Innovation drives standard of living improvements.
In this article, I want to talk about the theory as to why a central bank is needed and then discuss why the logic is wrong. And ultimately one of the main arguments is that cheap money improves the standard of living. According to the supporters of central banks, they believe, as the production of goods or manufacturing output goes up, the money supply must also rise at a comparable rate to provide businesses with the means of payment and support needed.
But cheap money is not needed to improve the standard of living, its technology. So, this logic is flawed, and simply put it ignores how technology often improves lives. One of the primary purposes of technology is to make goods more abundant, and hence, cheaper so that they are more widely distributed. For example, televisions were once something that were considered a true luxury item. Families in the middle class may have one television in the home, but almost seldom did they have 2 or more. But today and even 20 years ago, lower income people can have multiple TVs in their home, and this is due to improvements in technology. Nowadays, older television, not flat screens you can pretty much give these away.
So, our standard of living has improved due to technological changes and hard work, not easy money and credit.
It’s true that businesses need credit to innovate and produce but let’s understand that in a capitalist system the cream always rises to the top. In other words, the business with the best plan and earnings history will get funds when there is less credit.
As I’ve said before, fiat money doesn’t fit the definition of money. Money is defined as unit of account, store of value, and medium of exchange. Fiat isn’t a store of value. If something loses value every year, then by definition it doesn’t qualify as money.
That said, innovation and technology improve the standard of living, not cheap money that is devalued every year.
