The Trivialization of Money

About 60 years ago, Sen. Everett Dirksen (R-Ill.) uttered the famous quip, “A billion here, a billion there, and pretty soon, you’re talking about real money.”

Has politics in Washington changed much in the six decades since? Yes and no. No, the same cavalier attitude about spending other people’s money rages on unchecked. Yes, the scale has changed drastically.

Today, the refrain is “a trillion here, a trillion there.”

“Trillion” is a simple word. It rolls effortlessly off the tongue. But the word’s simplicity belies the immensity that it signifies. If you stacked $100 bills flat on top of each other, $1 million would be about 40 inches tall, a billion would be more than twice the height of the Empire State Building, and a trillion would rise more than 631 miles. If those were $1 bills instead of hundreds, the pile (again, stacked flat on top of each other) would, if laid on its side, circle the Earth at the equator more than 2.5 times.

In terms of time, if you had been spending $1 million a day, every day since the birth of Christ, you still wouldn’t have spent even three-quarters of $1 trillion.

The first time the entire GDP of the country exceeded $1 trillion, John Kennedy was president. The first time the national debt reached that sum, Ronald Reagan was president. Today, the national debt has soared to more than $26 trillion. This summer, Uncle Sam set a record by spending more than $1 trillion in a single month.

Today, under the pressure of democratic politics in which government is viewed as a Santa Claus with infinitely deep pockets, the two parties (the party of Big Government—the Republicans—and the party of Bigger Government—the democratic socialists—never propose freezing, much less (gasp!) shrinking, federal spending. The only debate is about how many additional trillions of dollars of debt to add.

The continued spending of trillions of dollars that don’t even exist yet is insane. What we are witnessing is the utter trivialization of money. Money used to be respected. It was a solid symbol that something valuable had been brought into existence by human ingenuity or effort. A unit of money represented economic production, the creation of new wealth. Today, our currency has taken on an unserious “Monopoly money” quality. Politicians treat it like a plaything. It doesn’t bother them that they are saddling our children with tens of trillions of dollars of debt.

The “original [monetary] sin” is the adoption of a fiat currency—“fiat” denoting a money substitute that has no nonmonetary value in the marketplace. Our money used to consist of real economic goods—specifically, gold and silver coins or paper certificates redeemable in gold or silver. The United States went off the gold standard in two stages—in 1933, when FDR ended currency redemption for Americans and in 1971, when Richard Nixon did the same internationally.

When Americans bought and sold goods and services with precious metals (or a paper note redeemable in precious metal) there was an implicit sense, a confidence, and security that they were trading economic value for economic value.

Fiat currencies sooner or later trade at a price that reflects economic reality—that trillions of rectangular pieces of “paper” (actually, a cotton-linen compound), or digital representations thereof, are essentially worthless. (If you doubt this, ask yourself if you would strive to accumulate those pieces of fabric if the government didn’t mandate that they be accepted as “money.”)

To accomplish this goal, the Fed has engineered near-zero interest rates for at least a decade. What has enabled the federal government to continue its profligate overspending is the Fed-engineered freedom from having to pay historically normal rates of interest, thereby shaving hundreds of billions from the federal budget.

Another ill effect of near-zero interest rates is that they essentially create billions and trillions of dollars of “fiat capital,” which is no more real capital than fiat currency is real money. The artificially cheap fiat capital resulting from the Fed’s policies bails out zombie corporations, enabling moribund businesses to stagger on rather than fold. That retards the normal, healthy economic process of valuable economic inputs migrating from relatively uneconomical uses to entrepreneurs starting new businesses.

The third “f,” financialization, is the natural outcome of the Fed’s exotic monetary manipulations. Taking advantage of trillions of currency units created out of thin air and artificially suppressed interest rates, clever financiers play exotic financial games. In normal economic times, monetary savings supplied the capital that financed the production of new real wealth. Capital was used for the humane purpose of improving standards of living.

With that being the prevailing mentality, the creation of new Federal Reserve Notes by the trillion will continue until that fateful day when the increasingly brittle debt structure starts to collapse.

As is often the case with monetary shenanigans, in the short term, creating additional trillions of fiat dollars doesn’t seem to be doing any harm. And in the long run? The British economist John Maynard Keynes parried that question by glibly replying, “In the long run, we’re all dead.” Well, yes, but a more honest answer is that monetary mischief can cause a lot of pain to a lot of people before they die.

The trivialization of money has far-reaching consequences that are anything but trivial.