All Terrain Thinking

A Compendium of things I think are Important

Economics: It's not just whats' in your wallet

The 1970s

"All of the legislation in the world can't fix what's wrong with America.  It is a crisis in confidence.  It is a crisis that strikes at the very heart, soul, and spirit of a national will ... and it is threatening to destroy the social and political fabric of America."

The use of counting and numbers, of calculating and figuring, propelled a tendency toward rationalization in human thought that shows in no human culture without the use of money. Money did not make people smarter; it made them think in new ways, in numbers and their equivalencies. It made thinking far less personalized and much more abstract."

"long after the Pope is gone, you'll remember this." 

"neither a state nor a bank ever has had unrestricted power of issuing paper money, without abusing that power; in all States, therefore, the issue of paper money ought to be under some check and control; and none seems so proper as that of subjecting the issuers of paper money to the obligation of paying their notes, either in gold coin or bullion."

"long after the Pope is gone, you'll remember this." 

Units

Abstract

The 1970s opened with Richard Nixon's New Economic Policy, which severed the link between the money supply and gold, and no one seemed to pay much attention to David Ricardo's warning. But once central banks were freed to print money, they did, and inflation rates rose sharply in the 1970s.  The New Economic Policy also included wage and price controls, an admission of defeat for macro policy activists.  The decade ended with the Federal Reserve, under the leadership of Paul Volcker, putting a dramatic halt to the experiments with discretionary monetary policy - an event that Americans would remember "long after the Pope is gone," or at least that is how it was advertised.  What it did was give us mortgage rates near 20 percent and a deep recession, but the experiment was over within a few years.   In between was a decade in which we witnessed America's Only Peacetime Inflation, and inflation was not taking place only in the US.  

This unit is about money, what it is, who controls its supply, and how it affects society.  In this unit we begin with a discussion of the evolution of international financial systems from the gold standard of the early 20th century to flexible exchange rates of the early 21st century.  This will be followed by a discussion of the history of money, interest rates, money supply, the Federal Reserve, and the impact of money on the economy. 

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