QUESTION 1 : My mind keeps wandering over all the misinformation rolling through

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QUESTION 1 : My mind keeps wandering over all the misinformation rolling through the traditional media and through the social media sites. Never has there been so much information available. Unfortunately so much of it is wrong and misleading. Take the GDP as an example. If we are so worried about a declining or expanding GDP, we need to ask ourselves why? It is at best a poor attempt to calculate buying habits and the dollar amounts spent on those purchases that are monitored. If we don't spend enough demand for products and services go down. The Keynesian solution? Spend more! Save less! The only reason the GDP goes down is you are too frugal! Don't be so tight with your money! Spend so we can all become wealthy! What utter nonsense! I know of no one, or country for that matter, who has spent themselves into perpetual prosperity---although we have been trying lo these many years! If that were true about spending I would be the wealthiest man in the world based upon my late wife's spending habits. Not to mention our government would be awash in money. Savings is spending deferred. You save what you can so that at some point in the future you can buy the things that help satisfy you personal needs and wants----a car, a vacation, etc. I know this sounds contrary to what some believe but if we return to Adam Smith who talked about an invisible hand that moved the economy there is a better explanation. What did he mean by an invisible hand? If I start a business I do it to make myself better off. In order to do that I have to hire resources---land, labor, and capital. In the process, I produce products or services which satisfy consumer needs and wants. I am also providing others with income from their efforts in helping me produce and sell the products or services. I did not set out to help others. I set out to make money. However, I simply can't succeed unless I satisfy needs and wants and give others employment. Everyone is better off. I didn't set out to make them better off but by conducting my business to benefit others through my products or services I cannot help but benefit others. And, yes, I will have built that business, Ms Warren, not the government. What has the government ever provided that did not greatly exceed the original cost estimates? There are 4 embedded questions. Adam Smith feeds more people than Karl Marx. I think everyone should get hold of the book "The Incredible Bread Machine" by Susan Love Brown, among many authors. Don't forget another good book: Economics in One Lesson by Henry Hazlitt. Do you think it"s possible to become wealthy without benefiting others? Why or why not?

QUESTION 2 :

At the moment banks and financial institutions are under siege. However, have you ever considered how difficult life would be if we didn't have a medium of exchange (money)? It would leave us with a system of barter. What a hopeless mess that would be!

A modern economy cannot be operated using barter. If I wanted a pair of shoes I would have to find a shoemaker who would want what I was offering in exchange. If he did not want what I offered, I would have to find out what he would accept and then go out and find that item and see if I could exchange what I have for what he wants. Then back to the shoemaker. I still have to barter with the shoemaker. How could a modern economy be run on barter?

Money is merely a medium of exchange. What is money? While our government has decided, as have most countries governments, that paper bills and coins with no intrinsic value will be the medium of exchange. The problem is that our paper money is not convertible into gold. Rather it is what is called fiat money. It's money only because the government says it's money and it's not convertible into gold. It has value only because people are willingly to accept it. I believe that's because people have the misguided idea that the government backs our money with gold. Wrong! It's backed by the full faith and credit of the U.S. government. That's something that should really instill confidence in consumers.

It's not convertible into gold because it's also legal tender. What is legal tender? It's a medium of exchange that is accepted because the government has declared it money---fiat money. Fiat money is what you must take in payment of debt public or private. That's what Sir Thomas Gresham meant when he said; Bad money drives good money out of the market. He was simply stating that if you had a bill to pay, and you had both gold and paper money, you would pay your bill with bad money---paper. If you had new or worn gold coins you would pay with the worn coins because they now weighed less than a new coin. the Brirish government, in it's infinite wisdom had decide to force merchant to accept the coins at face value regardless of their weight. The gold had intrinsic value (value in and of itself) while paper had no value except that which was dictated by the government.

The coins in your pocket are called token money because they have no intrinsic value. Intrinsic value means that there is no metal in our coins equal to the face value of the coins. A thousand years ago, in the days of my wayward youth, a penny had 1 cent worth of copper and a nickel had 5 cents worth of the mineral nickel. The dimes, quarters, half-dollar and dollar coins had silver in them to the face value of the coins. When we went off the gold standard for internal exchange and the value of silver went up. This meant you could melt down a half dollar and get $25 for the silver, and proportionally less for the other silver coins. The coins were disappearing from the market. Lyndon Johnson, who was President at the time, under his orders, and Congressional approval, the Treasury Department created the LBJ sandwich. This is a wafer coin that contains no metal to it's face value. It has no intrinsic value. Take out a coin, turn it sideways and look at the edge. You can see the layers---wafers---of base metals. They are referred to as LBJ sandwiches.

By keeping gold and silver out of business transactions the government has opened the door to massive inflation. A smaller and smaller amount of gold and silver is used to back our currency. The government can now create money out of thin air to pay their bills. This increases the money supply and increases---artificially---the demand for products. The demand exceeds the supply because of the new money. Demand will pull the price of the product up. Demand exceeds the supply so the demand will pull the price up as Keynesians say. Austrians say that price will rise to ration scarce goods. More money is injected to encourage spending to continue. This is inflation---more money chasing fewer goods. New products are produced at a higher per unit cost. This drives up per unit cost and price. All prices are then ratcheted up because the supply of money has greatly increased. Once increased, prices tend to be downwardly inflexible. They tend to remain high. Inflation is caused by the government trying to pay for its excess spending. Inflation is actually a tax because it reduces your spending ability just as an income tax does. Inflation is used so you will not realize who is the primary cause of rising price---the government.

A rising price is not inflation unless new money is injected into the economy to keep prices from increasing and unemployment rising. If we have 4 products on the market, and a total of $100 in circulation, and the price of each product is 25 dollars. The price of one of the products goes up---perhaps production costs have increased---and it now raises the price to thirty dollars. Where does the other $5 come from? It has to come from one or all three of the other products. This leads to a lower demand for these products which will increase unemployment. The Full Employment Act, 1946, says the Congress must provide a full employment budget. So they merely increase the money supply by an additional $5 which means that every dollar in the economy is now worth 95 cents. That's inflation! Who did it? Not an evil businessman. Rather it is the government. They have created money out of thin air to pay their bills. They call that sound monetary policy. When we do it it's called counterfeiting!

There is a move to allow business and/or individual contracts to be written in gold or silver. Is this a good idea? Why or why not?

There are 4 embedded questions.

Explanation / Answer

1. I think it is not possible to be wealthy without helping others (unless of course when one amass wealth by stealing from others or by a scam). In order to create wealth, one needs to produce something so that others want to spend their money on my production. Others would like to spend money on my productions only when my productions add value to them or benefit them. So, I cannot sell my products or services if the same do not benefit others. In addition, when I want to produce something, I need to buy materials from other (thereby benefitting the material suppliers) or hiring workers (thereby benefitting them with employment). Also, when I earn income, I pay taxes which is spent by the government on developing infrastructure or funding education or strengthening national defense, which benefits all. So, I don't think it is possible for me to be wealthy without benefitting others.

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