Why the Greenbackers Are All Wrong About the Fed
The Tom Woods Show, Episode 873 is a podcast based on Tom's paper, Why the Greenbackers Are Wrong. It covers the fundamental greenbacker misunderstandings of money, banking, interest, inflation, and economics in general.
Some people — known popularly these days as Greenbackers — oppose the Federal Reserve for all the wrong reasons: it doesn’t inflate enough (!), the bankers will wind up with all the money thanks to compound interest, there isn’t enough money created to pay all the principal and interest of all the loans in the economy, etc. They want the Fed to be abolished so the U.S. government can issue the money directly. Not exactly a fundamental disagreement with the Fed! I take them on in this episode.
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A related economics essay is Murray Rothbard's treatise from The Rothbard Reader, Chapter 18: Essentials of Money and Inflation
Money is different from all other commodities: other things being equal, more shoes, or more discoveries of oil or copper benefit society, since they help alleviate natural scarcity. But once a commodity is established as a money on the market, no more money at all is needed. Since the only use of money is for exchange and reckoning, more dollars or pounds or marks in circulation cannot confer a social benefit: they will simply dilute the exchange value of every existing dollar or pound or mark. So it is a great boon that gold or silver are scarce and are costly to increase in supply.
But if government manages to establish paper tickets or bank credit as money, as equivalent to gold grams or ounces, then the government, as dominant money-supplier, becomes free to create money costlessly and at will. As a result, this 'inflation' of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy.
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