Thursday, November 6, 2008

Worthless Money

During the 12th and 13th centuries, rulers in the Holy Roman Empire would issue thin silver coins called bracteates. The coins would be reclaimed upon each ruler's death at 75% of their true value. Getting a 25% return on their currency generated a lot income for the rulers so they decided to reclaim the coins more often. The result was a demand for goods and services - it was better to spend the money while it still had value. The quality of life improved and local economies prospered.

When gold coins were introduced during the 15th century, money became worth keeping. The result was a drop in demand for labor, a drop in wages and a rise in unemployment.It was easier to loan money and collect interest. The rulers had to create new methods of taxation to raise funds.

During the 1930's the small Austrian town of Worgl (suffering from the Depression) experimented with using money that was worth more being spent than it was worth being saved. The notes issued had to be stamped monthly to show their 1% (monthly) depreciation. The town flourished and other towns followed their example. The Central Bank noticed that there was little need for it's currency, controls and interest. It took legal action to shut down the system.

In America, similar systems were created but they were shut down in March 1933 after President Roosevelt (and the banks) noticed that the people were running the financial system and not the banks.

Did we really need to bail out our banking system at an estimated cost of 1 TRILLION DOLLARS ? Or was a natural deflation more beneficial to working people?

(Source - Short Circuit / Richard Douthwaite)

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