Skip to comments.Inflation Inferno I
Posted on 04/29/2011 12:56:11 PM PDT by george76
Throughout history, governments have fought against the use of sound money.
Governments can only wring so much money from their citizens through taxation without inciting civil disobedience, so they make friends with bankers, who have a way of making money appear from nowhere. The money they create isn't sound, but almost no one cares. For politicians, it's sound enough; it provides them with claim tickets to market wealth, which is all they want. Sound money would not cooperate in this manner. It does not emerge from central-bank policy decisions.
Governments and bankers hate gold because its supply cannot be inflated on command. They work hard to establish and retain a monetary system under their control that can respond quickly to their demands for inflation or what today is called "accommodation." World War I provides a tragic case in point.
Making Green by Turning the Countryside Red
The ones who profited from the war had little in common with the men who fought it. The fighting was left mostly to young conscripts, many millions of whom were killed or wounded. The ones who profited knew their way around Washington.
If monetary sovereignty had resided with the market instead of with government, the war would not have been fought. Or if it had started, it would have ended much sooner. Sound money had to die before men could die in such large numbers.
(Excerpt) Read more at mises.org ...
Indeed it would seem a gold standard would not only erect a solid wall against national borrowing, but put a hard limit on the collective amount of wealth possible in a country. When the extant gold has been distributed, and all mines mined clean, that’s it. The aggregate wealth of the country can be no more than this. Whether war or peace time would not matter.
Not how it works.
Let's assume gold is the money, and its supply does not increase.
Over a 20 year period the amount of "stuff" in the society doubles.
Each unit of gold is now worth twice as much in stuff, which is significant deflation, but there is no limit on the amount of stuff, which is what "wealth" really is. Money is just a way of storing and transferring value.
Slight inflation is probably the most effective way to encourage genuine economic growth, while deflation tends to discourage it.
Is this what you intend to say, that deflating currency (worth more and more in stuff) has a stifling effect on economic growth (more stuff coming into existence)?
It would certainly stifle borrowing for any purpose, whether it’s opening a new business or starting a new military adventure.
Sure, though I may have stated it poorly.
You buy a house on a 20 year loan and the last payment costs you twice as much as the first.
Not many would borrow under such conditions and economic activity would shrink.
People would be discouraged from borrowing for consumption, directing more saved capital toward productive investment. Furthermore, savings would be advantaged (instead of eroded as now). The increased advantage of saving would engender more of it, providing increased capital for investment.
Deflation is a bogeyman to governments bent on creating ever towering piles of debt. It is an advantage to anyone who has a job or lives on savings.
What we have now in the US $ is a great big fraud, fostered by a cabal of foul crooks nesting in Washington, DC. - and the world is arousing.
It is a shameful thing for an American to collude with the imperious federal crooks who have developed this scheme. We citizens should all move to a sound and honest currency, reject the crooked "federal reserve note" (except for payment of federal taxes, LOL), and accept and use only Constitutional gold or silver based currency for our daily transactions.
I applaud the states that are instituting sound money. I hope all states will make it policy, and give us back an honest money. Oh, yeah, and criminalize the use of phony money (except for payment of federal taxes, of course).
An after thought - “let them eat script!”
The model that you suggest is inherent to mercantilism.
Just about every economist since Smith has agreed that the wealth of nations is not measured by the gold that it owns, but rather by its production of economic goods. They disagree about whether gold is useful as money, but agree that a nation’s wealth is certainly not measured by its money supply.
LOL “Change we can believe in.”
Speaking of change: The way things are going a nickel is going to be worth more than a dollar.
That was Wm. Jennings Bryan's "Cross of Gold". The more the farmers produced, the less they were paid and the less they were able to pay off their loans. The bankers did nothing and got richer and richer in terms of other people's sweat.
Exactly, and the reason was that the US was on a strict gold standard. The reason, as you no doubt know, for the demand for return to a bimetallic standard that would also allow silver to be “money.”
