The Ten Dollar Bill

 

Take a ten dollar bill out of your wallet or purse. Take a look at it. What’s it worth?

“Obviously, ten dollars, Brian”, you’re thinking.

Maybe.

The actual intrinsic value of any object is the cost of its production and/or its rarity. Gold, for example, derives its value from its rarity. But that ten dollar bill isn’t rare at all and is nothing more than a small piece of rag paper and a smidgen of ink, less than a penny’s worth of material. So its intrinsic value is also less than a penny.

But it does have “worth”, a value we as a society agree on as to what it represents. That could be a specific quantity of something that has intrinsic value, such as a rare metal. We saw this when this country was on the gold standard, at which time that ten dollars represented about 1/3 ounce of refined gold metal. You could take the bill to a bank and exchange it for the appropriate amount of the metal.

Once the dollar was delinked from gold, its worth became a much more fluid property subject to the fluctuations of governmental policies. The only physical limit to the production of more ten dollar bills is the availability of ink and rag paper, and since there’s no shortage of either the government can crank those bills out in unlimited quantities should it so deem.

But creating physical ten dollar bills doesn’t create more actual “worth”. In fact, the opposite can take place.

Our current ten dollar bill’s actual worth is based on its buying power. How much of a person’s labor or the physical goods they produce – through agriculture, manufacture, or intellectual creation – does societal consensus allow that ten dollar bill to purchase?

If I raise cattle, John makes cloth and you sell gasoline, how do John and I pay you for the gasoline you sell us? Do you have to accept some amount of cows and bolts of cloth, as well as all the other disparate products and services people produce, to sell your product? The ten dollar bill is the method used to assign a universally accepted value to facilitate the exchange for transactions, replacing the need for actual barter.

As our country’s economic base – our ability to produce goods and services – has increased our supply of ten dollar bills has also increased to make those transactions possible. In a perfectly balanced system there will always be just enough ten dollar bills available to accurately reflect the relative value of each product or service.

If our economic base shrinks, it’s also important to remove some of those ten dollar bills from circulation to maintain balance and currency value. But the real problem arises when the government – which doesn’t actually create anything of value itself (government is a “consumer”, not a “producer”) – turns on the printing press and cranks out a lot of ten dollar bills that don’t reflect any increase in societal productivity. Those “excess” ten dollar bills flood the market, and since they don’t reflect an increase in societal productivity, they dilute the actual value of the ten dollar bills that are already in circulation.

This is what is meant by “inflation”, which is a decrease in the buying power of money. The ten dollar bill buys less.

In fact, graphic examples abound of what happens when governments turn on the printing presses with abandon. In a few short years Venezuela went from being the most prosperous nation in South America to an economic wasteland, its 2018 rate of inflation being an incredible 929,789%. Its money is essentially worthless. In 2008 the inflation rate in Zimbabwe was 250,000,000%. Following World War I the inflation rate in Germany hit 344% per month!

Which brings us to the current Democrat party presidential primary. The current gaggle of candidates seems to be in a race to see how much “free” stuff they can offer to the electorate (pretty much legal bribery, in my opinion). The list includes “Medicare for All”, including illegal aliens; eliminating private health insurance; open borders; “free” college; writing off current student loan debts; “guaranteed monthly income” of $500 – $1000 per month depending on the candidate; “free” universal daycare and pre-K, the “Green New Deal”; and a plethora of smaller programs too numerous to get into.

How do they propose to pay for this largesse? It pretty much boils down to “tax the rich”. Sadly for them, the reality is that even a complete confiscation of everything “the rich” own won’t come close to paying for this cornucopia of “free” goodies. Their only alternative will be turning on the printing presses, and cranking out more and more of those ten dollar bills.

Ultimately, you’ll need a barrel full of ten dollar bills just to buy a gallon of milk… IF there’s even any milk on the shelves.

If they win we’ll get to find out personally what it’s like to live in Venezuela. Is that what you want?

 

©Brian Baker 2019

(Also published today in my local newspaper, The Signal)

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