Open your wallet.
Hopefully, you’ll find some cash in there.
People always say “I don’t believe governments should print money because it creates inflation.” But stop to think about that. The government HAS to print money. Otherwise, you would never have any cash in your wallet.
Government printing money is how we get money, to begin with. If you go to Washington DC, you can actually go see money being made.
But this system was a mess and not scalable.
The money supply in New York City fluctuated with the country’s annual agricultural cycle which caused endless banking panics. The United States suffered banking crises in 1873, 1884, 1890, 1893, 1896 and 1907. The San Fransico fire of 1906 finally revealed the complete inefficiency of this system because money couldn’t get to California quickly to pay for rebuilding. And when the money finally started moving out West, it created a deficit of money on the East coast that lead to the market panic of 1907. JP Morgan himself had to rescue the United States banking system. Having the financial system rest in the hands of a single individual is no way to build confidence in a country.
That’s why the Federal Reserve and national income tax were created in 1913. For years, the US tried and failed to create a central bank. The US had one but it was destroyed in the great Bank War of 1832. Americans are very paranoid about government control, so Congress could never get any new legislation passed. But after 1907, Congress finally understood that the old system didn’t work and had the political will to create a central bank and a national currency backed by a national income tax.
So to have an efficient, nationwide financial system, there’s no choice in the matter. The government prints the money and we all use it as the unit of account.
At this point, you might be saying “duh” I already knew this. But if you truly understand that money is created by the government, the implications are quite profound.
We’ll go over those implications in the next post.