Friday, March 4, 2011

How governments steal

The Mises Institute posted a very good and easy to read explanation of how governments cheat and steal money from everyone.
...creating more dollars is an easy way to pay for government expenditures. If the government wants to pay for wars, bailouts, or their own cushy salaries and perks, they can print the money instead of taking it away from us by force through taxation.
This is basically how new money makes its way into the economy. The initial recipients of the new money — the government and its friends — get to spend it first with the old, more concentrated purchasing power, and as the money makes its way into the economy it gradually dilutes the purchasing power of the entire pool of money. So, in effect, because of this uneven readjustment of prices, in some segments of the population the price of goods will go up before wages do, making these people much poorer.

He then goes on to talk about how valuating investments in terms of paper currencies (dollar, rupee etc.) is wrong. And what have we been taught by Allah and his Messenger (SAWS)? Do we really need to be told these things by Western scholars?
The point that is being missed is that gold is a commodity as well as a monetary metal. There is a market for gold outside the monetary realm, and this is an additional component to its value that modern paper currencies do not have. In that sense one could say that gold's value as a commodity gives it that "price floor," or downside protection.

But above all, gold has value because people want it and because it is scarce. It is that simple.

Read the full article here.

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