For people to prosper, they need to create real value. Ultimately neither redistribution nor speculation creates real value. Real value only comes through economic enterprise and hard work. Those are the lessons these last couple of years of economic turmoil should teach us.Several friends commented on it. After I originally had the thought, it seemed painfully obvious to me. The following is a note I sent to a friend that adds a few details:
Do you remember when Nixon took the nation off the gold standard in 1971? At the time economists all said that the real value underlying the currency was the nation's ability to produce.
In those days we we still had a fairly strong manufacturing sector. Today, as we all know, manufacturing has eroded away to a tragic degree, and at best we are a service based economy.
I don't think we can base the value of the dollar on services.
The only bright light in this scenario is that—for now—the dollar might be seen as a safer currency than most of the others. However, when the world realizes that the real value of any currency is the ability of the nation to produce, we might see a huge worldwide collapse of the dollar and other currencies and rampant inflation.
We have drifted so far away from governance, commerce and banking based on the notion of value that it may take a huge worldwide financial shakeup to put the system back on track.
Adam Smith talked about the economy being guided by "an unseen hand." That hand may soon slap us silly.
Sorry I had to be the one to tell you, but now you can't say you weren't warned.
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