The story so far, Part 2

The ancient parasites used crude techniques like physical force & violence to live on the sweat of other people’s brow. Then came religion which used more subtle techniques like fear of ostracisms and argumentum ad baculums to loot people’s money.

Just as the human means to production i.e. technology, has improved over the ages, the parasites have also improved over time in their methods to newer and more subtler means to loot human production. It was not long after the market converged on gold as the common commodity of exchange, that the powers that be of this world realized that they could loot by controlling the supply of the common commodity of exchange. But this could not be done on any real currency like gold, which was chosen by the market for it scarcity among other reasons. What was needed was an imaginary common commodity of exchange, unbound by worldly restrictions like scarcity, called the fiat money. (Scarcity here being defined as that property which makes a loaf of bread to be of utility to only a fixed number of individuals).

Fiat money could be used to pay up debt, because the governments force you to use it as legal tender. If you choose not accept that your debt was paid off with their imaginary commodity they will make you accept it with physical force. Whats more, the governments can pay for what they want with their imaginary money, because they can create as much of it as they want. But they won’t do it out of a fear of devaluation, unless they want to wage a war or get out of a depression without increasing taxes. Of course, increasing money supply can lead to higher prices without higher wages, but that is not a problem if you use price controls and vary GSTs when production becomes unsustainable under the price control.

Back when the US economy had grown wealthy from economic freedom, the economies of this world had started using the US dollar as the common currency of exchange because, back then it could be claimed in gold. But they continued to do so even after the US dollar became an imaginary commodity whose supply was controlled by the US government. This put the US government in an interesting position. It could now pay for foreign currencies by creating more of the imaginary commodity – US dollar. So people & foreign economies who lend the sweat of their brow now to the US government for earning interest are paid back in new imaginary money which isn’t worth what it used when they lend it.

Back when currencies where easily transact-able versions of gold, credit was only provided to debtors who were truly capable of paying it back with interest. The creditors asked interest in return for their deferred consumption. However the liberals in society driven by their irrational desire for fairness (this is one of the liberal pillars of morality) believed that the needy were entitled to credit regardless of whether they were capable of paying it back. Fiat money helped them realize this desire. Now the governments could increase money supply and control interest rates of the creditors.

Since political parties earn by remaining in power, and since they could remain in power by temporarily please their voters while they remain in power, all governments chose to make credit cheap by creating more fiat money.

Fortunately there are no free lunches in this universe, so this subtle scheme to loot from the producers by devaluing their currency and paying the needy through cheap credit has & will lead to depressions and recessions.

Paul Krugman scorns at this doomsday attitude, and calls it moral fatalism. But I guess you know better now: No one can mess with reality.


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