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<p>[QUOTE=&quot;gboulton, post: 1285628, member: 27043&quot;]If I may expand on the fixed pie vs store of value idea a bit...</p><p><br /></p><p>Consider three men.&nbsp; X, Y, and Z.&nbsp; </p><p><br /></p><p>X produces apples.&nbsp; Y produces milk.&nbsp; Z builds houses.</p><p><br /></p><p>These men can engage in free, unrestricted trade in one of 3 ways.</p><p><br /></p><p>1) They can barter.&nbsp; If X has 5 apples he does not need, and Y has a gallon of milk he does not need, they can make an exchange.</p><p><br /></p><p>This works great so long as X wants milk, and Y wants apples.&nbsp; However, Y isn&#039;t terribly fond of apples, and X is lactose intolerant.</p><p><br /></p><p>This does nothing for Z either.&nbsp; Z very much would like apples for life, and would happily build X a house for such a trade.&nbsp; Yet X can not guarantee to have a fixed number of apples available each month or year, agriculture being the variable industry it is.&nbsp; </p><p><br /></p><p>Barter&#039;s great, as long as everyone has enough for everyone else, and everyone involved wants and needs what the other has.</p><p><br /></p><p>Since that&#039;s almost never true, we came up with the idea of &quot;storing&quot; the value represented by an apple, milk, or house.&nbsp; We called it &quot;money&quot;.</p><p><br /></p><p>2) So X, Y, and Z invent a unit of exchange.&nbsp; The Dollar.&nbsp; They agree that gold, as a precious metal, will be their monetary standard, and that one ounce of gold shall be worth $20.&nbsp; (Sound vaguely familiar?)&nbsp; they further agree that all in the land will accept &quot;dollars&quot; as a fixed unit of value, and exchange them as such.</p><p><br /></p><p>Awesome!&nbsp; Now, X can sell apples for dollars, to anyone who wants them.&nbsp; He&#039;s not forced to trade for milk he can&#039;t drink, since he can go elsewhere and exchange his dollars for beer instead.</p><p><br /></p><p>Y now has a source for apples where he did not before, since he can exchange milk for dollars at the local market, and then give dollars to X.</p><p><br /></p><p>AND, X can now offer payment to Z for his house, since he feels comfortable that in times of plenty, he can SAVE some of the dollars he&#039;s earned, something he couldn&#039;t do before with perishable apples.&nbsp; This will allow him, in lean years, to honor his commitment to Z by paying him an agreed upon amount of dollars.</p><p><br /></p><p>This is working great, right?</p><p><br /></p><p>And it will, for a long time...until we run out of gold.&nbsp; Gold, you see, is a fixed pie.&nbsp; If I take a slice of pie, there&#039;s less pie for everyone else.</p><p><br /></p><p>But value doesn&#039;t work like that.&nbsp; X can grow more apples, Y can rais emore cows and produce more milk, and Z can build more houses.</p><p><br /></p><p>To say nothing of the fact that human beings being the social animals they are tend to increase in population over time.</p><p><br /></p><p>So now we have a REAL problem.</p><p><br /></p><p>Previously, X&#039;s apples sold for $1 each.&nbsp; 20 apples = 1 oz of gold.&nbsp; Fine.</p><p><br /></p><p>But he&#039;s planted more trees, and thus now makes more apples.&nbsp; He now has 40 apples.&nbsp; 2 oz of gold, right?</p><p><br /></p><p>But that leaves less gold for everyone else!&nbsp; Which...what...makes it more valuable, right?</p><p><br /></p><p>But now, gold being worth, say, $40 an ounce, X has now made $2 per apple, and everyone else is now hoarding their money because its value is increasing.</p><p><br /></p><p>MEANWHILE, X was supposed to pay Z $20 for the house payment...which used to be an ounce of gold...but now it&#039;s only half an ounce!&nbsp; Suddenly, Z is getting less gold, prompting him to hoard even more!&nbsp; Either that, or their deal was in ounces of gold, in which case, X must give what is now a $40 oz of gold to Z.&nbsp; Someone&#039;s shortchanged here.</p><p><br /></p><p>To say nothing of the fact that X, Y, and Z have all had kids now, who&#039;ve entered the workforce.&nbsp; Given that there&#039;s no 6 people to pay, not 3, out of the same fixed pile of gold, everyone...INCLUDING existing workers, now gets to take a pay cut.</p><p><br /></p><p>The other option to all of this is that X must cut the price of his apples in half, meaning he still only gets $20 for his trip to market.&nbsp; This keeps the amount of gold money in balance, but now offers no incentive for increased production.</p><p><br /></p><p>This is rampant deflation.&nbsp; Producers are DISCOURAGED from increasing production, workers are PUNISHED for remaining in the workforce longer, and nobody is spending any money...bringing the economy to a grinding halt.</p><p><br /></p><p>3) The reality of the situation is that new VALUE can be created.&nbsp; X can, indeed, learn to grow more apples.</p><p><br /></p><p>Since there is now more VALUE in the world, whatever unit we use to store it...the dollar...must also be increased.&nbsp; Eventually, being the fixed pile it is, gold doesn&#039;t allow us to do this.</p><p><br /></p><p>Enter the dollar as we know it now.</p><p><br /></p><p>===============</p><p><br /></p><p>There is NOTHING inherently evil about an increase in the amount of money in the world.&nbsp; Value can increase...as a store of it, money must do so as well.</p><p><br /></p><p>Creating new MONEY doesn&#039;t get us in trouble...it&#039;s when we will it into existence WITHOUT VALUE FOR IT TO STORE that we have problems.</p><p><br /></p><p>If an apple is worth $1, and there is $1 in the world...we&#039;re good.</p><p>If 2 apples are grown, and $2 created...we&#039;re still good.&nbsp; Increasing the money supply didn&#039;t hurt at all.</p><p><br /></p><p>Were we go straight to you know where in a hand basket is when we have 2 apples and $1...or 2 apples and $5.[/QUOTE]</p><p><br /></p>

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