Sunday, March 20, 2011

Government and Inflation

Charles Sumner, Republican senator from Massachusetts, announcing that he would vote in 1862 for the Legal Tender Act, even though he believed in "hard money" (backed by gold and silver):

Is it necessary to incur all the unquestionable evils of inconvertible paper, forced into circulation by act of Congress? To suffer the stain upon our national faith? To bear the stigma of a seeming repudiation? To lose for the present that credit which, in itself, is a treasury? And to teach debtors everywhere that contracts may be varied at the will of a stronger? Surely, there is much in these inquiries which make us pause.... Surely we must all be against paper money. We must all insist on maintaining the integrity of the government. We must all set our faces against any proposition like the present, except as a temporary expedient.

So the legislators and economists 150 years ago worried that fiat money would bring disaster. Many commentators of that day (and since) have suggested that greenbacks turned out not to be so bad after all.

Anybody look at the national debt recently? Anybody heard of the protests in Madison WI because government employees believe that the government has a never-ending supply of money? Anybody notice that many debtors today have indeed learned that it's okay to change a contract if they can get by with it? (The attitude of our former governor seemed to be, "Oh, piffles, why should we have to pay back Minnesota just because we owe them money?")

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