Why Do So Many In The Government Believe That Creating Money Out Of Thin Air Creates Wealth?

{Editor’s Note: This is the 17th installment of a series of articles attempting to address the 32 questions posed by Ron Paul in his recent farewell speech given in front of Congress. Check out the previous installment, “Why Did The Big Banks Get Bailed Out In 2008 While The Middle Class Lost Jobs And Homes?”}What is money? This was a question I hadn’t asked myself until years after I had already been actively saving, spending and earning it.  It’s sort of like gravity; you know from the time you learn to walk that your feet will always be forced back to the ground, but the concept is something you may not learn until 6^th grade or even high school  Unlike gravity, however, money is not part of most American grade school curriculums.  The question goes unanswered until at least college for some and sometimes never for others.The first person who attempted to answer this question to me was my 7^th grade teacher who very incorrectly told me that money was created by the government based on a weight of gold being held in a secure reserve somewhere.  This made sense to me.  I could never understand why governments had debts if they themselves created this green paper. It also perplexed me why the green paper in my wallet could buy me lunch, but my loose leaf paper was only valuable for homework assignments.  But knowing that the government was also held accountable for it with a hard backing asset like gold made sense as to why they just couldn’t make as much as they wanted.  It gave me a renewed faith in the value of money since I now thought it wasn’t just paper.A more sophisticated attempt at teaching me what money is came about 7 years later in the form of college economics courses. Still, after finishing 3 credits shy of an econ minor, I labored under the illusion that money was backed by gold.  Now this one might be on me because if I actually understood what macroeconomics was attempting to teach me I would have figured it out pretty quickly.  Macro -  study of the larger economic picture as a whole - taught me that thanks to advances in monetary and fiscal policy, recessions were pretty much a thing of the past.Like the polio vaccine, economic science too had supposedly conquered a natural scourge that plagued humanity.  If things were slowing down, both policy toolboxes had the remedy.  Fiscally we were to cut taxes and spend beyond our means while monetarily we were to drop interest rates or increase the amount of money.  Once the engine was humming again we were to stop the spending and raise the interest rates.  That was seriously all I learned in two levels of macroeconomics. Never how, never why, just that this was how we tamed the economic beast.Today I have a much better understanding of money, and although I admit I have more  to learn, watching the news or political discussions about money makes me fairly confident that I know a bit more than the average pundit or politician.  But as interesting as my personal journey to monetary enlightenment might be, I only mention it because I think it partially answers Ron Paul’s 17^th question.Why do so many in the government and the federal officials believe that creating money out of thin air creates wealth?The reasons most politicians and Federal officials believe that creating money out of thin air creates wealth can be boiled down to a few points.  The first and least insidious is that they just don’t know any better.  Some of the world’s brightest people won’t touch economics, and more specifically monetary theory, with a 16 Trillion foot pole.  Like most people would rather a chemical engineer than a lawyer design a storage facility for hazardous material, most too would prefer the economic “experts” to design their monetary system.  But chemistry is not economics. Monetary theory is just that, theory.  Any economic training you will get at an accredited University will teach you a blend of two such theories; Keynesian and Monetarist. The former is the belief that fiscal policy is the answer to our economic woes, while that latter, believes that manipulating the money supply is the key to keeping us ever prosperous.While these theories are taught to be slightly at odds with each other, they do not represent a dramatically different way of thinking.  These two schools pretty much teach us the same thing- the government needs to manage the economy.  The Keynesians believe through deficit spending, while the monetarists believe through printing more money.  What you get when these two theories merge to form national economic policy is a never ending pyramid scheme that squanders the wealth of a nation. But academia and modern mainstream economics are predicated on those beliefs.The flawed science of two theorists pervades all economic teaching and policy we know today.  Other economic theories are seen as “archaic” or foolish. The main reason that politicians, their bureaucratic appointees and their media “experts” believe that printing money out thin air creates wealth is because that’s what they were taught.  Economics, like many intellectual realms in the earlier parts of the century, was hijacked by the statists and central planners.But let’s not let them off the hook with that easy explanation.  Innocent ignorance is not the only reason the government and its cartel bank believe that printing money out of thin air creates wealth. The main reason they believe such nonsense is because it does, at least for a few (more specifically the few that matter).  Printing money through quantitative easing does create wealth for banks and large asset holders ie, the wealthy on the backs of the common people as a whole. The artificial interest rates (which also sort of “prints” more money) fatten bank profits as well. The mechanisms that the Fed uses to increase the money supply have a significant wealth shifting effect from the productive sector to the financial sector.  For an elite few, fake money is a good thing. Check out my previous post on the Federal Reserve System for a more in depth discussion on why. Another significant reason for this belief is that our out of control government spending is enabled by this counterfeit system.  The Fed guarantees the marketability of government debt through money printing.  Quantitative easing is almost solely comprised of buying US debt instruments.  Forget what you heard about China (because they are starting to wise up), the Fed is our rightful owner.  They give Uncle Sam a no limit credit card with APR terms that most citizens really don’t understand; sustained inflation.  This monetization of the debt gives the government a blank check to pay for everything.As we have mentioned before many times on this blog, all of this is only possible as long as the world agrees that the US dollar is strong enough to back everything else - fiat gold, if you will.  That sentiment is rapidly decreasing and when it does we are in for a potent lesson in monetary theory.  Paper is only paper. My confusion between the loose leaf and the greenback in 7^th grade was a better understanding of wealth than my 100K education could provide years later at a major university.  We need to disabuse economic education of these ideas. It will be much less painful to learn this in a classroom than over the course of time.Receive access to ALL of our EXCLUSIVE bonus audio content – including “Conspiracy Corner”, “Degenerate Gamblers” and the “League of Liberty Podcast” by joining the Lions of Liberty Pride and supporting us on Patreon!