by Marcus Koontz
“How come we can buy stuff with money?” I remember asking my teacher when I was younger. He seemed baffled at that question. Such a simple one, and it is often the simple questions that are hardest to answer. That question’s answer is a simple idea that we assume: money is worth something. Being the persistent child I was, I asked everyone I knew and got the same wrong answer from each of them.
Our money represents gold the government has hidden away, they said. Each dollar was worth a small amount of gold. They said that gold was something that everyone agrees is valuable. They explained how back in the olden days people used to barter. A person would bring 15 chickens and trade them for one cow. It didn’t take a genius to figure out that carrying 15 chickens around was a pain. So, to make a long story short, someone thought up the idea of making little golden coins that people could trade instead of chickens. That system worked out well until some rich guy carrying around 2,000 of these coins fell in a river and drowned to death.
So someone with even more acuity thought of making a system in which one could print some paper and then put some gold in a vault that guaranteed the value of that paper. This was the dawn of our dollar.
Sadly, gold is no longer the basis of our dollars, as many people think. A piece of paper that is printed with a special logo is what we consider valuable now. Until recently currency had to be backed by gold for other countries to accept it as payment. But now the country with the dominant international currency enjoys a monopoly over other countries. That country can bully the others however it wishes.
Printing money without gold to back it up is counterfeiting, and since 1913 and the creation of the Federal Reserve Board the United States government has been the largest counterfeiter in history. When a country prints money that it doesn’t back up with hard currency it is effectively inflating the cost of things. If you have the same amount of gold spread backing more dollars, each is less valuable.
Why would the government create inflation? The only answer that seems plausible is that it wants to spend far more money than it has. When the government can simply print more money to pay its bills instead of raise a tax, it looks a lot better to the voters. What the voters don’t know is that secretly we pay that tax just like in other countries.
In the 1940s the U.S. Government muscled out the United Kingdom for the prize of maintaining the reserve currency of the world. After that point the dollar was “as good as gold” at a rate of one ounce of gold for every 35 dollars. But since we didn’t have enough gold to match the amount of cash in circulation, the gold standard effectively went up in flames in the 1960s; France and other nations demanded the gold for each dollar they delivered to the U.S. Treasury. In 1971 Nixon stopped paying out gold for the dollars.
After that debacle we developed an amazing system that allowed us to print as much money as we wanted. An agreement was made with OPEC to sell oil worldwide using U.S. dollars exclusively. The agreement made the dollar synthetically strong and allowed us to export our inflation to countries worldwide. The U.S. dollar also became tremendously influential because of the OPEC agreement. That influence was crucial in cementing our status as a dominant super power. It doesn’t take a genius to see that it also strongly vested our country’s interests in the Middle East. Our dollar was backed by oil and it has given us a strong reason to defend our interests.
Every year our country borrows more and more money from other countries to fund our huge spending. Our trade deficit continues to grow. Inflation – caused in large part by our spurious printing of dollar bills – continues to make it harder for working class people to live. If our country was a corporation, it would be bankrupt right now. We have to return to responsible levels of spending – levels we can support without borrowing from other countries. We also ought to return to a gold standard and stop producing excess inflation. We should break our dependence on foreign oil for energy and economic security. I can only hope we pull our heads out of the sand before we are forced to.