Yesterday
we looked at some more reasons why gold is not adequate as the whole of the money
supply. The fact is, when you realize
that all money is a contract, and (in a sense) all contracts are money, it’s
rather silly to insist that gold be used to meet the terms of all contracts . .
. even if what the people were exchanging is (for example), lawn mowing for
wheat.
Thus,
if you think Virginia Delegate Bob Marshall should be talking to CESJ president
Norman Kurland about a viable alternative to Bob’s proposal for a study to
determine the feasibility of implementing a specie currency in Virginia, you
might want to e-mail Bob at delegatebobmarshall [at] Hotmail [dot] com
to let him know how you think.
In
any event, if gold isn’t adequate to the job, what is? The answer is mortgages and bills of exchange
— mostly bills of exchange, since existing wealth (which is what mortgages
represent) are a virtual monopoly of the rich, at least for monetary purposes.
The
problem with bills of exchange throughout history, however, was that only the
rich could discount and rediscount bills — they were “creditworthy,” because
they had the existing wealth to use for collateral. The poor had few if any assets that could be
mortgaged. Lacking collateral, they were
not creditworthy.
Thus,
the rich could create all the money they wanted simply by offering a bill and
having it accepted. Non-capital owners
were (and are) restricted to the existing money supply. Today this is backed by government debt, not
hard assets in the form of productive capital.
As
Adam Smith observed, however, regardless how selfish and rapacious the rich may
be, they are limited in how much they can physically consume. The rich, therefore, tend to consume what
they want, and reinvest the excess in additional new capital.
Consequently,
taking into consideration the total number and value of transactions in an
economy, workers without capital account for more of the “end consumption”
transactions that generate the demand for new capital than do the rich. If ordinary people reduce consumption of
consumer goods, the rich also reduce
consumption — of capital goods. Jobs are
not created, and the rate of economic growth in the productive sector declines.
