bluez_aspic
11-07-2008, 12:05 AM
Someone recommended this to me a while ago:
What Has Government Done to Our Money?
http://mises.org/money.asp
It's a terrific full-fledged treatise on monetary theory written for the layman. The title is not suggestive of its broad scope - it first gives a sweeping overview of monetary history: how the concept of 'money' developed in an economy, and how royal sovereigns and governments have debased its value for their own purposes. It then discusses the deep flaws of the current monetary and banking system (whose main beneficiaries are government and banks at the expense of the rest); and concludes with a brief overview of past monetary systems and what is likely to happen in the near future.
At 50+ pages, this is timeless and powerful stuff.
The fundamental problem is that governments and central banks have the ability to print money at will, and to print as much as they please. This is usually termed 'inflation of the money supply', and leads to the usual increase in prices which we are familiar with, while diminishing the purchasing power of the local currency.
Why then do governments continue to create money - huge amounts of it - out of thin air?
Because it is government, along with banks and those closely connected to it, who are the major beneficiaries. They are the first ones who receive the fresh batch of money, and thus able to spend it quickly before prices are increased. However, when the new money is filtered through the economic system and finally transferred into our hands, prices have already started to rise across the board. At the same time, the value of our savings are eroded.
However, wages never keep up with inflation - especially if you're on a fixed salary (civil servants, teachers etc). They are the last thing to increase (and usually occur only on an annual basis), and by then the government would have had further increased the money supply who-knows-how-many-times. When prices and living costs go up and wages remain stagnant, our overall purchasing power decreases.
So inflation is essentially an invisible tax. In fact, inflation of the money supply is the legalized counterfeiting of money sanctioned by the state.
Up till 1971, the world had always been on some form of a gold/silver standard - and this provided a check (which was eroded overtime) on the inflation of the money supply. But Nixon removed that final check, and replaced it with the current monetary system of fiat (paper) currencies 'floating' relative to one another. There is really nothing to stop them from printing out as much money as they like.
Case in point: in the late 19th century, an ounce of gold was worth US$20. In the mid 20th century, the dollar had already diminished to US$35 per ounce of gold. Today it is almost at US$950.
If you work hard and save, you die a poor man. This is perhaps part of the reason why not too long ago, it sufficed one working parent to support an entire family. These days families are much smaller in size, yet it has become a necessity for both parents to work, and even then people still seem to be forever swimming in debt.
Rothbard goes on to argue that this practice is the root of economic instability. In short, artificially low interest rates (which is the same thing as inflation of the money supply) can lead to an illusionary economic 'boom' which is ultimately unsustainable - but at the initial stages this generates apparent 'profits' and contributes to a general sense of 'prosperity'. However, this affects the pattern of production from what it otherwise would have been without intervention in the monetary order. When market ('natural') forces finally begin to pull things back to what it should have been, you get recessions and depressions - workers are retrenched, and uneconomic investments are liquidated. This 'market correction' (i.e. recession) is a painful process, but like a forest fire it ensures that the economy can grow once again on a firm, sustainable basis. Governments however are tempted to 'do something', but their intervention can cause further aggravation and prolong the process.
In the final chapter, Rothbard surveys previous monetary systems and concludes that fiat currencies has always collapsed, and will continue to do so. He harks back to a system (the classical gold standard; free market in money) which is not only fairer and superior, but in fact once existed. Regardless of whether you agree with Rothbard's views, he provides a totally different paradigm of looking at conventional monetary policy, and that it is possible for things to be different as they once were.
For that reason alone, this 50+ pages is worth far more than their weight in gold.
What Has Government Done to Our Money?
http://mises.org/money.asp
It's a terrific full-fledged treatise on monetary theory written for the layman. The title is not suggestive of its broad scope - it first gives a sweeping overview of monetary history: how the concept of 'money' developed in an economy, and how royal sovereigns and governments have debased its value for their own purposes. It then discusses the deep flaws of the current monetary and banking system (whose main beneficiaries are government and banks at the expense of the rest); and concludes with a brief overview of past monetary systems and what is likely to happen in the near future.
At 50+ pages, this is timeless and powerful stuff.
The fundamental problem is that governments and central banks have the ability to print money at will, and to print as much as they please. This is usually termed 'inflation of the money supply', and leads to the usual increase in prices which we are familiar with, while diminishing the purchasing power of the local currency.
Why then do governments continue to create money - huge amounts of it - out of thin air?
Because it is government, along with banks and those closely connected to it, who are the major beneficiaries. They are the first ones who receive the fresh batch of money, and thus able to spend it quickly before prices are increased. However, when the new money is filtered through the economic system and finally transferred into our hands, prices have already started to rise across the board. At the same time, the value of our savings are eroded.
However, wages never keep up with inflation - especially if you're on a fixed salary (civil servants, teachers etc). They are the last thing to increase (and usually occur only on an annual basis), and by then the government would have had further increased the money supply who-knows-how-many-times. When prices and living costs go up and wages remain stagnant, our overall purchasing power decreases.
So inflation is essentially an invisible tax. In fact, inflation of the money supply is the legalized counterfeiting of money sanctioned by the state.
Up till 1971, the world had always been on some form of a gold/silver standard - and this provided a check (which was eroded overtime) on the inflation of the money supply. But Nixon removed that final check, and replaced it with the current monetary system of fiat (paper) currencies 'floating' relative to one another. There is really nothing to stop them from printing out as much money as they like.
Case in point: in the late 19th century, an ounce of gold was worth US$20. In the mid 20th century, the dollar had already diminished to US$35 per ounce of gold. Today it is almost at US$950.
If you work hard and save, you die a poor man. This is perhaps part of the reason why not too long ago, it sufficed one working parent to support an entire family. These days families are much smaller in size, yet it has become a necessity for both parents to work, and even then people still seem to be forever swimming in debt.
Rothbard goes on to argue that this practice is the root of economic instability. In short, artificially low interest rates (which is the same thing as inflation of the money supply) can lead to an illusionary economic 'boom' which is ultimately unsustainable - but at the initial stages this generates apparent 'profits' and contributes to a general sense of 'prosperity'. However, this affects the pattern of production from what it otherwise would have been without intervention in the monetary order. When market ('natural') forces finally begin to pull things back to what it should have been, you get recessions and depressions - workers are retrenched, and uneconomic investments are liquidated. This 'market correction' (i.e. recession) is a painful process, but like a forest fire it ensures that the economy can grow once again on a firm, sustainable basis. Governments however are tempted to 'do something', but their intervention can cause further aggravation and prolong the process.
In the final chapter, Rothbard surveys previous monetary systems and concludes that fiat currencies has always collapsed, and will continue to do so. He harks back to a system (the classical gold standard; free market in money) which is not only fairer and superior, but in fact once existed. Regardless of whether you agree with Rothbard's views, he provides a totally different paradigm of looking at conventional monetary policy, and that it is possible for things to be different as they once were.
For that reason alone, this 50+ pages is worth far more than their weight in gold.