. Dollar Index Bullish (UUP) - Get Report. Then it spends too much money buying votes, prints money to compensate (currency devaluation, no more peg), inflation results, the printing presses are shut on the verge of hyperinflation, government can't pay its debts, it defaults, and everyone loses their savings and starts over, Fight Club style. Then someone else is elected and promises to peg to the dollar, and everything happens again.
According to PriceStats, which tracks hundreds of millions of prices online, monthly price inflation hit a high of 6.321% on March 2, 2014. That put annual price inflation at 76% at its peak. Inflation enables a government to pay its debts, but hyperinflation destroys everything.
If Argentina didn't stop printing then, the Argentine Peso would have become totally worthless, so it had no choice. And it defaulted.
In order for an economy to function on the most basic level, prices have to mean something. They have to make sense -- calculate values of scarce resources accurately in order to allocate them in the most efficient way. In order for them to make sense, they have to relate to something that represents the actual market. So Argentina will have to peg to the dollar once again. More precisely, it will have to peg to something with a recognized value, or its economy will not function. It can't just hand out new pesos and say "Whatever." Nobody would know what to do with them.
Austrian School economist Ludwig Von Mises called this the Monetary Regression Theorem. In order for a money to work, there has to be an existing array of prices recognized for that money in the market already. Otherwise, nothing would make any sense. You can't just have a Master of Coin from the government, go ahead and declare what prices are for everything and start handing out tickets. If that were to work at all, his price declaration would have to reflect an array already in existence. It can't be conjured out of sheer government will.
So how was money originally established then? It seems like an infinite regress. The answer is, as a commodity. Commodities were traded for goods in a barter system, out of which one or two commodities eventually came to be traded more than any other, organically. There were the money commodities, which usually ended up being gold or silver. Money evolved from there, without governments, without any central planning of any kind.
Nowadays, the dollar has taken the place of gold or silver, because ironically, the U.S. dollar is the gold standard of fiat money.
This raises a scary question. What happens if the U.S. defaults? The national debt keeps rising, and the possibility of paying it back keeps falling by the year. How will it re-establish a monetary order? The dollar can't peg to the dollar. The only answer, in the end, is a commodity with a recognized value in terms of other commodities. It will probably be gold or silver, the two commodities that have always ended up as money throughout human history.
It won't be able to peg to a different currency, because the dollar as the world's reserve currency serves as a fiat anchor to the value of other fiat currencies, give or take a little floating in the exchange rates.
So for now, Argentina can peg to the dollar, and it will. And it will likely spend too much money once again, print more money and default again. And it will continue doing this, until the U.S.'s own printing schemes come back to bite it. Then the entire global monetary system will have to be commodity based, as it was prior to 1971.
We're coming up on the 43rd anniversary of universal fiat money in two weeks. On Aug. 15, 1971, Nixon ended the convertibility of the dollar into a fixed amount of gold. In my opinion, that is equivalent to defaulting on the U.S.'s gold debt.
How much longer will the fiat system last until there is a default on the paper dollar debt as well? That is the ultimate question.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.