So we're dealing a lot lately with talk about ending the fed, sound money and economic systems when it comes to talk of where we as a people should be headed towards in the future.
I'll admit this is a bit rough since I'm not an economist but I have been reading up an awful lot lately about how the money system, banks, etc. work in the USA.
Currently we exist with a fiat currency system, in which money is created out of debt, or rather a "promise" to pay that money back plus extra money."
The Fed says that it printing money at interest enables it to control the interest rates across the market by setting a sort of lowest common denominator of expected return. But what ends up happening though is it creates a reciprocal cycle where to pay that debt off we have to continuously inflate the value of the currency to pay off the interest.
Inflation however only affects people who sit on money, or have a rate of return lower than the rate of inflation. The fed's supposed mandate to "control inflation" if you think about it a bit more, is to control it so that people are required to "invest" that money in financial assets with a high rate of return if you expect your money to do anything but lose its value over time.
This means that, over time anyone unable to access these high return financial products (99% of us just about! ;p) end up losing money, while those at the top make the money back. What people don't understand about inflation is that it's a part of a shell game.
In essence the inflation destroys the value of dollars in the market, but through the use of financial vehicles those at the top are able to extract that value by getting high rates of returns.
When people think of inflation they think of Wiemar Germany where you had to pay a shopping cart full of dollars for a loaf of bread. But what in actuality happens is that the people who would shop at that supermarket are unable to afford bread while that same shopping cart full of dollars is given to a wealthy investor who now sits on that money or uses it to buy only some isolated luxury goods.
It presents the appearance of stability only because all the value is sucked out of the bottom and redistributed to the top, who don't spend it, and this keeps prices from going up, so that you think the same sort of ridiculousness isn't happening.
Sounds pretty evil huh? Like we maybe ought to do something about it? I'd agree completely. But the next step people take is so often one I disagree with.
The Gold Standard does not mean what you think it means. It changes how we value our money by tying it to a fixed commodity, gold, which we set the price on by force of law.
But why is this better? That's a little like saying that because federal education standards suck we should let Kansas teach creationism, no, you don't do that, you reform the standards!
We need a new paradigm and to understand why we first need to delve into what an economy even means.
In the old days it was all barter, we'd trade physical goods for other physical goods but that wasn't ideal because peoples needs often didn't match up. Then came Gold, gold was shiny and a lot of people liked it, so everyone agreed to use gold as a medium of exchange for goods.
This worked pretty well, and because of course of the weight and difficulty of transporting gold we started to move to a gold backed paper currency.
Then later, we fixed the price of gold by law, and eventually moved to a fiat system. But what we missed here was the real point of gold.
Gold was never inherently always worth X dollars or X goods. Gold was only ever worth what you could get for it. People judged this based on all kinds of things but in the end there was no agreement until we set a price limit on the worth of gold.
What does this tell us? Well, firstly that in trade value = utility = how much you can get. The utility of a dollar, of a hunk of gold, all of that. It's a calculation based on what you want to do with it? Taken a step further what does that mean?
Value is imaginary! The value for trade of any item is created entirely in the minds of people, and for those who disagree then tell me. Can you hand me a hunk of raw, unprocessed value? If it's not tangible then that means by definition it is intangible.
So once we realize this central flaw, we see the error of the gold standard. It attempts to regress currency to what people predominantly used for trade before mostly as a reactionary measure. But gold is not ideal because unless we keep its price fixed its value will fluctuate and with that so will the worth of our entire money supply.
Gold is not the answer, and no single precious metal is. What is the answer? Resource economies are.
We need to all have a long talk about the way we assign value to our dollars. A dollar should be a medium of exchange for a quantity of natural resources.
How do we determine that? Well we fix prices on raw unprocessed resources and then enable the market to determine the value of everything that is made from those resources.
Why raw resources? Because we can easily determine both their supply in the earth, and the demand for them. This allows us to, thanks to the information age, have price controls that are built first to encourage sustainable consumption of resources.
You can't and shouldn't control the prices of everything but by setting a baseline you encourage or discourage wastefulness and can make sustainable endeavors like solar power generation much more economically viable than fossil fuels, spurring growth in sectors of the economy that until now have barely see it.
Obviously the institution setting these prices should be a fully transparent government office with strong ethics checks to ensure that, like the Fed, it does not become a corrupt institute that protects insiders to the detriment of everyone else.
But when we do this, it enables us an entirely new way to set economic incentives for the market. Suddenly dollars represent not just imaginary promises of repayment through wealth extraction, they're a representation of real resource quantities. The money supply from there can be managed on that principle.
Such a drastic change would not be easy, but we are not facing easy challenges in today's economy. Obviously though, this is just one small part of a greater solution, but it is a part I feel we must take up.
If we go back to gold, we will be ignoring the warnings of history, and throwing the baby out with the bathwater. It will invite more problems in the future if we do not step forward.
