20
Sep
2010

Of Money And Wealth

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(excerpt from The Privateer Issue #662)

It has been well said by several competent economic historians that there are only two kinds of paper money – those which are already worthless and those which are going to be worthless. There has never been an exception to this rule. At some point in the history of all PURELY paper currencies, prices expressed in them become irrelevant simply because they are no longer used as a medium of exchange. This process is always painful.

While the end destination of paper money can always be foreseen, the route by which it reaches its destination and the time it takes to get there cannot be predicted. But always, at some point in the proceedings, the declining “purchasing power” of the paper money re-awakens the dormant distinction between money (the medium of exchange) and wealth (that which is in fact being exchanged).

Before it can be exchanged, wealth must be created.  Wealth cannot be created out of thin air.  By definition, an economic good is “scarce”.  If it were not, there would be no such thing as economics or exchange.  Neither would be necessary because no effort or choice in the face of alternatives would be required in order to provide the GOODS which further our lives.  Before we can talk about money and the VITAL role it performs, we must stress this point.  Money is NOT wealth, it is the means by which wealth is exchanged amongst those who produce it.  Paper money is not suited to this function.

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