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Editor/Publisher, Fort Fairfield Journal, March 26, 2008, p. 2

Any farmer will say when demand stays the same and more potatoes are put on the market, the price of potatoes will go down. Baseball trading cards follow the same rules of economics, too; “The more there is, the less it’s worth.”

All value-added products that seek customers on the open market follow the same rules of supply and demand. Money, as a measure of stored human energy also follows the rules and cannot escape.

One cause of inflation is excessive money in circulation. The more money there is in circulation, the less it is worth, causing all prices to rise correspondingly to offset its devaluation.

All money is simply a medium to store energy - like a battery. Applying the laws of physics to that stored energy will help to illustrate the effects of expansion and contraction of the monetary unit.

Following the First Law of Thermodynamics, the Conservation of Matter and Energy, when a person places his labor into a product to build or finish it, his labor is stored in the product, which is then converted over to money when the product is sold. If a person labors directly for his money, then his labor is converted directly into the money. As long as the money supply stays consistent, his labor will stay stored in it at the purchasing power it had the day it was expended. The battery will “hold its charge.”

When the amount of money in circulation changes, the value does, too. Less money makes it have more purchasing power, more money makes it have less.

Money, as a unit of energy, also follows the Inverse Square Law. The Inverse Square Law states that any energy source, if measured at a given distance over a given area of measure will decrease over that area of measure as the distance is increased. Simply said, if you measure the light output of a candle with a light meter at one foot away, it will yield a certain amount of light over a one foot square area, measured in lumens. When the distance from the candle is doubled, the same one foot square area at twice the distance will yield one fourth of the original intensity of light, because the energy from the candle is now spread out over an area four times its original size (see Figure 1). Going the other way, as the distance gets closer to the candle, the light energy per square foot will rise by the same factor.

Human energy is like the candle. The moment in time energy is converted into money is the original reference point. As more money is added into circulation, its original energy, measured in ‘purchasing power,’ is then spread out amongst all new monetary units - the same way the candle’s light energy is spread out over the increased square footage. As more money is entered into circulation, without a concomitant rise in production of products to offset it, its purchasing power spreads over a wider field of monetary units, causing their individual values to drop accordingly. More money chasing less products is a recipe for devalued currency and ultimately, inflation.

Think of inflation as starting with a glass containing a cup of water. The water represents the energy you expended, the glass, the money you stored your energy in. If 9 more glasses are added to circulation (i.e. more money) the water in the original glass must be spread evenly throughout all ten glasses; each one having only a tenth of the original’s amount of water. Therefore, if prices are measured in cups of water, it would take ten glasses to make a cup, instead of the one it would have originally taken. Prices, measured in “glasses,” would have risen 10 times.

As more money is entered into circulation, the original energy converted into a 1 dollar unit (the glass) will thus be spread over several dollars (additional glasses), as more money is entered into circulation.

Energy is a finite concept. The amount of energy produced by the light can only increase with more energy and must decrease with distance since it is being spread out over space. A cup of water is only a cup. Spread amongst ten glasses, it is still a cup, it just takes more glasses to equal it. When human labor is converted into money, it is stored there as water in a cup. As more money is created, that stored energy then fractionalizes and spreads evenly among all the new dollars, making each possess only a fraction of the original’s energy as measured in purchasing power.

Working the other way, as the amount of dollars decrease in circulation, one gets closer to the original source of energy and the value of the money rises.