Carmine Villani: Money and history |

Carmine Villani: Money and history

Carmine Villani

Governments are certainly at fault when it comes to inflation through fiat monetary policy, and we give the government the power to rule. But greed will drive people to do amazing things. In 1593, tulips were imported into Holland. Tulips originated in Turkey. Everybody wanted to have tulips, and a tulip exchange was created to handle this explosion. By 1637, the Semper Augustus tulip bulb sold for 6,000 florins. The yearly wage in Holland was 150 florin. This is 40 times the average wage. In perspective, if the average wage is $45,000 today, that tulip bulb would sell for $1.8 million. Everybody panicked. Within weeks the price of bulbs returned to normal at several bulbs for 1 florin. The financial collapse lasted for decades.

This example shows people can ruin an economy by themselves. Yet the best example of what happens when a government prints money recklessly is Germany at the beginning of WWI. Germany went off the gold standard and quadrupled the number of marks in circulation. At the start of WWI, gold cost 100 marks per ounce. In 1920 gold cost up to 2,000 marks per ounce. People discovered they lost about 90 percent of their purchasing power. Still the government printed more marks to pay for the war, and by July of 1922, prices had risen another 700 percent. By 1923 a pair of shoes which had cost 12 marks now cost 30 trillion marks. An ounce of gold cost 87 trillion marks. The crash came in 1923 and the poor were still poor. The rich became richer. But the middle class was almost obliterated.

The lesson here is that wealth is not lost, it is merely transferred. Those who traded their currency in for gold or silver always gained the wealth.

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