Penny for your thoughts

Posted: February 17, 2011 in Academic, News/Current Events
Tags: , , ,

Greetings mediocrity-lovers,

I don’t usually like to get political, but a particular article posted to a blog on the NPR.org website piqued my intellectual curiosity. As a disclaimer, I have only taken introductory college courses in Economics, but I did well in them and have a good enough understanding of the principle of supply and demand. This article poses some points that are as interesting as they are perplexing. For instance, the authors of the post interviewed economist Jim Grant, who argues for the gold standard: the idea that all the paper money in the U.S. economy should be backed by something physical that has value. This, he says, is and always has been that shiniest of commodities: gold. He goes on to assert that the alternative system that the U.S. has adopted is based largely on the opinions of the chairman of the Federal Reserve, who seems to make decisions on whether to inject a boatload of cash into the market just to see what would happen.

I’ll tell you what would happen: inflation the likes of which have not been seen since before the start of the Great Depression. If the paper money that the Fed so freely decides to inundate the economy with has no backing in something real (gold), the economy would essentially be running on meaningless pieces of green paper. This is not to say, of course, that paper money does not itself have value we the people have ascribed to it. This value, however, is due in large part to money’s relative scarcity compared to any alternate commodity we could use for currency. Basically, the less of something there is, generally the more value it has to those who might find uses for it. Therefore, when the powers that be want to “help” stimulate the economy by putting more things of value out there (supply), those things become less desirable due to the relative ease of getting a hold of them (demand). For evidence of why this is a bad idea, we need look no further than the problems faced by the African nation of Zimbabwe.

Creating more money is not the answer to inflationary concerns. Nor should the decision about what gives U.S. money its value be arbitrary or flippantly made. If gold is no longer viable as a foundation for the value of this nation’s currency, then an alternative should be sought immediately. The consequences of leaving it to the financial system to determine money’s value relative to things like retail prices, interest rates, etc. are far too ominous. I sure don’t want to live in a country where 10 zeros on a bank note is barely enough to catch a bus and I’m pretty sure you don’t either. Please comment and let me know your thoughts.

-The Dead Peasant

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