“Today at the Royal Canadian Mint’s high-speed manufacturing facility in Winnipeg, Finance Minister Jim Flaherty struck the last penny to be produced for Canadian circulation.”
- CNW Group (04MAY2012)
Historically, governments have debased their currency since they minted the first coin. Canada going penniless is but another, recent example.
Is there a better way . . . for Canada and the USA? Yes.
The gold-standard? Possibly.
Is there an even better way? Consider a way based upon science . . . real science, biobehavioral science, not “economics”.
The following are excerpts from the semi-fictional novel, Inescapable Consequences, regarding the soundness of currency:
Commercially and economically, we have become a nation in which Big Government, Big Business, and Big Media implicitly, if not explicitly, conspire to reign supreme. A nation that punishes production while it rewards consumption. A nation that exports its own vital industrial base, sliding into a so-called service-economy in which we sell real estate and commercial paper to one another. A nation that issues a progressively debased currency printed in unending supply by a timid Federal Reserve Bank at the behest of power-hungry politicians buying votes with other people’s money. A nation indebted to foreigners and increasingly owned by them . . . foreigners, a number of whom can throw us into bankruptcy whenever it suits their own national interests.”
“The fundamental concepts underlying the Constitution, including the Bill of Rights, and underlying the role of the federal government are clear and simple; namely, the following: To protect the national borders, to represent the nation to foreign governments, to protect individual citizens from political and economic oppression by the various levels of government, to protect all of society from rule either by an aristocracy or by a mob, to establish and to maintain a national currency, and to guarantee freely flowing communication and trade amongst the several states. The Constitution explicitly reserves each and every other function for the government of each state. The Founding Fathers invented this form of democratic republic; in scope, in structure, and in content”
Many observers believed that the directors of most central banks had agreed to coöperate amongst themselves in order to maintain an expanding international economy. Each country would print fiat-currency as needed to avert its own major, economic reversals. Exporting, creditworthy countries with trading surpluses would lend to importing, debt-laden countries with trading deficits. Importing debtor-countries would use the borrowed money to purchase more goods from lending creditor-countries. The bankers acted as though they had invented an economic perpetual-motion-machine.
Everything has its cost, however. The cost of this system had been the declining purchasing power of currencies worldwide, as a whole, and of some individual currencies against others. Few among each populace understood the system and its rules, and even fewer cared. The underlying rationale was that, with a fiat-currency having no intrinsic value, a zero or two or three always could be deleted to restore its purchasing power per unit of denomination. After all, at one point Turkish lira had reached more than one million to one U.S. dollar before the government chopped off a few zeros by issuing a “new lira”. Life continued in Ankara and Istanbul as well as in London, New York, Shanghai, and Tokyo.
The traditional winners were governments, financial traders, and debtors. The universal losers were savers. Via the “hidden tax” of inflation, even after receiving interest on their deposits, most savers lost one to two percent of their savings per year every year to their respective governments as a consequence of taxes on their “phantom-incomes”. In nominal terms, their banking accounts increased; the numbers inflating. In real terms, those accounts decreased; the purchasing power deflating. As the Doctor had quipped to Uncle, “You can fool some of the people all of the time and all of the people some of the time, and them’s pretty darned good odds.” His observation reflected his contempt for the average citizen. The politicians seemed to agree worldwide.
“They have a point about money knowing no home. Money seeks the highest return for the lowest risk. At one time, the world had an international currency . . . gold. In 1938, Hitler criminalized owning gold in Nazi-Germany, as Roosevelt had done in the United States in 1933. Both well understood that governments can’t manipulate an economy using a currency based on gold. Instead, FDR substituted a paper-currency promising silver on demand. Big Government reneged on that promise. Today, U.S. currency represents nothing more than a promise on a promise . . . a promise to confer value by promising to tax the populace. Government, thereby, freed itself to print as much paper-currency as the politicians demand to allow chronic, deficit-ridden spending financed by chronic, unlimited expansion of debt. The consequence? Over the years, the purchasing power of the U.S. dollar plummeted. Finally, in the early 1970’s, President Nixon formally ended the pretense of inherent value by explicitly decoupling the dollar from both gold and silver.”
“I might remind you, Uncle, that many economists decry gold as the basis for issuing currency. They call it the ‘barbaric relic’.”
