…In a true free market economy with sound money.

I’m writing this entry to challenge a paradigm, to show that so many things we accept as the “way things are” just aren’t so.

The “reality” we have come to know is based on constantly rising prices and the need for constantly rising wages to keep up with the cost of living. These are not realities of the free market – they are a product of fiat money and inflation, creations of government.

When governments can print money at will, creating it out of thin air, their natural incentive is to produce as much as possible to fund the growth of government. When the money supply increases, its value decreases and it is able to command fewer goods in the market place. This leaves us all in the position of constantly trying to earn more money to keep up with the loss in its value – value that is being stolen from us to pay for more and bigger government.

Humans are very adaptive, and we adjust our lifestyles from generation to generation to meet changing circumstances, often without thinking about how or why the circumstances have changed. What once was a single income earning society has become a dual income earning society, with both parents working full time to provide a standard of living that was once provided by a single breadwinner. A college education used to set one apart from the crowd, now it’s simply a prerequisite to get a job. The gap between the haves and have-nots is widening, the middle class is being wiped out.

Few people save, because saving is a constant race to find investments that post gains at a rate exceeding the rate of losses in the value in our money. Much of this is beyond the capacity of the average wage earner. There was a time when a bank savings account, and the interest it compounded, was a good idea. Today, money sitting in a bank savings account is losing value to inflation. If the loss in the value of money isn’t readily apparent to you, try this inflation calculator. Perhaps you can remember the price of something you purchased 10 or 20 years ago – look it up and see what it would cost in today’s dollar.

In contrast, consider a true free market economy based on the gold standard. In such an economy, there would be a limited supply of money available. New gold added to the money supply via mining would be relatively insignificant in the frame of an entire economy.

Since money (gold) is nothing more than a good exchanged for other goods, the limited supply will increase its value as the free market creates more and more goods available for exchange, all competing for a share of the existing pool of money. Established goods become more competitive as producers employ advanced technologies, making it cheaper to produce the good and thus, profitable to exchange for less gold.

Lower prices for consumer goods equals a higher standard of living for consumers. As technologies advance and efficiencies are improved, wage earners are able to command more luxury items with their disposable income. They will need less money for the basics, as the cost of food, housing, and transportation fall. Absent a government-imposed minimum wage, suppliers of simple products such as fast food may provide more value, while the employees of such enterprises require less compensation to enjoy a share of the “good life” provided by the ever expanding, cost-of-living-reducing free market.

Savings increase in value, even without gaining interest! If the purchasing power of money increases over time, then a quantity of gold saved today will only increase in value for the future. Yes, it is possible that storing money in a buried jar is a good idea. Parents who save their wealth, earned in times of lower value, may pass it on to their children, increasing family wealth from generation to generation.

The hallmark of free markets, capitalism, and the American system (as established) is the rise of the middle class. Unlike never before, more and more people were able to enjoy luxuries previously available only to the elites. Let us not confuse a higher standard of living with a higher wage. In fact, in a free market economy with sound money, each generation may enjoy a higher standard of living with lower wages than the previous.

Update:  This post has been the most viewed item at Ultimate Minority.  If the ideas have intrigued you, I recommend reading my posts titled What is Money and Fiat Money for more background information.