Money is like a claymore. Using it right can lead one to great success and victory, but using it wrong can be very self-destructive. And, despite what some Democrat politicians (like AOC) believe, you can’t just print money to pay for your expensive programs. One reason, most of the banknotes that the Federal Reserve prints are used outside of the USA. Another reason is that the more common the dollar becomes, the less valuable it becomes. But since the “experts” pointed to countries, like Japan, without hyperinflation but with a high debt to GDP ratio, people’s fears may have alleviated. Even so, right now the United States is dealing with the highest rate of inflation in a decade. This is partly due to our elected officials being economically illiterate. They may not be reading this, but let’s take a page out of Thomas Sowell’s book (somewhat literally) and talk about basic economics. Money serves four basic functions:
- A medium of exchange
- A unit of account
- A store of value
- A standard of deferred payment
Money used to come in the form of some valuable good. The most prominent example would be precious metals such as gold and silver. In fact, paper money used to be tied to the price of gold (see the Gold Standard Act of 1900). That all changed when the Great Depression rocked the world in 1929. Americans lost their faith in financial institutions, and many tried to solidify their assets by exchanging their gold-backed dollars for solid gold. This put a strain on the U.S.’s gold supply, so President Roosevelt signed an executive order to force Americans to give their gold to the federal government. After that, he signed a bill to ban the private ownership of gold. The discussion about the gold standard officially ended when President Nixon banned the conversion of US dollars into gold. Now, the dollar’s value is based on people’s faith in it. It is what is now known as fiat money. The problem with fiat money is that, like other goods, it follows supply and demand. The rarer something is, the more valuable it is. But if everyone has $10,000, then $10,000 is much less valuable. In the worst case scenario, vast increases in the supply of money cause what is known as hyperinflation. For those who do not believe fiat money can lead to hyperinflation if politicians keep spending recklessly, here are three examples.
- Zimbabwe: Zimbabwe, to be fair, suffered from a long chain of unfortunate events that decimated their economy like a series of droughts that wrecked their agriculture. However, that did not stop the Zimbabwean government from spending more money. The government continued to spend money on programs that they couldn’t afford, such as wars and bonuses for war veterans. How did the government finance all this? They printed more money. The abysmal economic conditions caused people to emigrate from Zimbabwe, which eliminated the tax base. You would think that it would stop the government from printing money. It did not. Inflation peaked at an annualized rate of 11,800,000% in 2008. This means that, if you had 1 unit worth of their currency at the beginning of the year, it would have the same buying power at the beginning as 118,000 at year’s end.
- Weimar Republic (Germany before the Nazis): the German Empire had lost WW1 and that caused great financial strain. They had originally thought they could pay for the war’s great expenditures with the Great War’s spoils, but, unfortunately for that plan, they lost. A clause of the Treaty of Versailles stated that Germany had to pay enormous war reparations. Also, France seized an industrious area of Germany known as the Ruhr, which made paying off war debts even more difficult. What was the Weimar Republic’s solution? A logical financial plan? No, they printed more money, thereby tanking their currency. It got so bad that they had replaced their currency with a new one that was backed by gold (to be more specific, the US dollar which was backed by gold). In 1923, the Weimar Republic had 41% daily inflation, meaning that, if there were 100 marks in circulation at the beginning of the day, there would be 141 marks in circulation by the end.
- Venezuela: This is the most recent example of hyperinflation in the world, contrary to the praise it received from Senator Sanders (before he scrubbed the praise from his website). Venezuela is the most oil rich country in the world. It had all the potential to be one of the richest countries on the globe. Heck, it used to be the richest country in South America. Rather than being backed by a precious metal, Venezuela’s currency, the Bolivar, along with the country’s economy, was supported by its oil reserves. However, from 1999 to 2013, Venezuela’s President, Hugo Chavez, decided to pay for the health services of his people and subsidize low income earners. That wouldn’t be so bad, except he stopped paying attention to the price tag of such services. However, that all changed in 2013, following Chavez’s death, a new president, Nicolas Maduro, took over and put Venezuela’s economy back on tra… just kidding, he just printed more money. It is true that things might not have gotten so bad so quickly had Venezuela not put all their eggs in the oil basket, but the economic illiteracy of Venezuela’s leaders led to its current situation. At least Venezuela has finally learned their… nope they are STILL printing money despite the fact that their currency is almost completely worthless. Their inflation reached its peak at 1.7 million percent a year in 2018
Hyperinflation may be a lot worse than the decade-high inflation Americans are seeing today. But for now we cannot just spend money willy-nilly. For this reason, I can no longer support the idea of Universal Basic Income, especially because it is an addition to the welfare state. The Biden Administration has already enabled people to not return to work due to the expanded unemployment benefits leading to the surprisingly low April jobs report, where the economy was supposed to gain one million jobs, but only gained a quarter of that. A good first step to this is getting rid of anyone who would deny fiscal reality in Congress, Republican and Democrat alike. You cannot say that Republicans are good on this issue because, before Biden, Trump spent a large amount of tax-payer dollars and increased the national debt by 7.8 trillion dollars. However, I knew Biden was going to be WAY worse than Trump when it came to spending. That’s why I did not vote for him. Either way, Americans need to start paying attention to the money and inflation before we fool ourselves into making the same mistakes of the past.