“Economically, Cliff, the function of government should be to maintain a stable currency then to allow the marketplace to regulate the economy. Some years, there’ll be inflation, which is not necessarily good. Some years, there’ll be deflation, which is not necessarily bad. Over the long-haul, however, the rate of inflation should average approximately zero, meaning that politicians can’t get themselves re-elected by buying votes through reckless spending of a devaluing currency.”
“A stable currency. Economic regulation by the marketplace. What we’ve had has been the opposite, at least since Roosevelt’s so-called New Deal,” the President observed.
“The problem-behavior has been an excess of irresponsible spending by politicians in the federal government dictated by expediency not principles.”
“Targeted goals, Cliff. First of all, to have created a just, fair, and visible source of funding for the federal government, so everyone knows how much he’s paying in federal taxes. Second of all, to have minimized the deleterious consequences of taxing the productive in order to subsidize the unproductive . . . thereby, increasing Americans’ reliance on themselves versus their dependence on government. Third of all, to have a stable currency… necessary for rational planning to meet the demands of a stable or declining population.”
“And your plan for taxation would fulfill those goals?”
“Partially but not entirely.”
“So, there’s more to your plan.”
“Yes. Cliff, we are dealing with a complex problem for which there is no single, simple solution. What we’ve discussed . . . to stop the unproductive from plundering the public treasury and to abolish the punitive income-tax . . . are two necessary but not sufficient elements in the plan.”
“The third and final element is to prohibit the federal government from creating more money than that for which there exists a productive demand. Notice, Cliff, I said, ‘productive demand’ . . . not consumptive demand. There is always an insatiable consumptive demand.”
“Didn’t issuing currency based on gold do just that? It didn’t serve to allow the government to print currency. It served to limit the amount of currency the government could print. Also, it allowed for a universal currency . . . gold itself.”
“So, why not return to the gold-standard?”
“Perhaps, we should. One problem is that the value of gold varies with its production. Its price does not reflect production of any other goods or services. Over the long term, prices remain stable. Over the short term, they can and did gyrate sharply.”
“What’s the alternative to the gold-standard?”
“To have a stable and respected national currency. To have a restored and stable value of every denomination. To have a currency that reflects primarily constructive requirements of the productive not self-serving demands of the unproductive. America currently has an unstable, debased, national currency. Merchants no longer give change to the nearest penny . . . sometimes only to the nearest quarter or the nearest dollar! Such debasement generates contempt for the currency and for the economy that it represents. Begin by restoring real value to every denomination of the currency, even the penny.”
“The politicians hate such policies,” the President remarked.
“My nephew says that they’re only telling the morons what the morons want to hear. Politicians push to increase the supply of money for their reckless spending till they’ve bankrupted the country . . . which they have and which is why I am sitting here now. ‘Economic depression’ is merely a politician’s euphemism for national bankruptcy. The irony is, after inflicting the damage, the politicians claim that only they can remedy it via even more manipulation, which usually serves to make the situation even worse. FDR’s ‘New Deal’ was a prime example. He made the Great Depression a really great depression.”
“More a questionable assumption. I presume you are referring to how presidents and congresses collude to promote short-term, economic prosperity through irresponsible, fiscal and monetary behaviors . . . such as pressuring the Federal Reserve Bank to set short-term, governmental interest-rates lower than a rising pricing rate in order to promote debt-fueled consumption.”
“Exactly! How could you impede such a collusion?”
“Shall we begin by describing the situation in question? In a context of international fiat-currencies, the antecedent of unsustainable borrowing by the United States, primarily from China and Japan, occasioned an inflationary buying spree in China. The eventual consequence was an increase in interest-rates by the People’s Bank of China, setting off a chained reaction of decreasing prices of stocks and a run on the Chinese currency. To slow the run on their currency, the Chinese began to sell U.S. dollars in order to buy Chinese yuan. The consequence of their action was a run on the dollar and a fall in financial values on the American exchanges. The falling values in both China and the United States, in turn, are functioning as antecedents for worldwide selling and as stimuli eliciting anxiety associated with concern about a worldwide economic depression. The consequence of selling . . . falling prices . . . in turn, functions as an antecedent for more selling and as a stimulus for more anxiety and so on.”
“We’re caught in a vicious cycle.”
“It seems so. Your political predecessors created a context for international insolvency. It seems that the inevitable may be occurring.”
“How would you recommend resolving the situation?”