New School Politics

Paper Cross

Ryan | 28 05 2007

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Unfortunately the United States has never had a purely gold standard and as such William Jennings Bryan was never crucified. Today, Mr. Bryan’s vision has been made manifest as we have an inflationary currency while all but one of our 18 presidential candidates support the monetary status quo. Congressman Ron Paul is that lonely Anti-Bryan and has staunchly spoken out against the Federal Reserve for years.

What Mr. Paul recognizes is that complete economic freedom and spearation of government and economy is an absolute requirement for a system of individual rights. Such a system, so too, must entail a commodity based currency and zero government involvement in money. Government is an inherently inflationary entity. When it has omnipotent reign over printing paper money until the cows come home. Whenever it acts to intervene in this area it can only inflate and distort the economy’s median for exchange because the government is not a productived entity–it does not create wealth, it only consumes, and it works by force.

Hence the Federal Reserve must be abolished and the free market solution instated–a gold standard.

The reason there is such little illumination on this subject undoubtedly stems from the publics general ignorance of monetary policy. Fiat money has legitimacy in our lives not because it is an objective value–it is not valuable, it is paper–but because government has the capacity to initiate force it can administer a paper currency, forcing people to accept it. Government has complete control over it; it can print more of it at will. This is called inflation. Inflation is a means of taxationo–a hidden confiscation of wealth. Suprising? Why else would government do it? Well, essentially, the value of currency is equal to assets (savings) divided py claims on wealth (money). More money derives its value by diluting the value of currency; by confiscating the value of currency already issued. When the government prints more money and devalues the worth of private savings, government is taxing income earners in a hidden and unchecked way.

To eliminate this immolation of individual rights and the dilution of the economy’s capacity for production fiat money must be eliminated and hard money reinstated if there is truly to be free market capitalism.

Economics 101 teaches us a few things:

-Productive activity is for the purpose of producing wealth–material goods that appeas human needs and desires.

-Money is an agent for exchanging value. In its monetary capacity, it is not wealth–not an end in itself. It represents a designated amount of wealth. Roughly: (value of money)=(total worth of assets)/(amount of money).

A finite amount of money does not hinder the ability to produce wealth. Likewise more money does not increase the capacity to produce. Simply, money should be a commodity because it actually is woth something–it is a good; it holds an objective value–unlike paper money which has no real utility and only is used by virtue of the fact that the government forces you to.

As the population grows and production grows it does not change anything. Rmember, a funny little thing called supply and demand? When aggregate demand increases, the worth of a single unit of gold increases. So while there is less gold in total, and individual unit increases in worth proportionately to compensate. Remember: the value of money is proportional to the total assets in an economy per untis of money.

But why would a government ever want to devalue its own currency? First of all, the devaluation is not the point of the inflation. (Individual units may be devalued but it is not the issue because aggregate value will remain the same at any given point). Second–why?–because it is a way for the government to steal money, and when no one is looking! It warrents repetition, more money, printed by the government, derives its value by diluting the value of all other money, by confiscating the value of other currency. Once again, it’s math: Value per unit=total value/number of units. The new money was not earned, it does not represent a claim on wealth, but it attains value by shaving value off of the other money that was actually earned. Inflation taxes real savings to attain its value. Furthermore taxation through inflation is that much more dangerous for multiple reasons. One among these reasons is that in the US the ability to tax income is checkec (it mush go through congress and be approved by the president). Money supply is left completely up to the Federal Reserve, almost completely unchecked. There is no limit to taxation through inflation in the United States.

The other reason is exemplified best by the great depression, which is often inaccurately cited as an instance where the gold standard failed, was a direct result of fiat money and 8 straight years of raw inflation from the Federal Reserve. To best summarize, I will quote the foremost athority on the cause of the great depression, Murray Rothbard; but first our story starts in 1921, where after a brief recession, the Fed spurred a great inflationary boom. They inflated the money supply from $45 billion in ‘21 to $73 in ‘29–over a 60% increase. Because the inflation (expansion of credit) investors “were misled by bank credit inflation to invest too much in higher-order capital goods [longer lines of production which require more savings to turn a profit], which could only be prosperously sustained through lower time preferances and greater savings and investment; as soon as the inflation permeates to the mass of the people the old consumption-investment proportion is reestablished, and business investments in the higher orders are seen to have been wasteful. Businessmen were led to this error by credit expansion and its tampering with the free market rate of interest.” This period of liquidation-readjustment was the depression.

Ultimately for one to advocate individual liberty and the free market, one could not advocate fiat money because it represents a government control on the economy, which forces people to use a uselss good as the median of exchange and allows the government to devalue earnings at will. That is not freedom; it is the subjugation of productive beings to the weilders of guns in society.