Today we continue publishing a slightly modified version of the letter we sent to Virginia Delegate Bob Marshall on February 27, 2013 in our ongoing effort to get Bob to talk to CESJ president Norman Kurland about Bob’s proposal to study the feasibility of implementing an all-gold currency in Virginia.
Again, if you think that Bob ought to be talking to Norm — tell him. Sending an e-mail to Bob at delegatebobmarshall [at] Hotmail [dot] com is easier than teaching even a politician how to read minds — and it doesn’t cost 46¢ for the first ounce, either.
In any event, despite Keynesian economics and other myths to the contrary, even if we had an all-gold government-issued currency, much of the money supply would still consist of privately issued bills of exchange and mortgages. This is one of the problems in so-called “mainstream” economics: the experts insist on limiting “money” to currency or currency substitutes.
Ordinary people who rely on the currency to carry out transactions would be “starved” for cash, while the rich who have throughout history carried out the bulk of their transactions using bills of exchange and mortgages would still have all the money they needed.
Lacking new investment opportunities, the rich put their money into existing equity: the stock market. Consequently, the rate of growth in the secondary, non-productive sector increases rapidly — as does the volatility of the market in response to massive infusions of cash unrelated to current production. Growth in the speculative, non-productive sector masks the lack of growth in the productive sector that ultimately supports the non-productive sector, as it did in 1873, 1893, 1929, and the present day.
Stock market speculation does not create jobs. Because new jobs are not created and the number of existing jobs shrinks, wage income declines. Dependent on the existing money supply and generally not having the capacity to create new money by offering bills backed by the present value of existing or future marketable goods and services that they produced or expect to produce, ordinary (non-rich) people have less money to spend.
Similarly, a flawed monetary and financial system combined with rapidly advancing technology causes a decline in the number of “quality” jobs due to technological unemployment. This is often masked by the creation of “lower quality” jobs as the value of labor falls relative to that of advancing technology.
Simply to generate some income, people become willing to take anything rather than not work at all. Raising wages of “lower quality” jobs artificially can reduce or eliminate this effect by making technology more attractive on the basis of cost. “Lower quality” jobs begin disappearing at a faster rate than “higher quality” jobs, as lower end wage workers usually have less job security than higher end wage workers.
The decline in consumption income as jobs disappear, or as “high quality” jobs are replaced with “lower quality” jobs creates the illusion of a “money famine,” or an insufficient money supply. The real problem, of course, is that people who can no longer be productive or as productive with their labor are not able to replace their lost productiveness (and thus their consumption income) by owning the machines that are displacing them.