Welcome to the newest edition of The Why. “Why do we have paper money?” you ask? Really? Are we doing your homework for you again or are you just curious? You kids remember that your teacher probably is not as cool as yours truly was when he taught. You probably won’t get extra credit points for sarcasm, smarminess or humor. (Still, this question beats answering the question: “If I do that other thing for my boyfriend can I still get babies in my belly?”)
Anyway, according to sources such as Forbes and investopedia, our paper money is what is called “fiat currency”. No, it has nothing to do with Italy or sports cars. In this case, fiat does not stand for “Fix It Again, Tony!” It means that our paper money derives its value from government law or regulation.
According to Keith Weiner of Forbes, there are a number of reasons why we have paper money. There are three reasons that Weiner and other experts agree on:
Folks like to get “something for nothing.” Most of them know that prosperity requires more than a money printing press. Millions of citizens get some kind of transfer payment. Weiner says: “Millions more work in the transfer system at a government agency, private contractor, law firm, lobbyist, etc.” Whole sectors of our economy currently are dependent upon the transfer payment like pigs eating at the trough.
If we did not have paper money and our current system the ‘endless borrowing” would not be possible. A silver or gold standard would not allow it. With our current system, the interest rate rises with each increase in borrowing which thus controls the credit flow—particularly to would be borrowers who are unable to or have no “interest” in repaying a loan.
Weiner notes: “Governments are the biggest borrowers, and they lack the means to repay. This is why most people oppose the gold standard. It is a threat to the gravy train.”
Another reason why we have paper money is because students of economics have been taught something called “central planning.” Weiner claims they are “programmed to believe that a free market leads to a bad outcome, but socialist planning improves the result.” Weiner and those in his school of thought believe otherwise. Weiner in fact says these days “a smart middle school student can debunk it, but its popularity lives on” which actually causes the above reason.
Perhaps the main reason we have paper money is because most Americans could care less. They don’t really know about this. They don’t care. (Check the number of shares on this one a day or two after you read it—if you made it this far yourself—and compare that to other editions of “The Why”.
Weiner and other experts agree that if most folks “have food and shelter and a little to spend, they put the monetary system out of sight and out of mind.” Most could care less. Most don’t even consider that a gold or silver standard would basically force us—the US—to exercise some overdue spending control.
Why do we have paper money? Now you know.
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