Benjamin Franklin, A Modest Enquiry into the Nature and Necessity of Paper Currency, 1729
- Knowing the true interests of your country is
very important but doing so is far too abstruse & intricate to do with any
degree of competence. This is why it’s generally a neglected practice
- People often talk about it when talking politics but they have no clue of what they’re talking about
- With that said, let’s talk about why or why not the introduction of a paper currency would be good for the country
- There’s a certain amount of money required for a country to do business. More than what’s necessary is bad, as is less than what’s necessary
- This makes us consider the following:
- 1 – Lack of money in the system causes interest
rates to be very high. When they are too high, people don’t borrow & start
new projects. Since the government has a cap on the interest rate at 6% when
the natural rate would be 10%, it can have disastrous effects
- It makes land prices too low because instead of investing in land, they put their money in lending because of the higher interest rates
- Rather than making investments in things because to do so would require borrowing money or the opportunity cost of not lending it out at a high interest rate, thus people will not approach any business deal that doesn’t return at least a guaranteed 6% return.
- When there’s too much money, there’s no point in lending it out at a low interest rate. This might induce people to buy land, making land prices exorbitantly high. They won’t lend money out & use of that money isn’t made to create companies or projects
- 2 – Lack of money lowers prices. Trade is then
discouraged & production is reduced. This will cause shrinkage in
production. The overall output will decrease, possibly causing starvation &
a reverse of quality of life
- We’ve seen the use of paper money cause an increase of demand for things, especially ship-building which requires not only borrowing & lending but for all the materials involved in its production
- 3 – Lack of money discourages labor & manual
- A lot of people will leave sectors of the economy where they’re not being paid what they want to be paid & go where they will be better compensated
- 4 – Lack of money decreases demand of domestic
products in favor of foreign products.
- Because the production end is all messed up due to monetary shortages, whatever money remains on the consumption side will be spent on goods from foreign countries where supply is not hampered by monetary problems
- This will cause the problems to spiral out of control. Less demand for domestic products will cause domestic supply to shrink. That shrinkage will cause demand to shrink, etc
- 1 – Lack of money in the system causes interest rates to be very high. When they are too high, people don’t borrow & start new projects. Since the government has a cap on the interest rate at 6% when the natural rate would be 10%, it can have disastrous effects
- Conclusions we can draw from monetary shortages:
- 1 – Men’s actions are influenced by what’s in their own interest. They are short of cash & will want to have more at least to maintain their standard of living.
- 2 – Those who happen to have massive amounts of money are likely to have a lot of land – they will oppose the introduction of more money because it will cause the price of land to drop & cause the land they’re trying to sell to be sold for less
- 3 – Lawyers will not want money in the system because that’ll mean that fewer people are likely to go into debt, & that’ll be a large part of their business that will dry up
- 4 – Dependents on those holding public offices
will oppose the introduction of more money into the system because it’ll seem
to be against their interest.
- Well-meaning people will push for the adequate amount to be introduced to help out their fellow citizens.
- Traders will want a large addition of currency because it’ll mean interest rates will drop making production increase, as well as ship numbers increasing, giving them more money as a result
- Ultimately an increase in the currency will lead to an increase in the overall population, making the wealth of the Empire greater & the power of the King greater