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.