Sunday, April 26, 2015

WHERE MONEY COMES FROM

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People have this peculiar idea that, since governments print the currency we use, that governments must be where money comes from. Not so.

Printing of money is a service that governments render to make it easier for people to exchange goods and services of value.

Until somebody makes or does something of value, nobody exchanges anything. No money changes hands.

Once you have people starting to produce chairs and newspapers and bratwurst and beautiful songs, other people will find a way to buy those things. That’s when they use the money that the government has printed.

Sometimes, however, governments go crazy and start printing tons of money, and the amount of new money being turned out far exceeds the quantity of new goods and services being produced. This is the galloping inflation we’'ve all heard about. It’s just a massive overprinting of currency. 

During huge inflation, there’s lots of currency, but paradoxically, there’s less and less wealth.

So the only real wealth is the ability to produce value. If you can turn out goods or services that other people want, you’ll be wealthy. If you can’t, it doesn'’t matter how much money there is, you’ll be broke. 

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