New car, caviar, four star daydream, think I'll buy me a football team.

It’s a gas

There are a lot of people who do not understand money. This is unfortunate since it is the cause of much grief.

The most important thing to know about money is that it has no intrinsic value. You can’t eat it, wear it, or build a house out of it. You can use it to make a fire, but people don’t usually do that unless very, very stupid people get in charge of the government. More on that later.

Many things have been used for money, but those things all had certain features in common. To be useful, money must be durable, portable, divisible, recognizable, and most importantly, scarce.

The reason things like gold and silver have been used as money around the world and throughout history is because they have all the above features. Recently, shoplifters have been stealing brand name laundry detergent to use as money – for the same reasons given above.

Many people very stupidly think that since money can be exchanged for goods and services, creating money will somehow conjure more goods and services into existence. What actually happens is that price of everything goes up. This is called “inflation” and has been a problem for nearly every currency in history. The British pound, for example, is the world’s oldest continuously used currency, and it has lost about 99% of its value since 1751. You’d need 200 pounds today to buy the same amount that 1 pound did in 1751. The US dollar is even worse. It has lost about 97% of its value since 1913, the year the Federal Reserve banking system was created. The dollar lost about 2/3 of its value since 1971, the year the US officially went off the gold standard.

The second most important thing to realize about money is that is a symbol. It is both a symbol of desire and a way of measuring it. For the only way to measure how much someone wants something is to ask what they are willing to trade for it. Money is what makes this trade possible.

Prices are the way we measure desire. They are critical information about how much a good or service is worth and how much demand there is for it. Many very stupid people think that the government can somehow raise or lower prices by decree. The only result of such decrees is economic chaos. In countries like Venezuela and Zimbabwe, socialist governments attempting to help the poor set low prices for food and fuel. However, since they set them too low, those goods are in short supply and what goods do exist are only available on the black market for much higher prices. In Venezuela, many people earn a living by standing in line to buy goods for the official price just so they can sell it on the black market for a higher price.

51st Emperor of The Roman Empire

This is not the first time this has happened, 1700 years ago, a Roman emperor named Diocletian didn’t have enough money to pay for everything. He ordered the mint to decrease the amount of silver in each coin so he could buy more. It worked initially, but then prices rose because it did not take long for people to figure out the coins were worth less than before. So Diocletian then decreed that it was illegal for merchants to raise prices. One historian at the time wrote that Diocletian might as well have commanded the winds not to blow.

Just like today, the inflation was blamed on everything except the government. Diocletian blamed speculators, money lenders, and foreigners for the inflation. Sound familiar?

Inflation can only come from a government creating more money, and there are numerous examples of this.

So why then does a trained economist like Paul Krugman think that minting trillion dollar coins would be a good idea? My only answer is that someone who knows economics but not history will invariably be dumber than a person who has studied neither. This is probably why Krugman also thinks the US economy could be jump-started by a fake alien invasion.