Money is Not Wealth

Possessing a lot of money doesn't necessarily make you wealthy. Money is just a certificate that you can exchange for goods and services -- if they're available. If no goods and services are available your money is worthless. The acquisition of goods and services builds wealth. You can build wealth by creating the goods and services yourself, trading goods and services you possess for other goods and services or by purchasing them with money, but only the first method applies if no goods or services are available for trade or purchase.

If you don't agree, or think I'm splitting hairs, consider this: The federal government decides to end poverty by printing and giving a million dollars to each man, woman and child in the country. A family of five now has five million dollars to spend. And collectively there are over 300 trillion additional dollars in circulation and the goods and services available to be purchased haven't increased at all.

How will it play out? Out-of-control inflation, of course. Most people are smart enough to know they will need to spend the money quickly before prices skyrocket. Bidding wars for houses, cars, boats and other goods and services will ensue. A $100,000 house will soon be selling for 10 million or some other astronomical figure. The dollar will also collapse on the international market. Soon the people are back where they started or worse. Some of the poor may now be in houses they can't afford to operate and maintain.

When the government tries to stimulate the economy by spending smaller amounts of money the result is the same but on a smaller scale. Government spending can not boost the economy over the long term. It doesn't matter if the money comes from tax payers or it is just printed.

The value of money is determined by the amount of goods and services that the money is chasing. I suppose you could make a hat or a window curtain out of money but most people prefer to exchange it for a better or more attractive hat or window curtain.

Oh, there is one happy ending -- for the government. It taxed the 300+ trillion dollars at existing rates. It payed off the national debt and has a surplus of tens of trillions of dollars in the treasury. Its creditors are very unhappy though.

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