The argument goes like this:
I earn $200. For whatever reason, I stuff said $200 into my mattress for safekeeping. Now, the fact that I've done the work, and expended my life-energy, to earn that sum of money is not in dispute. However, in a year's time, that $200, the representation of the value I produced, might now only be worth $180 in real terms. That is to say, I could buy the same basket of goods one year ago with $180 that I must spend $200 for today. That is theft, pure and simple.
This is the result of fiat currency, and the capricious expansion of the money supply by the Fed. Supply and demand work, even when politics does not wish it, you see. More money available in the system means that the money I have is worth less, and can command less goods and services. Contrariwise, a contraction of the money supply makes the money I have worth more. Unfortunately, all this can be manipulated, and price stability goes right out the window. Witness what could happen when China starts to really feel its oats. They own over a trillion dollars in U.S. treasuy notes. Should they decide to tank our economy, they could simply sell these off at fractions of pennies on the dollar. All these dollars would then "come home to roost", and a wheelbarrow full of currency would not buy you a loaf of bread. For a current-day example, see the Iraqi dinar. Once valued at over $3/US, it is now worth about 1/42 of one cent. Yes, Iraq has other problems which have caused this,
but if their currency was commodity-based, the value of it would not have dropped off so ruinously, and Iraqies who had a little money saved would not now be destitute. On the other hand, it's probably a good time to engage in a little bit of currency speculation. A $50 investment in Iraqi dinars would yield $2100 if the value of the dinar rose to even one cent.
We actually had a somewhat "deflationary" period in the U.S. in the 19th Century. A $20 gold piece could buy more goods at the end of the century than at the beginning. This was not due to a manipulation by a central bank (we didn't have one, except for a brief period at the beginning of that century, and even then they dared not debase the currency,) but due to improvements in efficiency by manufacturers, farmers, and tradesmen. The same money bought more goods, because the market was allowed to work, and efficiencies in manufacture and competition drove prices down. The $20 gold piece I earned in 1820 would buy more in 1880 than in 1820. The currency did not change, nor did its value, but life was improved, and saving your earnings was a realistic notion.
People argue that we need an increasing monetary supply to "grease the skids", providing enough money to make the economy work, but that is bunk. The economy would work just fine with a stable currency, based upon some commodity (be it gold, iridium, or kilowatts.) If the money was worth the same tomorrow as it is today, financial planning would be greatly eased. Now, we have boom/bust cycles and wild speculation, and entire industries awaiting with bated breath the next pronouncements from "Alan Fucking Greenspan" (nod to trhurler) about interest rates. With a stable currency, interest rates would be more or less stable, as well. Sure, "cheap money" or "easy money" helps to promote investment, but the investment is, more times than not these days, unwise. Resources are allocated willy-nilly to projects which never bear fruit, and the value of these investments is then wasted.
Because supply and demand still work, even in a market distorted beyond reason by a fiat money system, wasted resources are sometimes reallocated to productive ends, but this is most often not the case.
An illustration I like is this one: Your great grandfather, as a youth, earned $40 -- two $20 bills. He bought a $20 gold piece with half of the money, and a fine new suit with the other half. He put the $20 gold piece in the pocket of this suit, and wore the suit all his life. The $20 gold piece remained in the pocket of the suit as it gathered dust in your attic, having been passed down throught he family. In the meantime, the Fed had been created, the currency debased, and inflation had precipitously decreased the value of a $20 note. You clean your house one day, and find the old suit. You rummage through the pockets and find the $20 gold piece. You send the suit off to the prop department of the local theater, just to get it out of your way. You then decide that you need a new suit. So, you go out and exchange the $20 gold piece for its currency equivalent, based upon the weight of the gold, and buy a decent suit worth over $400. The gold piece and the fine suit are rough equivalents
in exchange, as your great-grandfather and you found out. The $20 bill, however, would not even buy a pocket on that suit.
i don't see any nanorobots or jet engines or laser holography or orbiting death satellites.
i just see some orangutan throwing code-feces at a computer screen.
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