April 1, 2010


A persistent fallacy is that we can all get rich by printing money. The only kernel of truth in this notion is that you or I can get rich by somehow getting a bigger share of the money supply, either by earning it, stealing it, or counterfeiting it. But if you print new money and somehow distribute to everyone, you may redistribute some wealth, but you can’t increase the total wealth. Money isn’t wealth. Real wealth is the goods that we buy with money, and increasing the amount of money in circulation doesn’t increase the amount of goods produced.

The market matches the amount of money available to the amount of goods being produced; any amount of money will serve to facilitate trade. The problems arise when the money supply varies up or down.

The amount of goods being produced is limited by the means of production: Materials, labor, and capital goods. The amount of money in circulation, however, is controlled by the banks, under the control of the Fed, which is in turn controlled by our government.

Manipulation of the money supply, therefore, causes changing price levels, which amounts to changing the value of the money-unit, the dollar. This manipulation causes a redistribution of wealth, and is the root cause of the boom & bust business cycle.

This is the explanation of bubbles, booms, crashes, depressions, and recurring unemployment, the explanation which governments, and many economists, dare not consider. An understanding of this idea could put them out of business. 

We, the consumers and producers, have to live with the ever changing dollar because of long standing laws (Legal tender & fiat currency laws) which forbid us to use any other kind of money. This is anything but a free market. It is government interference in every economic transaction. Most importantly, it is the stealthy theft of the value of every dollar you and I own.

The expanding money supply serves two purposes: it serves as an invisible tax (the stealth tax called inflation) on all of us, to fund government spending, and it serves the political purpose of providing a periodic business boom to lull the voters into re-electing the incumbent politicians.

We pay doubly for the boom: first when the shrinking dollar reduces our real wages and our real wealth, and second, when the boom inevitably collapses into a bust, causing businesses to fail with resultant unemployment.

The increasing money supply transfers real wealth; it is legalized theft. You and I are probably losers in this transfer; only certain favored groups are the winners.

Governments get access to an unlimited supply of money to spend on projects that the voters and taxpayers would never agree to pay for (like war).

Banks create new money (they call it credit) which they lend at interest. That interest is what pays their bills and their employees’ wages and bonuses. Since pulling new money out of a hat (Presto!) costs the banks nothing, they lend it out at a low interest rate: that is, lower than the interest rate would be in a free market. This attracts borrowers who would not be willing to borrow at a free-market interest rate.

At a low interest rate, people who borrow, say for a new home, can afford to buy a bigger, better house. Heaven help them if the interest rate rises, and they can no longer afford the mortgage payments.

Businesses that borrow to expand or start new businesses are also gambling on interest rates staying low. There is also another problem waiting to waylay them down the road; the rising operating costs caused by inflation can wipe them out.

New and expanding businesses need to expand by taking resources out of the limited supply of materials and labor already on the market, already employed by other businesses. In time, the increased demand for the limited supply of labor and materials will increase all the costs of production: materials, energy and wages. This may well cause the new projects and businesses to fail. If enough businesses fail, the economy will go into depression.

So how much money do we need? Select any amount, and then freeze that amount and never again change it. Or use only coin money which cannot be so easily counterfeited.

Gold, in particular, is stable in value because the metal gold is difficult (and therefore expensive) to find and mine and there is very little chance of finding new goldfields or methods to dramatically increase the supply. This is why people, when free to choose, have chosen gold.

Free market money would deprive bankers of the profits they enjoy in boom times, but it would protect them from the ruin which they face when the bubble breaks.

Free market money would also deprive government of the stealth tax with which they fund wars, moon landings, and bank bailouts which taxpayers wouldn’t knowingly pay for. I consider this a very good thing.


2 Responses to “HOW MUCH MONEY DO WE NEED?”

  1. David Jahntz Says:

    Imagine what the value of money today would be if the money supply had remained the same since World War II. I would think the dollar would appear to be much less than today, BUT it could purchase so much more than it does now. One of the concepts I explain at historical events I participate in is that the first U.S. currency included a mill — 1/10th of a penny. In the early 19th century, you could buy a meal for yourself with less than a penny. The value of a penny shrank as it competed with more and more pennies (and dollars) as the government kept trying to stay ahead of war debt from almost every generation throughout our history. Now we don’t even have penny candy that I remember in the 1950s. Imagine how many more dollars will be needed to be printed to pay our national debt interest payments to China, Japan and other foreigners in the future!

    • glennodell Says:

      Right, David. Actually, the real inflation of the money supply started with the creation of the Fed, in 1913. In the late 1930s, they tried to bring back the mil. I can remember gumballs, 5 for a penny, in the 1930s.

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