Saving Physical Assets - Government Role
Since it is inconvenient for everyone to stockpile commodities, it is easier for the government to manage one giant stockpiling operation. Here is how it could work. If you want to save, you simply save money itself. You could physically stash bills under your mattress if you like or could use electronic accounts run by banks or the government. The money you save is taken out of circulation. This is much like what would have happened in the days when metal coins were used as money. People could save money by putting metal coins in a vault for later use.
People’s decisions to save have an economy-wide effect on demand. If people don’t spend the money they earn, not all the things that are produced will be bought. Remember, the value of what is produced is equal to the value of the labor and raw materials used to produce it. The buildup of inventories causes businesses to cut back production. The result is rising unemployment.
When unemployment rises, the government responds by printing new money. Instead of simply using this new money to fund its ongoing expenses, the government uses the printed money to buy and store commodities. The work that needs to be done to produce the commodities provides jobs to people who would have otherwise been unemployed. The reason it has to print more money is because people are saving. The government uses the printed money to prepare for when we eventually spend our savings. If you put a dollar under your mattress, the end result is a dollar’s worth of commodities being stockpiled by the government.
When you spend your savings, the reverse happens. Your spending drives up demand. Businesses hire more people to meet demand. Unemployment falls too low. The government takes money out of circulation by selling some of its stockpile.
Stockpiling physical goods accomplishes two things. It allows the economy as a whole to save. This gives you the freedom to save without worrying that people won`t be interested in your investments when you want your money back. The stockpile of commodities also provides a form of disaster insurance for a country as a whole. In an emergency, the commodity stockpiles could be drawn down freeing businesses that produce the commodities to provide emergency assistance. An emergency response lasting months or years could be mounted without causing hardship.
Navigate
Comments
Name: Bruno Cellier
E-mail: Private
Date posted: October 04, 2009 - 02:49 pm
Message:
Private
To add comments, use the form below.
While comments are posted immediately, they are reviewed periodically. If they are found to be offensive or inflammatory, they will be removed.
If you provide your email address, you will be informed if your comment is changed or deleted. Your email address will not be distributed to others. I will only use it if I make changes to your comments and for one notification message when my book is in bookstores.
Comments powered by the Website Comments System ® v1.0