What is money? I have some thoughts on that. The history of currency begins with electrum, which is an alloy of gold and silver found in river beds. Early empires (beginning with Croesus of the Persians) began minting coins made from these metals, and once this practice became established gold and silver became the basis of wealth for most of the western world.
With the advent of the industrial revolution precious metals became less attractive as a basis for a currency. Why? Because it is not possible to mine gold out of the ground fast enough to keep up the the production of wealth by other means.
Quick review. There are three ways to create wealth. One is to mine it out of the ground. Another is to grow it, on a farm for example, or to harvest what is already grown, such as logging. The third (and by far the most common) is to build it. That is, to take that which has been mined and harvested and turn it into something else that has value.
Now, when industry allows you to create wealth at a high rate, then you need to be able to create "tokens" that people can use among themselves that will enable them to buy and sell the products of industry. If you base your economy on gold, then gold becomes increasingly expensive if the supply of gold cannot keep up with the increase in products available. Simply put, inflation is caused ONLY by an oversupply of "tokens" (dollars, pounds, francs, etc.) and deflation is caused ONLY by an undersupply of tokens. (Milton Friedman won the Nobel prize in 1980 for his proof of this, although the basic premise was in a book printed by the Fed back in the 1920's.) This is why in an industrial or post industrial economy the idea of a gold standard simply won't work nearly as well as a floating currency. What a floating currency really represents is a "token" that allows you to partake of the products of that nations economy. Why is a dollar worth a dollar? Because you and I believe that it is; that is to say, we believe that we can accept that dollar from someone for our efforts, and exchange it with someone else for some thing or service that we want.
If you really want to have your eyes opened, check out the following facts about the Federal Reserve bank. I believe that all of the following is true, but I am willing to change my mind if anyone out there can counter my impressions. Finding out facts about the Fed is a bit of a challenge.
Facts like that it is a PRIVATLY HELD CORPORATION. But you or I can't buy stock in it. Or that they are allowed to create money OUT OF THIN AIR as the economy expands and more "tokens" are needed. But best of all, when those new tokens are being created and put into the economy, how do they get there? Well, there is this concept called "debt money". What does that mean? Well, when the Fed creates money the way they get it into the economy is that they LEND it to people. So as you and I work harder to earn money, we create more wealth. The Fed needs to create more tokens so that there isn't deflation. Therefore, the Fed LOANS more money out (that eventually must be repaid, with interest.) Isn't that great? The more you learn about the Fed the more you begin to realize that perhaps it is not a good thing.
Once upon a time Congress was authorized to create money, whereupon they would SPEND it into the economy (not that congress has any problem spending money). But somehow the banksters convinced president Wilson that a Federal Reserve bank was a great idea.
What is really scary is when you see our nations congressmen and senators grovelling before Alan Greenspan and pleading with him to not raise interest rates again, and you get to watch Greenspan tell them all to go pound sand. He doesn't answer to them at all. In fact, he answers to nobody but himself, although the president supposedly can fire him and appoint another, equally intractable Fed chairman.
So, what will the Fed do next? Whatever the Fed wants to do. They are the 800 pound gorilla of finance. What they say goes. They are more powerful than your government. Right now they seem to be pursuing anti-inflationary measures even though all of the objective evidence points at a growing deflation crisis. Farm prices falling during a drought is a pretty sure sign of deflation. But don't worry, Alan Greenspan will protect us all from inflation.
America did have one great period of deflation. It was called the Great Depression.
Regards. |
