Econ 101 Part 2 — Phony Money Destroys Capitalism

To understand how this works, you need to know what phoney money is, and what capitalism is.

Capitalism is simply the voluntary exchange of one privately-owned commodity for another. If I make rocking chairs, and you’re the Cracker Barrel chain of restaurants, you want my rocking chairs for your customers to sit in and play checkers while they wait for a table. You order 500 rocking chairs. I want your gold. So we willingly make a deal – I’ll make 500 rocking chairs, and you promise to pay me however much gold we agree on.

But suppose we don’t have a gold-based money system. Instead, we use phony money. This is money that has no inherent value. We only use it because the government will punish us if we don’t. Now the transaction is not really voluntary; the only way I can participate in the economic system is to accept payment with a piece of paper of uncertain and ever-changing value.

Moreover — and this is the key — the money itself isn’t privately owned. The essential feature of capitalism is the private ownership of capital goods. The piece of paper has no value. Even if you have in your hands a $100 bill, you don’t *own* anything because there’s nothing there to own. The value of it is entirely at the whim of the government, which makes it valuable in the transaction only by forcing us to use it as a medium of exchange. Phony money is not a commodity; it’s a legal fiction. This injects the government into every single transaction in the economy, and this is the antithesis of capitalism.

You see, now the value of our transaction doesn’t depend on the known value of the gold. It depends on how the government behaves, because it has a monopoly on money, and the money’s value is subject to the behavior of corrupt government officials.

When we used gold for money, we knew the value of the transaction. But when we use phony money, the uncertain value of the money has made us depend on the government’s behavior to make the transaction worthwhile. Now the value of the transaction is not controlled by the value of the commodity being exchanged, but by the political power of the government.

I mentioned that our current money system is the antithesis of capitalism, which is statism. Statism is the concentration of power in the state rather that in the individual. It takes many forms, such as socialism, communism, Nazism, dictatorships, and others. They all have one thing in common — they institutionalize the use of force against their citizens.

The constitution authorizes the federal government to “coin” money and regulate the value thereof (Art. 1 sec. 8). This means to take a piece of precious metal of regulated weight and stamp it with a “hallmark,” thus fixing its value. And the constitution prohibits the states from making anything but gold and silver coin a legal means of exchange (Art. 1 sec. 10). But our government bears little resemblance to its constitutionally authorized structure, and our federally-regulated educational system (also totally unconstitutional) doesn’t teach the constitution because if the people knew what the constitution really said, our government officials would lose a lot of power.

Power they aren’t supposed to have.


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