I'm looking at three silver sixpence coins minted in 1938 and 1942. Each is about the size of a U.S. dime and contains just over .08 troy ounce of silver. There is a cultural reason for wanting silver sixpence, but hardly anyone knows what it is anymore. I didn't either until the Beautiful One asked me to find her a silver sixpence coin and told me why she wanted one. So I went down to the local coin store, where The Man had six of them. They're Australian instead of British, but otherwise they're the same size and weight. He didn't know why anyone would especially want silver sixpence either. Instead of buying one, I bought all six. I gave three of them to the Beautiful One and kept three for myself. Well, not for myself.
Anyway, back to the article. We used to use real things for our money: beaver pelts, bales of tobacco, barrels of whiskey, silver coins, gold coins, etc. All these things traded for the market value of the actual stuff they contained, plus, perhaps, a very small premium due to the fact that they were formed into convenient packages. They had no value as money separate from that market value. We no longer do that. Now we use paper money (the material of which has virtually no value) and electronic money (the material of which hardly even exists -- perhaps doesn't exist -- I'll leave that question to the nuclear physicists).
I know the main argument supporting this revolution in monetary practice. Why dig up metal ore, and refine it, merely to make it into coins which we trade amongst ourselves, when we can so easily and cheaply create money for trade which requires no mining or other work at all? Well, I'll tell you why.
The politicians and bankers (nowadays they're pretty much the same people) have managed to perform the alchemists' trick. They can now, in effect, create gold (and/or silver) from nothing. This is even "better" than what the alchemists were trying to do, since they had to start out with lead. The modern alchemists don't even need lead. A bit of cotton-based paper and some ink, or simply some electrons, properly manipulated and blessed with the government's magical incantations, and presto! Gold! Or at least something like gold, and, thanks to the legal tender laws, even more negotiable than gold. It's really no wonder that they prefer that to using gold and/or silver. After all, if they used precious metals, they couldn't create more money whenever they wanted to. In order to spend more money, they'd need to either borrow it, or tax it. Neither is remotely as easy as just printing (or typing) up some new money whenever they want some. Who can blame them???
Yeah, yeah, I know: they "borrow" their new money too. But they borrow it, or most of it, from their own central bankers -- not exactly the same thing as borrowing it from real people, who may refuse to lend to them. Their central bankers never refuse to lend to them.
OK, that all makes plenty of sense. So what's the problem? Let me explain. Suppose we were back in the Dark Ages, and a group of alchemists actually managed to convert lead into gold. (Contrary to what you might have read in some obscure publication somewhere, none of them ever did.) Before they succeeded (no, they didn't, we're just pretending they did) in making gold, gold was extremely valuable -- so valuable that a very small amount of it could be traded for an entire year's food requirements for a person, or even for an entire family. The stuff was valuable! But as the alchemists learned to turn lead into gold (just as today's politicians and bankers have), they would have been constrained by market forces to create very little in the way of new gold. If they created too much of it, its value would decline precipitously. Soon there would be little point in making gold, since its value would hardly be more than the lead used to make it. In other words, the advantage to the alchemists of making gold would only hold up so long as they only made a tiny amount of it.
Well, our modern alchemists' new "gold" also maintains its value only so long as they make very little of it. If they manage to exert a sufficient degree of self-restraint, their artificial gold can actually remain relatively valuable. But if there is one thing the history of modern money has demonstrated, it is this: they do not have the ability to control themselves, and control the creation of new money. Oh, sometimes they behave themselves well enough for several years, or even several decades, that the value of their money declines only modestly. But sooner or later something "comes up": a war; a depression; a newly recognized social need -- something. And then they start creating new money while seeming to pay very little attention to what must happen to its value. Then prices must increase -- sometimes a lot.
If (and I know that's a very big "if") we still used real stuff as money, the politicians and bankers quite simply couldn't cause prices to increase. But they have convinced a great majority of us that it is in our own best interests to allow them to create new money. That way, they can fund our wars, spend our way out of depressions, and fund new social programs, all without unduly burdening us with new taxes. We like that: something for nothing. Something for nothing is always good, isn't it? The minor little fact that we're eventually going to pay for it with massively higher prices... well, we'll worry about that later. And when it happens, we'll blame the market for the higher prices, instead of blaming the politicians and bankers who really will have caused it. The politicians and bankers will continue to be the "good guys," while we will continue to fail to understand what really happens -- and why it happens.
Oh well...
