Money is a consensual myth. We currently have fiat money – money that is ultimately imaginary and only worth something because a government says it is, and people believe it and choose to treat it as if the money were real. And people work this out and think it’s ridiculous (it is). And that because it can print more money the government can devalue your savings (if your savings are in a sock under the bed it can; a house remains a house and a company a company regardless).
They then jump from there to one of a number of solutions – normally the Gold Standard, but there are other functionally indistinguishable ones including the Silver Standard, a price-fix based on a basket of commodities, and Bitcoin. And they all have the same flaws as fiat currency – you can’t eat them or take shelter under them and are only worth what people think they are. But rather than having a potential for the government printing more and thus reducing savings, they all suffer from the same thing. The Scrooge McDuck tax on everyone’s work.
So it’s a fun picture, but what’s the tax? He’s just swimming in his pool full of gold. (Personally I prefer water. Or a ballpond (sometimes) – but if that’s what he likes swimming in, it’s up to him). Under a fiat currency that’s fine. But under the Gold Standard, his vault full of gold imposes a tax on everything I make.
Why? Part of the point of the Gold Standard is that there’s only a finite amount of gold. Therefore there is only a finite amount of currency in the world. If I write a computer programme and sell it there is one more thing in the world being chased after by the same amount of currency. Because there are more things chasing after the same amount of money, the value of the money is increased by the value of the extra things.The value of Scrooge McDuck’s swimming vault has gone up because I’ve made something that people want to spend money on.
If the top 1% hold 50% of the wealth in the world, and they hold a proportional amount of their wealth as gold (or whatever the currency is), they’ve effectively taxed me at 50% of the value of the computer program. So absolutely anything I do is paying Scrooge McDuck to swim in his vault of gold.
If on the other hand we have a fiat currency, and the government can print more money, the balance between money and things it’s chasing should be balanced. There’s more stuff and more money chasing that stuff. If the rich want to get richer because of their money they can’t do it by swimming in vaults of gold or decorating their palaces like Versailles as in the image below. They have to invest, Warren Buffet-style in things that help others. (This too often means investing in things that help other people exploit people – as in Warren Buffet’s case). Both inflation and deflation are bad. But by printing money, the government gets the excess to fund infrastructure, provide healthcare, and do a lot of other good things (and fund nuclear weapons and go to war – not everything governments do is good – but in a democracy they are at least partially accountable (although electoral reform would be good)).
So going onto the Gold Standard is basically a method for the rich to get richer at the expense of everyone else. And the government being able to print money ensures that instead of the rich getting richer, the at least some of the results of balancing the arbitrary medium of exchange we use goes to society rather than into making Scrooge McDuck’s swimming pool more valuable.
Of course there are issues with the way banks do the same thing as the people from Positive Money point out (the problems they point out are I think all valid, but their solution throws baby out with bathwater and isn’t terribly workable, but that’s a whole blog post on its own).