In order to make problems soluble, one must seek out their causes. Only when the rejections have been traced back to their real causes, can one find room for functional solutions. Solutions, that do not simply bring further and greater rejection in their wake. Only when one treats a malady at its roots, can it be solved; can one be sure to avoid further plagues which spring from the same source. That's what the professionals do. Laymen vex themselves with appearances and strenuous fiddling around with symptoms. Fiddling around - because it doesn't work and cannot achieve the hoped-for results - becomes with time, ever more "violent", the ostensible solutions increasingly drastic. But violence wont help. More violence - even less. So let us rather delve down to the causes and consider first of all......
The advantages of money
What is today's money? Euros, roubles, dollars....? It's a means of exchange - but not only! It is the joker in the economy. As concerns durability, it is superior to any goods. All goods rot, break, go out of fashion, and are threatened by rats, mice, water, fire and much more. All this costs money. Goods cost money to obtain. From the field, from the factory, until they reach the shelf goods cost money, to keep them in a saleable condition. They cost until the moment the customer snaps them up, puts down his money and takes his purchases away. Only then does the pressure on the producer and the trader ease up. Yet not really, for the next delivery is already putting more pressure upon them.
Money knows no problems with mould and going bad. Thus these problems don't bother the owner of money, but the producer all the more.
At this point we shall leave the goings-on at the manufacturer's and the shopkeeper's. Let's talk now of such people who have gathered enough money (like banks, speculators and born billionaires), and set out to buy ten shiploads of wheat. The money that collects at this junction, is surplus money. Money that nobody needed for the moment, to buy necessary and desired objects. Surplus money is not immediately needed, the small and the great savers alike, take their money to the bank in expectation of interest and returns.
And now we wish to cast some light upon two aspects: for one, it should be clear that the owner of the money (or his administrators) has a clear advantage over the wheat producer. He knows that storing the wheat costs money and that with each passing day it's value shrinks, until after a year it will be unsaleable - for the remains, as much as the mice have left, have gone mouldy. The producer knows this too. Over the course of millenia it has been reliably observed that all goods, on average, lose approximately five percent of their value per annum. From bread and butter to gravestones. On average five percent each year. Either the deterioration cannot be slowed at all (as with a daily newspaper), or the slowing of it costs money: cooling, security, silos, and so forth.
The origin of interest
Because all know what everybody knows, business runs thus; the money owner with his durable money - that at any time could go shopping anywhere else - may disregard this five percent. The owner of the goods alone gets stuck with it. So from the very beginning he has a disadvantage, the money owner, a structural advantage. Always. With that, we arrive at interest and it's origin. The superiority of money over goods is the source of interest. Superfluities are employed to realise even more superfluity.
Interest is an exponential function. Every sixty to eighty years, the economy reaches the point where it is swallowed up by interest. No greed of bankers or managers could wreak such havoc as does interest. And yet everybody aspires to attain some. Must at least give it a try. Even the most well-behaved sons of the church.
Money and history
The second aspect on which light should be cast, is the ingenious aspect of money. Back when our money was still cattle, life was arduous. Then it improved with the exchange medium of furs. Easier to maintain, cost-effective, divisible. Then we went over to salt and tea. Even easier, even less bother, wonderfully divisible, and yet it so often ended up in the soup, or got lapped up by grandpa. Saving, with money from those times, was as good as pointless. And as the economic performance began to expand, it also became necessary to solve a further problem: money would somehow have to be limited. For things that are in unlimited supply (for example sand), or whose number cannot be effectively controlled (like cattle), are unable to represent prices. If anybody could simply go shopping with a shovelful of sand, things would have soon ceased to function. Between salt and gold, metals such as copper and iron were used to mint coins. But their limitability could no longer be guaranteed, as the mining and processing of iron began to expand. Perspectively, another means of exchange had to be found - gold. This improvement in the means of exchange, made ever greater and more imposing projects possible, and resulted in a rapidly developing division of labour. Rome built aqueducts, roads, thermal baths and cities. Later generations; cathedrals, monasteries and vulgar pomposities. Gold was the crown of currencies, the highest imaginable. And yet, in solving the one problem we simply created the next one, because we didn't yet understand the correlation of money and economics.
