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From the Editor
On Inflation: Empty Soda Bottles
By: David Deschesne
Editor/Publisher, Fort Fairfield Journal
A reader approached me the other day and said they liked reading the Fort Fairfield Journal to find out why I hate banks so much. To be clear, I don’t hate banks, I hate what they’ve been allowed to do with the money.
I’ve also been asked to write about our high gas prices and greedy oil companies. While the oil companies are monopoly men, and are suppressing energy technologies that are not oil based, we are suffering high prices everywhere. Look at the price of milk, tomato soup, blueberry pie filling, tires, lumber, and everything else we buy. They have all increased in price.
I recently had a discussion with a person who was advocating for price controls. That is, he suggested we use the force of law to coerce the oil companies to sell gas for $2.00 per gallon and offer them tax incentives to make up the difference. First of all, price controls in the U.S. were deemed illegal by the Supreme Court in the 1940’s when Roosevelt tried it with agricultural prices. Not only was it illegal, but it forced farmers to not produce in order to keep the prices up so the banks could collect on the loans extended to the agricultural community. Secondly, price controls on the end product do nothing to address market demands, supply issues or the liquidity of the money system. The former Soviet Union enforced strict price controls and micromanaged its markets to the point that grocery store shelves were mostly empty while grain and potatoes rotted in rail cars waiting to be distributed. No, the answer to high prices is definitely not “more government.”
Inflated prices across the board in all sections of the market are not indicative of supply or demand issues. Rather, they are a sign that the money we are using to purchase those goods and services has lost some of its value so it takes more of it to purchase the same things we used to for less (this also explains why the stock market goes up when the money system loses its value—it takes more money to buy the same amount of stock).
Inflation can be an elusive topic to understand for those who haven’t invested a great deal of time studying economics. So, I have devised a simple analogy to help you all understand why gas, groceries and durable goods have all gone up in price.
All money is is a store of wealth. Money is not of itself, wealth. Wealth is land (natural resources) and what is derived from it with the application of human labor. As that labor is expended and either impressed upon a product or performed as a service, it gets stored in the product or utilized in the service—which then trades for money. Money, regardless of its form, is merely a representation of that labor—sort of like a charge in a battery. Now, like all batteries, some store their charge better than others. Before we get into what types of money are a better store of wealth (expended labor) than others, please allow me to elucidate the function of money, using familiar soda bottles instead of dollars, in order to illustrate how inflation occurs.
Let’s start off first with something simple like a gallon of gasoline. In this hypothetical example, a gallon of gasoline trades for one bottle of soda. The bottle is analogous to the monetary unit (i.e. dollar) and the soda in the bottle is the labor that was expended that gives the bottle its value. (fig. 1)
We go through our days trading one bottle of soda for one gallon of gas. As long as the amount of soda and gasoline remain at par with each other, the trade price will remain the same.
As we get accustomed to accepting the bottle as the thing that has the value—rather than the soda in it—the manufacturer of the bottles decides it would be to their benefit to create more bottles in order to have “more money.” They endeavor to double the amount of bottles in circulation, but do not increase the amount of soda. So, rather than a bottle being completely full of soda, all bottles now would be half full since the soda has to be divided evenly among them. (fig. 2)
Now, the marketplace isn’t stupid. It knows the value of the things it is trading and in very quick time, a gallon of gasoline will sell not for one bottle, but for two. The “price” of the gas denominated in bottles will have doubled, not because of greedy oil companies, or gasoline dealers; not because there was all of a sudden a massive supply disruption or increase in demand. The only reason for the price rise was due to the fact that the bottle manufacturer increased the money supply (bottles) without increasing the soda (expended human labor).
Soon, as society grows accustomed to the increased price, the bottle manufacturer, working at the behest of ignorant or malevolent politicians sees a chance to increase the money supply again and doubles the amount of bottles in circulation. Without increasing the amount of soda, the soda would have to be evenly divided amongst all the bottles—each now containing only a quarter of what they once held (fig. 3).
Now, the money has been devalued to such a point by increasing its supply that a gallon of gas would have to double again—to 4 bottles. But, by looking at the amount of soda in the bottles, you will notice it is still the same amount of soda purchasing the gas, the only thing that has changed is how many containers it takes to transfer that soda.
