In the Broadway musical “Cabaret” there is a song that the Master of Ceremonies sings called, “Money Makes The World Go Round.” The musical number emphasizes the importance of money in pre-Nazi Germany. Did it really? Is this concept true?
When World War Two broke out in 1939 the European nations at first paid for their purchases from the United States in paper currency, then in gold bullion. After the Allied nations had run out of money the Roosevelt Administration came up with the idea of “Lend Lease,” which actually was a way of freely supplying these nations with war materials. Where did the U.S. get the money to pay for these goods and services? They printed it. The effect was to get the country out of the last dregs of the Great Depression and help stop the Nazi advance. After December 1941 the U.S. became directly involved in W.W.II and “Lend Lease” continued. We became the “Arsenal of Democracy,” supplying the needs of all the nations fighting Germany, Japan, and Italy. How did the U.S. pay for this? Simple. They printed the money.
Did the European and Asian nations we helped ever pay us back for the value of the goods they had gotten from us in the war? The answer, of course, is not in money but in helping to defeat the Axis Powers.
What was the result of W.W.II? The U.S. and all the nations involved emerged after the war as more prosperous than they had been before the fighting.
Could the war have been avoided? The answer is, yes; if the nations involved had been able to accept the reality of the money supply.
From 1933 on, first the United States and then gradually the rest of the industrial nations took gold out of their money while maintaining the fiction that there was a gold supply behind the dollar, pound, lira, or whatever. In 1933, the Roosevelt Administration collected all the gold coins from its citizens. This had been the money supply up to that point; they melted it down into large blocks and buried it in places like Fort Knox. Gold certificates were issued which, supposedly, maintained the value of the money. This was a fiction. There was no way anyone could get gold for his money. We were, on a practical basis, off the gold standard. The United States doubled its money supply by raising the value of gold from $16 dollars an ounce to $32 an ounce. Among other things this paid for Roosevelt’s New Deal. It helped lessen the ordeals of the Great Depression but did not end its effects in the U.S. where the money supply had dropped to less than one fifth of where it had been before the crash. The effects of W.W.II brought the money supply well beyond where it had ever been before the Great Depression. There had never been enough gold available to maintain that level of the money supply. The Federal Government was then on a paper economy, with the paper being freely issued.
After W.W.II the government spent hundreds of millions of dollars on the GI Bill, sending a whole generation of veterans either to college or funding them in new business areas. A few years later the Secretary of State came out with the European Recovery Act, The Marshall Plan, which helped war torn nations recover from the effects of W.W.II. We spent 71/2 billion dollars on that. It was a checkbook to these nations that allowed them to spend the money mostly in the United States buying the goods and materials they needed to recover from the war. Where did all this money come from? Obviously the government printed and issued it.
President Ronald Reagan, who believed that the Soviet Union was better armed than the United States and started a massive arms build-up in the U.S., which included, among many other things, his “Star Wars” program, where we would be able to shoot and explode oncoming missiles from outer space, raised the debt ceiling eleven times during his two administrations. He even threatened to veto every bill coming out of Congress if they did not pass bills raising the debt limits. Of course we can always congratulate Reagan on his adeptness in bankrupting the Soviet Union when they tried to keep up with us in the armaments race.
Again, where did all this money come from? It simply came into existence when Congress passed its continual new debt ceilings, which were then signed by the president into law.
How did we pay for all these jumps in funding? The economies grew and they just became part of the natural flow of money through the economy, the jumps in money were absorbed by the economic growth and rising standards of living within the society. In essence we grew out of our debt and it became non-noticeable.
Toward the end of 2008 there was an economic implosion of the money supply in most of the industrial nations. This began in the United States with the Real Estate Crash that threatened to totally decimate the money supply within the nation. Virtually all the major banks were on the point of collapse. If they had been allowed to crash then the money supply within the country would have been reduced to a slow dribble. There would have been a resulting depression that would have made the one in 1929 look like a weekend disruption. Unemployment would have probably dropped to at least fifty percent; every industry would have been affected; the amount of business failures would have been unimaginable. The entire economy would have come to a halt.
Presidents Bush and later President Obama poured multibillions of dollars into the banks and the economy. The depression was averted; the rapid falling rate of unemployment was gradually reversed and slowly rose from that point on. It has remained high but is still slowly contracting. Will the country eventually be able to create enough jobs to satisfy everyone who wants to work? An interesting question! Only the future will determine an answer to that question.
If we go back to the title of this article we can ask, does money make the world go round? And obviously since it is the means of exchange the answer is, yes.
What does this mean? In order to live in our sophisticated societies we must have a mean of exchange for the goods and services we need and desire. And that is money. It is in the form of a different currency for each individual nation. It is printed on paper and has no real intrinsic value except that attributed to it by the government of each particular nation and what it can be traded for in other nations.
Gold and silver coins could be used as an international means of exchange; but they are both too expensive and there certainly are not enough of either metal to supply the exchange needs of all the nations on this planet. Consequently every nation is stuck with paper currency, which has no real value except that assigned to it.
Money then is the tool that allows for all exchanges of goods and services. It is issued in each nation by the government of that particular country. The amount in immediate circulation is determined by various forces within each society, which in most cases do not really work together. These are the central government, the financial institutions, people, companies, and institutions using credit. In the United States it was the banks issuing credit based upon real estate until 2008 that allowed for a phenomenal expansion of the national money supply.
The point here is that it was “bank created valueless money” that allowed for industrial expansion in that nation for over thirty years. Money is “the tail that waves the dog.” The overall public sees it as being the true object of value. Wealth, in reality is the goods and services produced; money allows them to be exchanged from producers to consumers.
In essence money does make the world go round. Its shortage in a society causes recession, unemployment, and hard times for the bulk of the population. The market for goods and services disappears because people cannot afford to buy what they need and want. An excess of it in circulation brings about rapid inflation because not enough goods and services can be produced to equal the money supply. Again intense human hardship will occur as prices soar and currency rapidly decreases in value.
What is the answer to these problems? There has to be a more realistic distribution of the money supply and the government has to have much more control of the amount of money, at any one time, in circulation.
Another important factor to consider is that the amount of goods and services produced is dependent upon them being consumed, used. Consumption of goods and services are as important as the production of those items. In order to have and maintain full employment and full production people must have enough money to buy and consume those goods and services produced.
This can be engendered in either of two ways.
(1) An inordinately fair system of taxation that allows for a fair distribution of the national income without any privileged groups within the society.
(2) By developing both a negative income tax and an honest graduated income tax the Federal Government would set a minimum level of income for every man, woman, and child within the country. If the person or family unit did not earn that amount then it would be supplied by the Federal Government. Income taxes would begin at a reasonable level above that amount for everyone on a graduated level with the percentage of the tax rising as individual incomes rise.
This process would most fairly distribute the national income and allow for the highest level of productivity and consumption. It would also benefit every segment of society by enlarging the Gross Domestic Product to its possible maximum for each fiscal year. The upper one percent would earn, even with this system of taxation, greater profits than they are currently since the GDP would be considerably larger. There would be no poverty or homelessness in the nation. Everyone would have a better attitude toward themselves and everyone else. The National Debt would shrink and eventually disappear. Priorities could be aimed toward scientific research and clean energy. Everyone would be secure and be able to make real choices for themselves. That would be both real freedom and a decent minimum standard of living for everyone in the nation..
And best of all the Federal Government would control the money supply, which makes the world go round. It could keep it going at a successful rate.