The Dollar Works Just Fine

Last week, we joked that we don’t challenge beliefs. Here’s one that we want to challenge today: the dollar doesn’t work as a currency, because it’s losing value. Even the dollar’s proponents, admit it loses value. The Fed itself states that its mandate is price stability—which it admits means relentless two percent annual debasement (Orwell would be proud). So there is no question that the dollar loses value. The only mainstream debate is whether this is good or bad.

Our focus today is whether this is why the dollar doesn’t work, why it’s failing.

Prices have been rising for 100 years. There is no reason why they couldn’t go on rising for another 100. Or 1000. The inflation argument, as we call it, does not reach anyone other than those who already think the dollar is failing. The rest shrug it off. Most people really care only if their income goes up slower than prices go up.

As an aside, this is an inaccurate view. Measured in gold, prices are falling. This is the simple consequence of relentless productivity improvements in every industry from mining and farming to distribution to manufacturing. In an article for Forbes, Keith found that the resources that go into producing a gallon of milk fell by about 90% between 1965 and 2012. And wages are falling also. Read the article to see just how much.

Anyway, people care if their wage is falling faster or slower than prices. Mainstream economics encourages this with its paradigm of purchasing power. They don’t encourage thought about how much cheaper things really have become.

The argument that “we need to move to the gold standard because inflation” is not compelling to most people. We believe it’s more compelling to show that the dollar makes it profitable to destroy capital. Unlike rising prices, capital destruction is not sustainable. And also unlike rising prices, capital destruction is a real worry to the 1%.

Now let’s get back to the argument: the dollar doesn’t work as a currency. Is that even true? Everyone knows he can take out a twenty dollar bill and buy dinner or gasoline. Anyone can write a check to pay the landlord dollars. Or deposit his paycheck. Everywhere you look, you see people using the dollar as medium of exchange (which is not our definition of money).

What, exactly, isn’t working here?

How do you explain to all those wage earners, employers, landlords, restaurants, and gas stations that they aren’t successfully doing, what they are doing? Keith spoke at an Austrian economics conference at King Juan Carlos University in Madrid in November. The speaker before him said that only gold is money. The audience—these are professors and PhD’s and graduate students interested in Austrian economics—were incredulous. They demanded if the guy really said there is no money today, and if so how does he explain the vast flows of commerce around the globe?

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