Abstract
The money supply of the United States, as measured by M2 (i.e., currency in circulation and demand and time deposits), rose from $15.78 billion in 1913 to $11,287.7 billion in 2014, a multiple of 715 times. The volume of gold money could not actually be increased by this huge multiple, nor could the volume of US real GDP, which rose from $648 billion in 1913 to $15,759 billion in 2013, a multiple of 24 times. Paper money can, therefore, be multiplied as fast as desired, and has no practical connection to the real economy. In this chapter, we address the following topics:
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Description of the present system of inconvertible paper money
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The Post-Bretton Woods International Payments System—a paper money system
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Self-multiplying money creation and inflation
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The inflationary taxation (seigniorage) and distortive effects of inconvertible paper money
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Financial crises and the role of central banks
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Government intervention in the price and wage mechanism
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Financialization
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Consumption of capital
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© 2014 Hossein Askari and Noureddine Krichene
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Askari, H., Krichene, N. (2014). The Shortcomings of the Present Payments System. In: The Gold Standard Anchored in Islamic Finance. The Political Economy of the Middle East. Palgrave Macmillan, New York. https://doi.org/10.1057/9781137485830_2
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DOI: https://doi.org/10.1057/9781137485830_2
Publisher Name: Palgrave Macmillan, New York
Print ISBN: 978-1-349-50382-7
Online ISBN: 978-1-137-48583-0
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