This also caught my eye as I was reading Steele’s piece on our debt. Steele does an excellent job of chronicling the development of money and its importance to an economy. And he makes (although inadvertently) the case for gold.
The first coins, made of electrum, an alloy of silver and gold, had no other function but to serve as a medium of exchange, a store of value, and a unit of account. But there was one other thing needed to make these first coins true money: universal acceptance, the sine qua non of money.
It is always the marketplace, not government, that determines what is money. [emphasis mine] Governments may declare something “legal tender,” but if sellers in the marketplace won’t take it, or won’t take it at face value, then it is not money. If the marketplace decides to designate something as money, then it is.
But in the end, he makes what Austrian economists would recognize as a fatal error, one which is far too common among especially among mainstream economists. And one with such destructive consequences.
Today, a new form of money, plastic, is completing the process of money’s abstraction. Checks, of course, were never money in the strict sense because they were not universally accepted. But debit cards are money. They are not legal tender, but everyone, or very nearly everyone, will take them in exchange for goods and services. Even prostitutes often accept plastic these days in exchange for their services.
Debit cards instantly transfer sums from one account, the buyer’s, to another, the seller’s. But credit cards are also, for all intents and purposes, money. And banks, which a few decades ago were very picky as to whom they extended credit, now routinely extend it, in the form of credit cards, to virtually everyone who is not a proven deadbeat. The ability of individual governments to control this credit creation, and thus the money supply, is limited under existing law, and the laws that would be needed to do so would not be tolerated in a democratic society. People will not stand for the idea of government telling them what to do with their plastic any more than they would for government telling them what to do with the cash in their wallet. It is banks, by setting personal credit limits, that control the money supply, to the extent that it is controlled by institutions at all. [emphasis mine] In a deeper sense it is individual self-discipline that controls the world’s money supply—a profoundly democratic development, one nearly as revolutionary as the invention of money itself.
First, credit cards ARE NOT money, (neither was equity in one’s home, but it was treated as such, with disastrous results) but a loan on demand. How could he NOT know that.
Second, the government has a complete monopoly on money creation. How could he NOT know that. The federal reserve alone can create money and does so with impunity. If people actually knew what the fed was doing to their wealth (as opposed to their money) THAT would not be tolerated.
The reckless credit card policies of that past few decades are the direct result of the fiat currency and the massive expansion of the nation’s money supply. And what happened a few decades ago? We left completely any semblance of a gold standard in 1971.
When our supposedly educated and knowledgeable make such egregious errors, it is so easy to see why the public is so easily deluded and Congress so arrogantly insouciant to economic laws.
People will not stand for government telling what to do with the cash in their wallet? Well, a credit card isn’t “cash in their wallet” and they seem to have no problem with telling Congress what to do with other peoples’ money. And Congress willingly listens. And acts.
And we wonder why there’s such a crisis…