Gold was fantastic, for it was divisible, easily transportable, limited and everlasting.
And that was also, of course, the problem.
The inadequacies of gold as money
To be exact, there are two inadequacies that came to light with the use of gold. It's durability and the insurmountable difficulty of reproducing it. Surplus gold was lent out or hoarded. The less the lending brought in, the quicker it was taken out of circulation - hoarded. A few great projects were successfully completed. Certain contrivances led to more and better wares, and more wares were in the market than before. And yet the number of coins spent was the same as before, for it depended on the amount of the gold found. Because more wares were wanting to be exchanged for a hardly altered amount of money, the price of these wares began to sink. A general drop in prices is the result, when as a result of better methods, production increases, while the amount of money available cannot be adjusted to accommodate it.
Gold-money cannot be increased at will. Either there is too little means available in relation to the increased amount of wares, or the means of exchange are being withheld. Or both. If prices fall - whereby it is much of a muchness, whether from a certain amount of wares onwards too little gold-money was available, or whether too little of it was spent - the mischief is done. Trading is baulked. Who buys today, pays more than tomorrow. Who buys tomorrow, still pays more than he would the day after. So why not just wait until next week? The merchant is the first to stop working. He will only continue to buy for himself.
Unsold wares are a real annoyance for the producer. They have to be protected from thieves, from damp or drying out, from heat or cold, from vermin or from the whims of fashion. For that too money is needed. And money, for the producer, becomes ever rarer. The available gold becomes slower and slower, and some of it will be buried. This brings the producers' annoyance to a head, and makes them more willing than ever to negotiate prices. But with all this, the drama simply grows. A rapid fall in prices intensifies this cycle, which one may safely call a vicious circle.
That was the moment, in which less money was circulating than was needed. Through fear of the future, the gold was in the true sense of the word hoarded. The greater part of the gold-money, still in circulation, became suddenly invisible. Buried, hidden. These practices couldn't even begin to be countered. And neither could their consequences. Gold could neither be reproduced or manufactured. It could only be found. It's durability and it's non-duplicability became the problem.
The discovery of gold, and the possibility of the increase in financial means which it brings with it, drive gold production onwards. Prices rise and that pleases the traders and the producers. Production soars, and continues untiringly. And this draws even the last of the buried coins from their hiding places, for otherwise they lose in value as opposed to the wares. With climbing prices and the consequentially increasing production and division of labour, comes an improvement in the living conditions of the people. Birth control will also be significantly affected by these circumstances. More people are able to live on the available resources. An increase in the division of labour often leads to a growth in population. In times of falling prices, the people are often hostile to one another. There are more people than before. Also, the methods of attaining gold refine themselves, together with the division of labour - even when it could only be got by robbery, when no new gold could be found. This activity too, grew as a result of the described shortage. In this, ultimately, lies the root of war: Whoever wishes to live under such conditions, must be prepared to kill.
If no gold could be found, one could still invade other countries, plunder and murder - and that in the name of the realm, the state. To keep the bake-houses of Rome in action, gold had to be available. If it couldn't be found, it could always be stolen, confiscated or requisitioned. Even the richest of the Romans could be bumped-off or outlawed, so that one could take over their latifundia and plunder their gold-coffers. That too was done. But even that didn't help: there simply wasn't enough gold - and that was bad luck for the economy. The empire fell, the division of labour crumbled, and Rome was populated by goats and their herdsmen. For more than a thousand years.
Previously too, great cultures had failed because of their money. Gold-money. It took centuries until the idea of paper money was born. We could then have corrected the mistake. But nobody knew of it, nobody understood how inflation and deflation were caused: The currency crises. For economic crises are always simply currency crises! Unless absolutely nothing would grow anywhere any more. And then we would have no more need of an exchange medium anyway.
Paper money is also superior to wares and demands returns
And so paper money had tamed the warmonger gold, for one can print paper. One doesn't have to find it or raid other peoples for it. Yet the durability of money and with that it's advantages over all wares also apply to paper money. And with it interest comes into being as explained above. Because money has an advantage over wares, it wants to - and must - put this advantage into practice. It is no investment, if it doesn't gain a decent yield. No one would lend his money, if it didn't bring in more money. Then rather put it in a safe.
