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In general, the central bankers would rather that the value of money remains stable, but many elements of a society push and pull on the government to favor their position. Debtors, like farmers, want “easy money” so they can borrow dollars and then watch their value fall because of inflation, thus paying back their debt in cheaper dollars than they borrowed. Creditors, such as people selling farm equipment, want “tight money” so the value of the money stays the same allowing them to receive full value for their loans even if they are paid off over time. In any event, numerous factors influence the value of money, so its value changes a lot. For example, I once purchased a German Olympic air rifle at what I thought was a high price. Checking the price of the air rifle one year later it had jumped over 30 percent. The product was no different, but the value of the Euro (a European currency) increased relative to the US dollar; thus, increasing the price in US dollars. However, the price of US made air rifles stayed the same thereby making them more competitive. If a US merchant imported those German air guns, he would pay 30 percent more than a person selling the same air gun in Germany. However, a German air gun merchant could import US made units for 30 percent less because of the growth in value of his nation’s money. In theory, when a country’s money increases in value the money begins to leave the country because its citizens can buy items abroad cheaper.

In 2010, a controversy continues between the US and China because China keeps the value of its currency artificially low compared to US dollars; thus, keeping the prices of their goods low. This value differential angers US merchants who say China is cheating in trade competition and driving US manufactures out of business. Now the US central bank is lowering the value of the dollar causing more turmoil in the world money markets. As one can see, monetary value and supply is serious stuff in international relations.

Money supply and money value tie to another economic idea, the gold standard. This simply means that when a nation is on the gold standard that nation’s paper money can be traded for gold bullion (you know, the real stuff). Many economists claim the 1800s and early 1900s were prosperous because most nations adhered to the gold standard. In America, for example, the government promised its paper money was redeemable for gold at a rate of $20.67 per ounce.[197] Having a currency on the gold standard helps stabilize its value, stabilizes the money supply, contains inflation, and makes international trade easier. Using the gold standard, a nation can only print money up to the value of the amount of gold it holds. Since the amount of gold and the amount of paper money must be equal, excess money cannot be printed and this controls inflation. Since a nation on the gold standard cannot just print money the belligerents in WWI went off the gold standard, allowing them to print more money to pay for the war. This, of course, led to economic problems in the 1920s and 1930s as nations tried to readjust by going back on the gold standard. During WWI, nations incurred big debts with devalued money (money printed without backing by gold) and were paying the debts back after the war in high value money (money backed by gold). This split in money value contributed to instability in the financial markets in the 1920s. Few nations today are on the gold standard.

Instability in the value of money greatly affects international trade. What many overlooked in 1929 was the interconnected nature of the world economy. No nation stood alone any longer in the economic world. Events in one nation often had worldwide ramifications. As events would soon show, the interconnectedness ran deep.

Interest Rates

interest rates are another economic concept we should try to understand. Once again, interest rates influence business and personal loans. Private banks borrow funds from the central bank at set interest rates and then loan the money to their customers. The banks