01 February 2008

The Road to Poverty – Part IV

(Part I, Part II , Part III )

You knew this was coming. And you were right. The city fathers come to me for yet another “loan” to finance their new war, the War on Destitution; so I once again print more “money”. Whatever the city fathers do with this “borrowed” money, by the time any of it flows and finally makes it way to the poor they will find that their dollars are, once again, worth even less than before the government started helping them. Unless the government just distributes this money directly to the poor (like, say, welfare payments) that money won't really end up in the hands of the poor. For one thing, the first thing the government well do is create a bureaucracy to run this program for the poor. Those bureaucrats will be the initial recipients of the new "money" I've printed up, in the form of salaries and benefits. Secondly, the programs themselves will take the form of building government-run low-cost housing for the poor. So the second immediate recipients of the new money will be all those associated with the construction of this government housing. Then, of course, will come the food distribution apparatus. On and on it goes.

Now remember, the market does not yet realize that there are yet again more notes being tendered than I have actual gold for, so all those initial recipients are spending those new dollars, and having those new dollars treated as if they are still worth $.80 each. So if each of these recipients spends $1,000.00 of these new dollars, he's still getting $800.00 worth of goods and services. But, eventually, money is going to make it's way into the hands of the poor and the destitute. And by the time it does so, the market will have realized that there are more dollars in play, and those dollars (by the time they end up in the hands of the poor and destitute) will be worth only, let's say, $.70. The poor, despite all this government help are still getting poorer. (Actually, when you think about it, the poor are getting poorer just because of this government help. And I’m leaving out of our discussion the sociological effects of this government largess, such as, for a single example, the destruction over time of the family unit among the poor.)

And this will be true even if those new, “borrowed” dollars are given directly into the hands of the poor. That is to say, even if the poor are the first recipients of this new money they will still end up poorer than they already were. Let's say the poor have distributed to them once per month, in this new government program, $500.00. At the present rate of inflation (remember money has been printed up several times and that before this last time these dollars were only worth $.80 each, instead of $1.00) those $500.00 are only worth $400.00.

One could, of course, say, “Yes, but James that’s $400.00 they didn’t have before.”

And one would be correct. And that would be really something if I stopped printing money, which I would do if the city fathers stopped asking me for “loans”. But that is not likely to happen; so, soon enough, those poor and destitute will find that their $500.00 checks, instead of purchasing $400.00 worth of goods and services, are only purchasing $350.00 worth of goods and services. Now, instead of saying that this is $350.00 more than they have before, you find yourself saying that they have lost $50.00. Just like that.

But the city fathers do not stop asking me for “loans”. Now that we have won our war with that neighboring city, the city fathers have decided to reward our veterans with “free” educations and guaranteed home loans, among other veterans’ benefits. So once again I “loan” the city some more “money”, in the form of printed paper. But now let’s say that instead of devaluing those dollars just another $.10 this “loan” results in a $.20 decreased in the value of the money presently in the market.

Part V

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About Me

James Frank Solís
Former soldier (USA). Graduate-level educated. Married 26 years. Texas ex-patriate. Ruling elder in the Presbyterian Church in America.
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