Haha, I saw that, although one thing to consider is that wealth grows as money grows, so if we did *not* print out any more money at all, there'd be deflation, since year to year there'd be more stuff, more people, more wealth, but the same amount of dollars. So it's a delicate balance: the Fed has to print out money in order to avoid deflation, but too much and they'll get inflation. Lately they've been doing too much, since Bernanke is a bit less careful than Greenspan (a former Objectivist) was.
Would deflation be that bad? There isn't more gold or silver created whenever a person is born.
Also, if that's counterfeiting, how does one legitimately create currency?
This is going to be long, but necessarily so, I think. Read on only if you're interested.
The first point to make is that governments didn't invent money. Maybe that's obvious to you, but it's not to some people.
Properly understood, money is a commodity. The use of a particular commodity as a medium of exchange, i.e. money, arises spontaneously within the marketplace. During the process of barter, it would have been discovered that some commodities were more "saleable" than others. That is, it was easier to make a trade (i.e. to find a willing buyer) if you had something that was generally useful, like a sack of rice, than if all you had to offer was something like, say, an antique grandfather clock (bad examples but you get the idea). So, over time, people would have begun purchasing these more saleable items solely for their usefulness at facilitating trade, and, as the most ideal money-commodities became known, this would have sped the process by which these commodities came into general acceptance as money.
Gold and silver have sprung up as money in disparate parts of the world throughout history because they are ideal for the purpose. Unlike diamonds, they can be cut, melted and reformed without losing value. This means they can be made into coins for easy measurement and accounting. Unlike food, they don't spoil. The supply of gold and silver is generally stable (it increases slowly over time as new supplies are mined, but may also decrease as these metals are used for other purposes like jewelry and decoration), which means it is not subject to disruptive fluctuations.
Remember, money is a commodity, just like apples. The one key difference is that, while society benefits from an increase in the abundance of other commodities, there is no such benefit confered by an increase in the money stock. This is because the money-commodity is valued as money
only for its usefulness as a medium of exchange. An increase in the money supply, as through mining, will simply dilute the value of each monetary unit. It won't make the society more wealthy.
Once you understand money in this way, you'll see that deflation is not really a problem. The value of money will shift relative to other commodities depending on supply and demand. Sometimes, people will want to hold larger cash balances -- in other words, the demand for money will increase -- and the price of money, i.e. its purchasing power in terms of other goods and services, will increase. At other times, people will prefer to hold smaller cash balances, and the value of the money-commodity, relative to other goods and services, will decrease.
The point is, more money isn't necessary as the economy grows, because the price (i.e. the purchasing power) of each existing monetary unit will change like any other price to reflect supply and demand. If your apples sell this year for less gold than last year (i.e. price deflation), the gold you acquired in the trade will likewise allow you to purchase more goods than it would have before. This is not a problem. The society is getting wealthier.
If, for some reason, in the future, gold or silver (or whatever served as money) outlived its usefulness as a medium of exchange, the market could gradually shift towards something else better suited to the purpose, as it does with other goods.
Governments didn't invent money, but they did take it over after the fact. As you probably know, today's U.S. dollar no longer has any link to gold, and the paper/digital money supply is manipulated by central bankers for political purposes and for the benefit of the power elite. But that's a whole other chapter to this book! Need sleep.
Player
Poll