The US had been bimetallic from founding till 1873,when it went to the gold standard. Country underwent deflation from 1873 on, but it was already easing and reversing to inflation when Bryan gave his great speech. Gold strikes in South Africa, Oz and the Klondike and the discovery of the cyanide process for extracting gold from lower-concentration ores all meant the supply of gold (money) relative to stuff stopped contracting and began expanding.
While the present system of putting the rate of expansion of the money supply into the hands of bankers and governments has very obvious drawbacks, so does leaving it at the mercy of technology and mineral finds.
I’m still trying to work this out, and am unsure whether I would advocate a gold standard.
I imagine that you don’t need a million ounces of gold in a vault to be able to issue a million one-ounce gold certificates. But only if the certificate management policy is sound, and the economy is healthy enough that nearly everyone will find they can do better investing and transacting with their certificates.
When a government (or any entity) issues gold certificates, they are backed not only by the gold in the vault, but by whatever other assets the entity owns (the vault, the federal lands and properties, claims to future income or taxation, oil, platinum, and silver reserves, etc.)
Thus, wouldn’t gold serve as the definer of the value of each note, without necessarily serving as the definer of the number of notes issued?
In this scenario, a government that then hocked all its assets or issued what the market deemed was “too many notes” (hat tip: Amadeus) might face a run on the vault for gold redemption, because no one wants to be the last guy standing when the gold runs out?
Help me out here. I’m working on a book, and want to get a handle on this issue.
Printing paper with no real backing ( gold, silver, etc. ) is a large tempting target for crooks.
Since Woodrow Wilson got the Federal Reserve created, it has been the destruction of the US dollar.
Here is a recent example of money printing and the results.
Well in this case the windfall goes to the gold miners, at least as long as there is gold to be mined. More gold is always accepted, right?
I like that image!
It would be great to have some wise and powerful, but disinterested, Oz deflecting asteroids, tornadoes, floods and famine - maintaining the gram weight, time second, and meter length, and keeping an honest money. In lieu of such keeper, gold has worked pretty well, maintaining a constant "value" over the centuries - that is, a constant attraction to possess by useful agents.
The gold miners produce this something of value, like other participants in the economy, and freely exchange their product for other stuff. Anyone is free to compete in this or other ventures that produce desired stuff (in a free economy, that is).
Printing currency is an activity prohibited to but a few (cloaked private citizens), and those few apparently are given the right to issue this currency in infinite quantities without legal or moral restraint at any time - making their "product" ultimately worthless (giggle). Useful to them, but useless to the receiver. And the receiver is under legal obligation to accept.
Over the past 10 years, people who have, on receipt, converted the forced upon script into real money have done well - others, not so well. The only thing that might change the picture is if/when the dictator declares gold/silver to be illegal to hold and/or exchange (national emergency holdup of the provident - a significant probability to contend with).
The point is that soundness of money is an incurably relative thing, whether it’s a hunk of paper or a pure gold coin. The constitution does call for Uncle Sam to coin money, so Uncle Sam can spit out as many paper or metal IOUs as he pleases and do so as long as those whom Uncle Sam pays or hires accept the IOUs. It is the nature of the beast. It’s a noble thing to sock away as much gold as the value of outstanding money, but the modern world of derivatives has made it possible for far more virtual money to “sit” in bank accounts than has been issued by the government. The great counter to abuse of this capability is that unlike a natural family, We The People do have the right to choose a new Uncle. The give-a-damn factor has much room to grow. Is it not astonishing that in the highest turnout presidential election to date (the one that brought us Obama), a full 40% of Americans who could in principle have voted for some presidential candidate did not vote for any, not even a write-in? True this includes people who did not bother to register or attend a poll this time around, but that’s a LOT of room for the give-a-damn factor to grow. The figures were even more dismal for congressional ballots.
Hire the right people to be in charge of governmental affairs, and many abuses will simply vanish.