Two Economic Myths About Paper Money

One economic myth is that paper money is wealth. The proponents of big government oppose honest money for a very specific reason. Inflation, the creation of new money, is used to finance government programs not generally endorsed by the producing members of society.

It is a deceptive tool whereby a 'tax' is levied without the people as a whole being aware of it. Since the recipients of the newly created money, as well as the politicians, whose only concern is the next election, benefit from this practice, it's in their interest to perpetuate it.

For this reason, misconceptions are promulgated about the 'merits' of paper money and the 'demerits' of gold. Some of the myths are promoted deliberately, but many times they are a result of convenient rationalizations and ignorance.

Paper money managers and proponents of government intervention believe that money itself- especially if created out of thin air - is wealth. A close corollary of this myth - which they also believe - is that money supply growth is required for economic growth.

Paper money is not wealth. Wealth comes from production. There's no other way to create it. Capital comes from production in excess of consumption. This excess is either reinvested, saved, or loaned to others to be used to further produce and invest.

Duplicating paper money unites creates no wealth whatsoever, it distorts the economy, and it steals wealth from savers. It acts as capital in the early stages of inflation only because it steals real wealth from those who hold dollars or have loaned them to someone.

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