Money. People spend it. They earn it. They stockpile it. They love it. People use money as a yardstick of value. But most people don’t know what money is. In a democratic society, this is a problem.
Do you know what money truly is? Why do people accept these little green pieces of paper with pictures of dead politicians in return for valuable goods and services? Is it because The People have faith in those little pieces of paper? Could a crisis in confidence cause people to stop accepting money next week?
Many of my libertarian friends say that Federal Reserve Notes are worthless. Yet when I volunteer to take these useless pieces of people off their hands, they are strangely reluctant. Maybe they just admire the Founding Fathers…
Many a statist are just as clueless about the nature of money. They believe money has value because the government simply says it does or some such similar theory. Since they like the idea of the government having such magical powers, they are quieter about the matter. But the decisions they have made based on such naïve economics have proven disasterous time and again.
In articles to come, I will spell out what modern money truly is, and why it has value even though it is “fiat” currency, and the gold in Fort Knox is nowhere near enough to back the outstanding money supply, even after inflation has devalued the notes by an order of magnitude.
I will show why inflation does not tightly track the growth in the money supply – information which investors in the audience may find useful.
I will also show why our current method of backing our currency leads to economic instability and lay out alternatives – including viable alternatives for poor countries which cannot afford a stockpile of gold or foreign “hard” currency reserves to back up their local currency. If you are interested in helping out the truly poor, you might find this information useful.
Then we shall explore a possible return to a gold standard in the United States: the good, the bad, and the ugly. Do we need inflation to allow economic growth? Or better yet: under what conditions is it safe to eliminate inflation and go back to a gold standard? Get rid of inflation arbitrarily and you can turn the Great Recession into a Second Great Depression.
Get rid of inflation correctly, however, and you weaken the power of Wall St. and return power to Main St. Bank CDs could become viable investment vehicles again. Small businesses could focus on their products and their customers instead of the vagaries of the financial markets. Workers could rationally plan for retirement without becoming experts in high finance or paying expensive financial consultants. And yes, even Big Business benefits. We could once again be a nation of creators instead of a nation of financial alchemists.