Submitted by Claude Bogardus, Aug 16, 2007 10:08

What is money? In the present political arrangement, money is whatever must be used to pay our taxes. Therefore, money is defined by the Government. Currency creation, at present, is a Government Monopoly. Those Federal Reserve Notes and handsome coins of base metals are made for the convenience of the inhabitants of America, as they buy and sell in the normal course of everyday affairs. Credit is generated by the system of banks. It costs almost nothing to create credit, and credit produces interest payments to the banks, which thrive on it. Politicians listen to the people, sometimes. People want credit in order to buy things, and banks want to generate more credit and collect the interest. Such is the nature of banks. To keep the people pleased and the banks prosperous, the politicians define both currency and credit as money, while encouraging the rapid creation of credit, which costs practically nothing to create. Everybody is pleased. People have the good things of life and the banks prosper. But a problem arises, because this process is too close to "something for nothing", which our parents warned us against. A price system, propelled by money, rations the allocation of economic resources. But cost-free (for certain entities) money flowing in the wrong channels messes with this allocation. The politicians encouraged home-building, a most worthy enterprise. So the new credit flooded into this industry. Now Americans are learning that the resources were not properly allocated. We will have some problems until the economy is allowed to come back into balance.

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