Thursday, March 19, 2009

The Stranger with $25

Suppose for a moment that:
  • You live in a town with its own form of currency
  • there is a static quantity of dollars in circulation in town - say $50
  • a sandwich costs $5
  • a man you do not recognize comes into town and purchases half of all of the goods available. he has not added anything to the supply of goods or services, he has only consumed some.
  • there is now $75 in circulation but only half as many goods available for purchase
  • what do you think happens to the price of a sandwich?
If you think it will cost $15 - that's what I think too. The full meaning of what has just happened is that everything has just tripled in price or, conversely, the value of your savings has been reduced by 2/3.

Currency only has value in reference to the goods and services that it can purchase. If you increase the money supply without producing anything, it is the same as having goods and services vanish. In effect, you are either a victim of fraud or theft. The fancy name for this stealth version of theft is "inflation" and it can only be enacted by the government. Quoting Rand:
There is only one institution that can arrogate to itself the power legally to trade by means of rubber checks: the government. And it is the only institution that can mortgage your future without your knowledge or consent: government securities (and paper money) are promissory notes on future tax receipts, i.e., on your future production.
Consider this carefully as you judge the actions of the government and determine what you should demand of it: Article: Washington Post: Fed to Pump $1.2 Trillion Into Markets.

A good start would be to not permit the government to take from you that which you've earned and need to survive; that is, to petition the government to recognize the rights already enshrined in the constitution. When we permit the government to meddle in economics uncontested for the so-called "common good", it is with our lives and the recognition of our rights that we pay.

(To find out more about the nature of Inflation, have a listen to Rand's lecture on Egalitarianism and Inflation.)