Why Do So Many In The Government And The Federal Officials Believe That Creating Money Out Of Thin Air Creates Wealth?Submitted by domenicsidoti on Sat, 12/08/2012 - 15:44
This is the 17th installment of a series of articles attempting to address the 32 questions posed by Ron Paul in his recent farewell speech given in front of Congress. Check out the previous installment, “Why Did The Big Banks Get Bailed Out In 2008 While The Middle Class Lost Jobs And Homes?”
What is money? This was a question I hadn’t asked myself until years after I had already been actively saving, spending and earning it. It’s sort of like gravity; you know from the time you learn to walk that your feet will always be forced back to the ground, but the concept is something you may not learn until 6th grade or even high school Unlike gravity, however, money is not part of most American grade school curriculums. The question goes unanswered until at least college for some and sometimes never for others.
The first person who attempted to answer this question to me was my 7th grade teacher who very incorrectly told me that money was created by the government based on a weight of gold being held in a secure reserve somewhere. This made sense to me. I could never understand why governments had debts if they themselves created this green paper. It also perplexed me why the green paper in my wallet could buy me lunch, but my loose leaf paper was only valuable for homework assignments. But knowing that the government was also held accountable for it with a hard backing asset like gold made sense as to why they just couldn’t make as much as they wanted. It gave me a renewed faith in the value of money since I now thought it wasn’t just paper.
A more sophisticated attempt at teaching me what money is came about 7 years later in the form of college economics courses. Still, however, after finishing 3 credits shy of an econ minor, I labored under the illusion that money was backed by gold. Now this one might be on me because if I actually understood what Macroeconomics were attempting to teach me I would have figured it out pretty quickly. Macro-the study of the larger economic picture as a whole-taught me 2 main things; that through monetary and fiscal policy, recessions were pretty much a thing of the past.
Like the polio vaccine, economic science too had supposedly conquered a natural scourge that plagued humanity. If things were slowing down, both policy toolboxes had the remedy. Fiscally we were to cut taxes and spend beyond our means while monetarily we were to drop interest rates or increase the amount of money. Once the engine was humming again we were to stop the spending and raise the interest rates. That was seriously all I learned in 2 levels of macroeconomics. Never how, never why, just that this was how we tamed the economic beast.
Today I have a much better understanding of money, and although I must admit there is much more to learn, watching the news or political discussions about money makes me fairly confident that I know a bit more than the average pundit or politician. But as interesting as my personal journey to monetary enlightenment might be, I only mention it because I think it partially answers Ron Paul’s 17th question.
The reason most politicians and fed officials believe that creating money out of thin air creates wealth can be boiled down to a few points. The first and least insidious is that they just don’t know any better.