Wednesday, February 20, 2013

Virginia Money

In the Chicken Little folk tale, Chicken Little becomes hysterical along with friends Henny Penny, Lucky Ducky, and Foxey Loxey when they all agree the sky is falling. In Virginia, delegate Robert G. Marshall believes the Federal Reserve Bank will bring financial hysteria with hyper inflation like Germany after WWI. He wants to protect Virginians by having a new Virginia currency. [Virginia-only currency one step closer to reality” 2/6/13] He got the Virginia legislature to allocate $17,440 to study a metallic-based currency for Virginia. He was quoted to say “This is a serious study about a serious topic. We’re not completely powerless.”

As every good capitalist knows the value of money is determined by the supply of it relative to its demand for needed transactions. Obsessive worriers like Delegate Marshall think money has to be a supply of something they can pick up and store: commodity money. In this worry Delegate Marshall acts like everyone else: the worriers all want their metallic base to be gold.

To protect themselves from inflation and rising prices with a metallic-based currency, Virginians will need to be able to exchange their inflation devalued currency for gold at a fixed price. If Delegate Marshall could exchange a unit of Virginia currency for an ounce of gold at a known price he would have gold that might hold its value, or rise in value, to protect from the rising price of cars, clothes and corn flakes that devalues his currency.

If Delegate Marshall was a little more curious he would ask himself how the Virginia treasurer happens to have an inventory of gold ready to exchange with a line up of worried citizens. If Delegate Marshall would ask himself how Virginia could remain ready to exchange gold at a fixed price if the market price of gold goes up, he might notice a problem with a metallic standard. After all gold is a commodity like cars, clothes and corn flakes, all subject to rising prices.

If the market price of gold starts to rise there might be someone who would show up at the Virginia treasury to exchange their currency for an ounce of gold to resell it for a profit at the higher market price. The line might be long and drain the gold out of the Virginia treasury ending the metallic-based standard.

I wonder why Delegate Marshall wants to worry so much about something that is not happening. Inflation rates are low, generally below two percent where they have been for over a decade. I wonder why Delegate Marshall wants to worry about the Federal Reserve Bank when it bailed out the rogues and scoundrels who engineered the financial collapse of 2008. I am certain though this piece qualifies as a study of the metallic based standard, which is why I expect to receive that $17,440. My bill will be in the mail shortly.


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