Where Is The Money Coming From?
In 1950, the Public Affairs Institute published a book by Morris S. Rosenthal titled "Where is the money coming from?" The copy at my local college library was stolen or lost, so until I can find one to read, I'll just go with the theory that great names think alike, and speculate that he was interested in the same fundamental economics question that I am.
The money we pass from hand to hand is nothing more than a promise, a promise backed by the Federal Reserve bank that the note is legal tender for all debts, etc. We use paper money backed by a promise because the alternative is barter, which is poorly suited to the modern welfare state. It's kind of funny that the general perception of Socialists is that they are against money, when nothing could be farther from the truth. Without money, without the trade in promises from central banks, socialism couldn't exist as we know it today in Europe and the U.S.. Just imagine if in the place of monthly checks, the government sent entitlement recipients boxes of paperwork they could trade each other.
But it's hard to understand how a country that's piling up debt can print more money to pay its bills without causing catastrophic monetary inflation. Economists and other optimists will point to the low unemployment rate as a proof that all is well in dollar land, but I could employ everybody who wanted a job by myself, if they were willing to accept my promise that the pieces of paper I gave them were worth something. The service economy appears to be with us to stay, but it's difficult to understand how the services people render each other can be capitalized into cash, if nothing of resale value is created. A shrink can charge a hundred dollars an hour (on the government's tab) for keeping a patient entertained and it all gets included in the GDP, but how has that added to the national wealth?
It's enough to make me wonder if I should have subscribed to The Daily Reckoning instead of the Wall Street Journal.
The money we pass from hand to hand is nothing more than a promise, a promise backed by the Federal Reserve bank that the note is legal tender for all debts, etc. We use paper money backed by a promise because the alternative is barter, which is poorly suited to the modern welfare state. It's kind of funny that the general perception of Socialists is that they are against money, when nothing could be farther from the truth. Without money, without the trade in promises from central banks, socialism couldn't exist as we know it today in Europe and the U.S.. Just imagine if in the place of monthly checks, the government sent entitlement recipients boxes of paperwork they could trade each other.
But it's hard to understand how a country that's piling up debt can print more money to pay its bills without causing catastrophic monetary inflation. Economists and other optimists will point to the low unemployment rate as a proof that all is well in dollar land, but I could employ everybody who wanted a job by myself, if they were willing to accept my promise that the pieces of paper I gave them were worth something. The service economy appears to be with us to stay, but it's difficult to understand how the services people render each other can be capitalized into cash, if nothing of resale value is created. A shrink can charge a hundred dollars an hour (on the government's tab) for keeping a patient entertained and it all gets included in the GDP, but how has that added to the national wealth?
It's enough to make me wonder if I should have subscribed to The Daily Reckoning instead of the Wall Street Journal.
posted by Morris Rosenthal | 9:21 AM
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