Money and Democracy

Money and Democracy

Money and Democracy

Money and Democracy

Synopsis

As DeTocqueville warned that democracy could falter as a consequence of citizens' diminished interest in restraining central authority, there is evidence that vote-maximizing behavior of politicians and politically induced cycles in such key variables as inflation, unemployment, government transfers, taxes and monetary growth have become a critical problem in American democracy. The author examines, then, how best to consider money, monetary policy and the monetary regime--increasingly a function of political/bureaucratic pressures--against the argument for a liberal, freely functioning trading world and for fully employed, prosperous countries.

Excerpt

Georg Simmel identifies two likely sources of trouble for the human institution of money. One source is that since individuals do not receive income in kind but rather in money, they are exposed to the uncertainties originating in fluctuations in the purchasing power of money. the other is that the very success of a free monetary order encourages the development of socialist or collectivist ideas which serve to undermine the individualistic order based on free markets and money.

Monetary uncertainty will tend to move the social order away from the use of money and markets towards a greater reliance on one form or another of greater government control or command organization thereby strengthening bureaucracy and its political influence. Furthermore, monetary instability and market failure are closely linked and both serve to weaken the social fabric.

In our discussion of the Jacksonian era and the monetary uncertainty which characterized that turbulent period in American history, individuals attempted to protect themselves by converting paper money into gold and silver. They were encouraged to do so as a matter of federal government policy. in the process, however, the country was also deprived of the benefits of a uniform paper currency in the form of the bank notes of the Second Bank of the United States and that of other viable and sound banks. It is not altogether certain that Simmel would have approved of such a . . .

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