Gold was a unique form of money insofar as it was acceptable as a common means of exchange by all nations. However, it had its downside with regard to its being hoarded. If a nation, as by a mercantilist policy of import-tariffs, acquired more than its fair share, then inflation occurred to cheapen the domestic value of gold per product. More gold left the nation for balance to be restored. However, if gold was hoarded for less of it in circulation, then deflation occurred whereby the hoarders of gold would be wealthier, but whereby financial investments in product then sold at a lower price led to a recession. In contrast to this mercantilist policy is the physiocrat of laissez faire economics assuming land and agriculture are the basis of economic wealth.
This physiocrat policy has a historical background as far back as the history of civilization itself with the development of farming in the Middle East. Later on, the Roman Republic, with its grape plantations, gained economic prosperity by exporting wine. However, large plantations supporting armies for conquest encouraged slavery. This plantation slavery carried over to southern US states with regard to the invention of the cotton gin and the export of cotton. In contrast was the policy of tariffs for investing in such future develops as railroads. Throughout the nineteenth century the major source of US government revenue was import tariffs, which the southern states detested.
Although the physiocrat advocated a free market system, taxation and labor interconnected as part of the equation. Land owners controlled the production of wealth, but labor was still an essential part of producing it, as for providing service to the land owner. If the farmer only harvested enough food for other farmers, then the rest of the people were doomed to starvation. With agriculture the basis of wealth, taxation provided government revenue for other services. For the farmer to maintain property rights, more food needed to be harvested for the general populous. The tax money (as gold, fiat or whatever) thus became acceptable as legal tender.
Although not authorized as legal tender, treasury notes were sold around 1812 to finance a short war with England. Because the notes could both earn interest and were allowed for the payment of taxes, they became acceptable.
A downside to the labor theory of wealth is that entrepreneurs competing against each other seek to overcome its cost. In the past, domestication of animals and the slavery of people were used. Computerized robots seem the way of the future. Ownership then determines wealth instead of labor. The general public apart from the farms then needs more innovative ways to earn their food. For, if poverty prevails, then law and order transforms into chaos. More military along with a police state could be an alternative most of us would prefer not to occur.
Another alternative could be more taxation. Food stamps, for instance, could be a means of preventing starvation. If they were acceptable for paying taxes, then they would become acceptable legal tender as long as enough food remains in reserve for their acquisition. However, if draught occurs instead, as due to climate change, then inflation occurs such that more food stamps only render them less valuable.
With such other elements as climate change in the equation, the situation only becomes more complex, but preparing for catastrophic effects of climate change, as investing in remedies, could provide employment, as for it to still create desirable wealth.
John Maynard Keynes advocated in the early part of the nineteenth century that during times of recession or depression it is the responsibility of government to ensure employment, which President Roosevelt complied with CCC camps. This strategy is justified because of how the system of capitalism naturally functions. There is a tendency of monopolization in competing for wealth. Money earn money. When the game is won, it is nearly over. Breaking up monopolies is one remedy; creating opportunity for employment to maintain a healthy distribution of wealth is another.
Money is not wealth. What money can purchase is wealth. Build hospitals and train doctors for veterans care and universal healthcare is more likely affordable.
About Author / Additional Info:
I am self educated in learning by doing, as by research and writing. I wrote a book on physics and I'm now in the process of writing one on economics.