As the money supply in bottles continues to increase without a concomitant rise in the soda in circulation, the value of each individual bottle will continually decline as each holds less and less soda (fig. 4).
This simple analogy describes what has happened to our money system over the past 100 years when Congress handed control of it over to a private, for-profit central bank called the “Federal Reserve.” the Federal Reserve is neither Federal—it is not a branch of the U.S. government—nor does it have any “reserves.”
What the Federal reserve has been doing is slowly increasing the amount of money (bottles) in circulation without society increasing the amount of labor, products or services, to offset that rise. The result is the government gets to borrow that money and purchase whatever it wants, regardless of the price, because it has unlimited access to all the money it wants. Because we down here at the citizen level of society are stuck earning a set amount of money—and cannot spend the way the government does—we see our ability to purchase products and services decline as the money we use loses its value. Like the soda in the bottles, the money in our pockets decreases in value every time more of it is put into circulation. We then see prices “rise” to offset that money’s devaluation and either have to work longer hours to earn more, or go without. The U.S. Government never has to suffer under such privation. They simply have the Federal Reserve manufacture more money and then borrow it, then hand us the bill through taxation.
Now, that increased money supply devaluing our currency is only half the problem. What you have to understand about the Federal Reserve is they have nothing to back the paper money they are printing. What they back it with is a promise to pay by the borrower. Going back to our soda bottle analogy, the Federal Reserve Note—what we use as money today—is essentially an empty soda bottle. They create the bottle, loan it out and the borrower has to work and labor to fill the bottle with soda at a later date. The only reason these empty paper money notes trade for products and services in the marketplace at all is because there is an illusion of value—that is, people think the soda bottles have soda in them when they are in reality quite empty.
The illusion started when our money did have value. That is, it contained a certain amount of silver (or gold) that the paper could be redeemed for at any bank. As a tangible material, silver acted as the soda in the bottle. As more paper money was printed than there was silver to back it, the paper money lost value—but the silver didn’t. In fact, you can still buy the same amount of things today for one dollar in silver (a one ounce silver U.S. dollar) that you could fifty years ago when our money was still backed by silver.
By slowly removing the silver as a backing for their paper currency, the Federal Reserve has been able to enjoy virtually unlimited profits by charging interest on money that doesn’t exist—except for in our collective imaginations—and they use that money to literally buy up the world, governments, militaries, etc. because it costs them next to nothing to create all that empty soda bottle money.
We then, deluded into thinking the ‘money’ we borrowed from the banks has value that needs to be repaid, work and slave under a feudal-serf system of employment to fill those empty soda bottle paper money notes. Have you ever wondered why the government was so interested in you having a “job?” It’s not because they love you and are looking out for your best interests, but it’s to keep the charade going and generate massive amounts of profits for the banks who fund their (government) operations with that fake empty soda bottle money.
The solution is simple, but its application is not. We have to abandon using the Federal Reserve’s empty soda bottle money and return to money that has the wealth, labor and energy literally stored in it. That type of money can be anything backed by a tangible, real-world commodity—but gold and silver are the best due to their concentrated size and durability (they don’t rot or break down, they don’t lose their value). The value inherent in those metals is reflected by all the labor and energy that went into mining, refining and stamping into a usable coin.
The Federal Reserve has to be abolished, its paper money ponzi scheme abandoned and we need to reinstitute the money that made the U.S. the strongest nation in the history of the world—gold and silver. Then, our prices would stabilize, we would not have to work continually increasing hours at our jobs to compensate for the money losing its value and the US government would be limited as to what it has money to spend on.
As I said, the solution is simple, but it won’t be easy. The money men at the Federal Reserve have been cheating us for so long and reaping massive profits that they will do anything to coerce Congress into maintaining the status quo with their paper money—even to the point of military and militarized police action, if necessary.
Rather than wait for Congress to act, which they never will, we should all agree to revert back to silver in our exchanges and stop using Federal Reserve notes. As we move back to a wealth-based currency, the prices will fix themselves and we will have removed the yoke of serfdom from our collective necks.
The choice has always been ours. To fix, or not to fix. What would you like to do today?