Money will only be released and put into circulation by it's owner if he can expect at least two to three percent interest. Less than this and it will remain in his safe. Or it will make deals, wherever it can still make them. In China for example. One day or another though, one has gone through the whole world, and a decent return is nowhere to be made any more. In the meantime we have reached this point. Only atomic power stations for China and drones for Pakistan are really worth considering. Or drugs from Pakistan.
We talk of national economics, of the world-economy. If no more money is put into circulation, then the amount circulating becomes less, with respect to wares. In speculation or in reticence (large current accounts, money kept at home, very short-term investments) there are masses of money. Yet it doesn't place itself at the long-term disposal of the economy. As said: less demand on the part of the consumer, less production. The deflationary spiral begins it's downward twist.
Money in it's imperishability carries the deflationary tendency, so to speak, into the world. These days though, much is cushioned by the banks who offer credit and yet more credit. "Here, take our money, we're not interested in securities!" The companies are already in debt, for them there is no more credit to be had. And so private customers are provided with credit, so that they keep up a steady demand, and the companies can also acquire more money through their turnover. But for the private people, this pushing can also only last for a limited time. When securities (land, property, life-insurance, blocks of shares) have to stand surety for the second or third time, then the banker begins to smell a rat - the bubble could break. Then when there are too few creditworthy creditors among the private people, the state will have to take up the slack.
The state incurs debts in our name, receives credit from JP Morgan and pays ten percent interest for it. The state is the best of all debtors. Thereby, it is of course only a question of time before the government begins to put pressure on the issue bank, to get the printing presses going before there is no more exchange medium wandering around. And from then on, it is again simply a question of time until the deflation changes to inflation, and from there proceeds into hyperinflation. It is all a matter of weeks. And no one can say when it will actually happen. It could happen any time. For already, in Germany, there is three times as much money and claims on money, as the social product of a whole year. So the Euro is already done for. It is the moribund cancer patient, who simply hasn't yet been to the doctor. And so far, one may think that all is still in order with him. Just a little stomach-rumbling, that will soon be over. Yet sometime or other, every truth will be diagnosed.
The expended money is not to be found among the masses of pensioners, children, the unemployed, low-income earners and small businesses. They have already spent their money. No, it is to be found in just a few accounts, in which it must inevitably accumulate. For as said: Interest is an exponential function. The owners of the unavoidable agglomerations, which occur at these few points, have really not much idea of what to do with them. When all baths have golden taps, and ten cars are parked before the door, when one has no real fixed abode any more because he is always away on holiday, and he richly bestows his money on a dozen projects in Africa - then most money owners arrive at the limit of their imagination, as to what else they could do with it. For he isn't necessarily an enterprising person. And he hasn't any great business ideas. And so he simply uses his money to make more money. That which he receives as interest, must certainly be put to work. And that in an economy in which the participants, under the credit line, don't get any more credit, are unable to start up new firms or keep the old ones going, and in which less and less money remains in circulation. Demand dwindles, buying-power declines, production is slowed and sometimes closed down. The economy collapses.
The question is: "How much longer can the world keep on tightening it's belt?" We are currently playing monopoly. But in reality! And in reality one person cannot, at close of play, "own everything" as in the game. Before that happens the social tensions, would grow so intense that they forcibly compel a redistribution. Still, as long as the cause of the problem remains unrecognised and isn't rectified, we shall continue playing monopoly and musical chairs. For just as long as the economy allows.
So: too much money compared to the wares on offer, causes inflation. Too little money compared to the offered wares, causes something even worse - deflation. About deflation, the retraction of money from circulation, the following remains to be said: the companies suddenly receive no more credit, because the banks among themselves are no longer granting any (they all know about the bad debts in their own ledgers, and surmise that things aren't looking much better in the other banks.....in which, they are of course correct). Credit will only be granted against the highest securities. The credit squeeze has begun.
Companies cease to be supplied with enough credit and must attempt to get some money through their turnover. They do this, by reducing their prices. And how that progresses is easy to imagine. Other firms in the same business, get the idea and follow suit (for several years advertising in Germany used the slogan "Stinginess is Sexy", until even the advertisers realised that it is anything but sexy). Soon other branches have also to follow. It spells ruin for traders and producers alike, that much is certain. That cannot be the solution.