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There are not many things that interest all of us. One of them is money. Money or, at least, the value of money is what I will be addressing here.

Economists agree that the value of money is affected by the quantity of money and that the method to control money quantity is the FED's (Federal Reserve System) open market operations. Why do they not agree that its value can be kept constant by the FED?

Most answers to this question seem to relate to notions that economic growth is also affected by money quantity. That this relationship is believed prevents use of the common sense approach to controlling money value. When such unsubstantiated beliefs are encountered it is good to heed the advice of my hero -- Thomas Paine:

"When precedents fail to assist us, we must return to the first principles of things for information and think, as if we were the first men that thought."

Before we get into the specifics of this argument it is necessary to define our terms. There are many ways to express the value of money: the price of gold, a price index, etc. For this discussion the Consumer Price Index will be used. Inflation, in turn, is defined as an increase in the Consumer Price Index. With these definitions, we can now examine the control of money value.

One irrefutable characteristic of controls is that a single control can only control one thing. That is, if a light switch is wired to control the lights in one room it cannot at the same time have independent control of the lights in another. A switch can be rewired; other controls are not so flexible.

Another characteristic of controls is that there must be a cause-effect relationship between the control and the outcome to be affected. If a control is effective, then its use can cause the desired end. If the relationship between a control and the desired end is not cause-effect, correlation between the control activity and the desired outcome does not change that reality.

If economic production has been observed to correlate with a measure of economic activity, that does not mean it can be used to control economic activity. But if an effect of the control is already known, such as the effect of money quantity on money value, correlation does verify its effectiveness.

While details of the correlations are too lengthy lo present here, I have found several such verifying correlations for money value. The first predicts inflation based on the detailed analysis of the uses people make of their financial assets and the other does so based on people's psychological response to inflation. For those who understand statistics, the significant ones for the second correlation are shown on the graph. For others, I will say only that a perfect correlation has a coefficient of one. It would be best to ask a friend to explain the rest.

Economists are aware the quantity of money affects the value of money; that the quantity of money can be controlled; that it can be manipulated to control only one economic indicator: and that economic indicators other than money value have only a circumstantial relationship with money quantity. Still they insist that the value of money can not be controlled by the FED.

Hopefully, this evidence will find its way to public view and help correct the misperceptions of these intransigent experts. There are many reasons that it is important to correct these misperceptions. Among them is the fact that inflation affects interest rates.

Interest rates can be said to be composed of two parts: a "real" component that reflects both the value of current use over future use plus the risk of loss because of non-payment and an "inflation" component that reflects the current rate of inflation plus the risk of future inflation.

With a constant value of money the inflation component of interest rates becomes zero. Historically the real interest rates for government bonds have been in the range of one lo three percent. Such a change from present day rates would reduce the cost of servicing the national debt by some hundred billion dollars a year. There would also be a reduction of forty or fifty billion dollars a year in the cost of government payments that are tied to the Consumer Price Index. This may not be enough to eliminate the budget deficit of our profligate government, but it can certainly be called a significant contribution.

Another effect of a constant value of money is a substantial improvement in the quality of business decisions. With a constant value of money, business decisions can be made with only the normal risks of the market place. Businesses need not consider the added risk of government manipulation of monetary policy and the attendant uncertainly of money value.

The effect maintaining a constant value of money would have on the current crisis of debtor nations and their creditors can hardly be exaggerated. The effects would be both positive and significant. Because of lower interest rates, monies now insufficient to meet interest payments by these debtors would pay not only the interest but the principal as well.