The U.S. Dollar: Good as Gold?

by Thomas D. Blackburn, Ph.D.
Part 6

In discussing ways of financing government spending we should not overlook a hidden tax known as inflation. When the government adds to the money supply without adding to the goods and services supply, There is more money to buy the same amount of goods and services. When this happens, the law of supply and demand comes into play and prices are bid up. There is effectively, a shortage of goods and services in relation to the amount of money available.

To illustrate this point, consider what has happened to house prices over the last 40 years or so. In 1960, a nice three-bedroom home could be had for $15,000 to $20,000. That same home today would cost $100,000 to $200,000. Nothing has happened to make the house more valuable, but something has happened to make the money less valuable.

If you were to start printing money, it would have the same effect of driving up prices because there would be extra money around relative to the supply of goods and services. We are forbidden from printing currency to keep this from happening. Our government reserves for itself the right to add extra currency to the economy by using the technique described in Part 4.

When the government uses this technique, it causes inflation. Instead of paying more of our income in taxes, we pay higher prices for whatever we purchase. The effect to you and me is the same - we have less discretionary spending power in either case.

Typically, the beneficiaries of government spending are not who you might think. For example, we hear about problems with welfare or farm subsidies, or defense, but the real problem is not disclosed. The true beneficiaries of the current system are the politicians and bureaucrats who are paid a good wage to manage the program. The problems, no matter which ones you care to identify, will never be solved as long as people are being paid to manage them.

The government does not create wealth. It has the power to redistribute existing wealth, but it can not create it. Legislation will not build a home, wash dirty clothes, or cook a meal. These activities require human work. It is human work that adds value to existing resources. It has been said that the U.S. has been blessed with natural resources and thus has an obligation to other countries less well blessed. This argument overlooks the most important point: resources are just resources until human intelligence and energy turn them into something of value, i.e. wealth. Gold is not wealth in and of itself. Gold can represent wealth so long as people agree amongst themselves to accept it as a medium of exchange. Paper could likewise represent wealth, but to do so it would have to be in the control of people of the highest integrity, people who would cherish its value and allow nothing to diminish it. It seems that so far we have been unable to find such people holding political office in sufficient numbers to make a paper money system work.

Most of us, when faced with the direct question would agree that redistributing wealth is not a proper activity of governments. This was the basis for the Russian experiment and the consequences of such actions are that people (except perhaps the politicians and bureaucrats who do the redistributing) are worse off. The best a government can do for its people is to establish laws and enforcement policies that make it easy for fair business practices to flourish and hard on people who violate their agreements.

Our constitution provides that the federal government should establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty. Promoting the general welfare, in plain use of the words, means the welfare of all citizens together. It cannot mean benefiting some at the expense of others, for that would violate the order to establish justice. We are not well served when our legislature fails to provide us all with a stable currency that serves as a medium of exchange and a store of value. We need a currency that is Good as Gold.

The bottom line: Every value that exists in the market place is the result of someone's work. Without the productive work of individuals there would be nothing to exchange. When government reallocates the fruits of our productive effort, we are cheated out of our right to use our individual surplus as we see fit. Someone who has not contributed, or whose contribution is less than ours, to the supply of goods and services available, is given the benefit of our labor.

Consider the words of Paul L. Poirot: "An outstanding feature of the open market is the businessman, whose success or failure depends entirely upon his ability to focus on customer needs and so combine existing and potential factors of production to serve consumers most efficiently. The only constructive role government can play under the free market method of overcoming poverty is to see that the participation of individuals is strictly voluntary - that none is permitted to steal from or cheat or enslave another. In the free and open society, the organized force of government is to be used only if necessary to protect the lives and property of peaceful individuals. In other words, the proper function of government is to protect against robbery rather than to practice it."

TANSTAAFL - There Ain't No Such Thing As A Free Lunch

Copyright 2006 by T. D. Blackburn Permission hereby granted to reproduce with this copyright notice included.

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