Q. Should the Constitution limit the amount of money the Congress can coin?
I toyed with this for awhile. Obviously, the more people there are, the more money is needed. Should the money supply be tied to the population count? Or should it be tied to the amount of gold in Fort Knox? Or should it be determined by the amount of land or other physical assets controlled by the United States?
After noodling these questions, I came to the conclusion that the supply of money cannot be limited at all.
Think about it. When one player in Monopoly has all the money, the game is over. If our money supply were a zero sum game, what would happen when Bill Gates has all the money?
If money were a zero sum game, then every dollar that rich people have would be a dollar less for poor people, and vice versa.
Assets can be created. Wealth can be created. We call it prosperity. How would it benefit society to legislate a maximum legal net worth, or a maximum personal income?
The American Dream is just the opposite. We tell our children that they can be whatever they want to be. The possibility, however remote, of becoming a movie star, or an NBA standout, or a corporate mogul motivates every new generation.
It is de rigueur for progressives to bemoan the gap between rich and poor.
I submit that the gap is irrelevant.
If the general public has adequate transportation, what does it matter that Warren Buffet has 20 or 30 automobiles and a private jet?
And if Buffet were to be stripped of all the perks of prosperity, and all the wealth of all the millionaires in America confiscated and distributed to the less fortunate, does anyone doubt that Buffet and Gates, and the educated and industrious middle class would have their money back within ten years?
Capitalism is not a legislated system, it is a natural phenomenon of human conduct.
People just naturally bargain with each other.Where there is no functioning monetary system, the folks will find other media of exchange. Cigarettes in World War II. Whatever works.
Money is the fuel of human activity. A dollar is a unit of people power. You can offer mountains of greenbacks or gold coins to a horse or a cow. They won’t budge. Only human beings are motivated by money.
More and more today, money is neither gold nor silver, neither greenbacks not bank notes.
Twenty-first century money exists mostly in computers and consists of digitized information stored in binary code.
Computers talk to each other and money moves instantaneously.
Our concepts of space, time and amount have exploded; are exploding every day. As bytes became kilobytes and megabytes and gigabytes, our notion of dollars went from millions to billions to trillions.
But have our sophisticated financial machinations really accomplished much?
Politicians and Wall Street minions can argue and posture, the Fed can raise and lower the interest rate, the currency gamblers can trade USD’s for yen or pounds and the Wall Street Journal can pontificate about M1, M2 and M3, but the true value of a dollar is and will always be determined in the underground economy.
What matters in the last analysis is whether the untaxed and unrecorded day’s wages paid in cash to an illegal immigrant will buy him enough to eat, a place to sleep and a modicum of human comfort and convenience, so that he will come back and work again tomorrow.
That is the de facto minimum wage and the de facto value of a dollar.
When will the Washington politicos learn to deal with it?
Judge, I followed your first blog on money, but not this one. Are you saying that the dollar's value is not really determined by The Fed, or that The Fed is irrelevant because of the underground economy?
ReplyDeleteAlso, even though people will find a medium of exchange if money is hard to get, any medium other than money is inefficient. For example, using cigarettes in WWII were easy, because there was so little for which to trade. In a more complex system, with more complex needs, the double coincidence of wants limits effective exchange without money.
Puppa, You're analogy to Monopoly as an example of a capped economy is a false one. As my Dad will pound into your head if you ever play with him, the bank has no money limit, as stated in the rules. So although it may seem that one player has "all" the money, this is not the case.
ReplyDeleteThere is an infinite amount of money to be had.
The reason why one player is at such an advantage in Monopoly if he has a vast sum of money is because there is little money introduced by outside sources, and so the player who has the most money and assets makes it impossible for other players to grow because while there is slight chance that someone can come back in monopoly, there isn't much of one and that's why the beginning of the game is so important. While players who don't make it rich in the beginning of the game can play under the illusion that they will come back, it is unlikely that they will. The rich player wins.
This seems to me to be perfectly analogous to real life, it is the illusion of success that drives the economy, but it is almost impossible to actually become extremely wealth in today's economy if one does not already have money. "Self-made" millionaires are famous for a reason: it doesn't happen very often.
Capitalism is not just about free exchange, but also about how the products of labor are distributed. If the labor market is not free, the employer pays less than the full value of labor to the employee, retaining it as profit. Only a cooperative ownership situation can overcome this. Of course, cooperatives tend to internalize outside transactions (like food production and shopping, homebuilding and mortgage finance - as well as business investment) so that they make both extreme wealth and monetary/financial speculation less likely. They also tend to absorb the activities now performed by the Government. A strong cooperative economy would replace union-management tensions and displace capitalism and government. The ways to get to it are repealing Taft-Hartley, allowing unions to use pension funds to make their members major corporate owners and by privatizing Social Security with the money going to employee-ownership rather than Wall Street speculation (with some shares contributed to a mutual insurance fund which pays if one of the member firms fail). Liquidity would go down, even as both equality and prosperity go up.
ReplyDelete