A Fable To Expose The Fed

Posted by Jason | Posted in Economics | Posted on 11-03-2010

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Here’s a great fable from the Conservative Business Network.

My mother and father would hark back to the days when a loaf of bread was only 8 cents. “Mom”, I would say, “things just cost more.”

Could I have been more wrong?

Things don’t cost more, it is a hidden tax!

How Inflation is Created

Contrary to common thought, inflation is not the normal order of things. It will all become very clear when you read this short analogy.

There are 10 people in a community.

1. Abe makes tractors

2. Bill makes gas

3. Charlie builds houses

4. Darin is a developer

5. Edward makes tractor parts

6. Frank is a produce farmer

7. George raises cattle

8. Hank is a tractor mechanic

9. Ian owns and drives a delivery van

10. Jasper is a laborer

These hardworking folks soon learned a simple barter system would not work. When Charlie built a house for Hank, he wanted to be paid, but did not need tractor parts.

They needed something else of value to trade. Everyone knew this was a problem for them too. So they all got together and created an advanced barter system called money.They created the “DayCredit” or as it became known the DC.

A DayCredit was equal to exactly (1) 12 hour day of work. Since it takes Charlie 3600 hours to build a house, the house is worth 300 DC’s. That means Hank is going to have to labor as a mechanic for 300 days to pay for the house.

With DC currency, it does not matter for whom Hank works, as long as they pay him in equivalent DC currency. Charlie knows that the money he receives can be used to buy goods or services from anyone else in their group.

So far; so good.

One day, the Fedrev family moves into town. The whole town is excited and welcome the Fedrev’s with open arms. They explain to them how their barter system works and the Fedrevs agree to accept and use the DC currency.

Up until this point, everyone printed their own currency based on integrity and full guarantee of their 12 hr work day per DC.

Fedrev was a printer and supplied printing services. Then one day they offered to be the sole printer of the DC currency. A reasonable idea but unfortunately Fedrev was lazy and dishonest.

Fedrev wanted to have the nicest house in the community but did not have enough DCs to purchase the house from Charlie. So they very quietly printed a little extra money and gave it to themselves as a 10% interest bonus. They then used that money to buy the most expensive house Charlie could build.

Everyone knew there were more DCs in the system than there were labor hours to back them up. So when Frank went to buy a tractor, Edward would no longer accept 1 DC per 12 hr day. Edward now wanted 1.1 DCs for each labor day he needed to build a tractor.

Jasper the laborer could no longer afford to buy produce because Frank had to raise his prices to cover the cost of the tractor. So he demanded a cost of living adjustment from George the Cattle farmer.

Upon learning that George’s beef prices went up by 10% Bill raised his gas prices to cover his family expenses.

And so on.

Sadly, due to dishonest money policy, 10% of the value of the money simply disappeared. A day's work is still a days work, but for this community, a day’s work is only worth 91% of what it used to be.

For those that could raise their prices, it was a wash.

But for those who could not raise their prices, their money now buys less. A day of delivery for Ian is no longer worth a 12 hours of Bill’s gas production.

Rising prices are absolute proof that too much money is being pumped into the system!

I get inflation, but how is this a hidden tax?

Great Question.

Who benefited in the community of 10?

Read the rest at Conservative Business Network.

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