What It Is and What It Isn't
Money Part IV - Store of Wealth
Douglas V. Gnazzo
Apr 5, 2006
Quality vs. Quantity
Last week we ended with a discussion
of the difference between present and future time preferences,
and how they affect direct and indirect exchange accordingly.
We saw that there are both direct and indirect credit transactions
because of different time preferences.
This week we will discuss the
importance of money retaining its purchasing power into the future.
Money is only good for one thing - to exchange for other goods.
You cannot eat or drink money.
The quality theory of money
emphasizes the purchasing power of money as the most important
determinant of a sound currency.
The quantity theory of money
emphasizes the number of units of money as being the factor of
greatest importance. The quantity theory is inferior to the quality
theory of money.
The more purchasing power that
money retains, the more goods that can be purchased with it.
If money loses purchasing power, then fewer goods can be purchased
with the same amount of money. Loss of purchasing power is loss
If the quality of money is
decreasing, then one has to accumulate more units of money to
buy the same amount of goods as before. This means that one must
work harder in order to earn more income just to stay even with
the loss of purchasing power.
When one's income buys less
than it used to, more income is needed to keep one's standard
of living the same as before.
The loss of purchasing power
is also referred to as inflation, or the debasement of the currency.
Whatever you want to call it, the bottom line is that your bottom
line is getting worse - you are losing wealth.
If the quality of our money
is losing 10% if its purchasing power, then we will have to earn
10% more units of money just to keep our standard of living the
same as before.
Since the Federal Reserve took
control in 1913, our money has lost 95% of its purchasing
power or value. This is why it takes both parents to work to
support a family today.
Our income has not
kept up with the loss of purchasing power.
This means our standard of
living is going down - not up, as the establishment would have
you believe. Just because one is in possession of more
stuff, it does not mean that they are necessarily wealthier,
or better off.
Wealth is measured by the bottom
line, after you subtract out what you owe from what you own.
If you own more than you owe,
you have a positive net worth. If you owe more than you own,
you have a negative net worth.
Whatever your net worth is
- that is your bottom line - that is your financial wealth.
If the mortgage never gets
paid off in full, one does not legally own the title to their
house. The bank holds the title and owns the house until the
mortgage is paid off in full.
If an individual is fortunate
and pays off the mortgage, if taxes and other debts exist, one's
house remains subject to forfeiture.
A 30-year mortgage, if paid
every year for 30 years, adds up to 3 times the original amount
of the loan paid out as the total final cost. The extra is the
interest - the vig - paid to the man for loaning money that he
created out of nothing - by fiat.
If 2/3 thirds of the way through
all of the payments, one suddenly loses their job and cannot
pay, the bank can foreclose on the house. One must sell and move
The bank gets the
house and whatever money paid to date.
Then the banker will extend
another loan to a different party and they will purchase the
mortgage payments, and the cycle starts over anew.
Nice work if you can get it
and rest peaceful at night. It might present a slight problem
on the final day of reckoning, however, when all is weighed in
From the above we can see that
it is very important for money not to lose its purchasing power.
If the quality of our money is eroding, our standard of living
is eroding along with it.
We must work harder
and earn more income - just to stay even.
... Read the full
report on Doug's new website.
-Douglas V. Gnazzo
email: Douglas V, Gnazzo
Honest Money: What it
is and what it isn't
I : Part II : Part
III : Part IV : Part
VI : Part V : Part
VII : Part
is CEO of New England Renovation LLC, a historical restoration contractor
that specializes in restoring older buildings that are vintage historic
landmarks. He writes for numerous websites and his work appears
both here and abroad. Just recently he was honored by being
chosen as a Foundation Scholar for the Foundation for
the Advancement of Monetary Education (FAME).
V. Gnazzo. All Rights Reserved.