In the field of political finance and economic systems, the terms “hard money” and “soft money” are central but rarely understood properly. What is more, these terms have rather profound consequences for the campaign financing of political campaigns and the overall management of economies. To begin with, hard money and soft money require a clear understanding of their meaning, purposes and effects, which will be discussed below in the largest detail.
Overview of Hard Money and Soft Money
In the political context, the term ‘hard money’ relates to funds given to the political candidates or to their campaigns.
These contributions are restricted within certain amounts and a donor reporting framework that is provided by the federal and the state law of the country. At the same time, the hard money is used with the aim to directly fund the campaign of the contender in order to disclose and be fully responsible for the political finance spent.
For example, in the United States, the Federal Election Commission (FEC) regulates the maximum amount of money that people and entities can donate to candidates to ensure that everybody is not financially dominated in the election.
Still, resting on the same grounds with hard money, soft money refers to the contributions made to political parties and committees that fall outside the federal campaign finance laws. Such funds are normally applied in get-out-the-vote activities, building the party structures, and campaigning for certain causes, not candidates. It eliminates the chance of imposing firm control on poll makers by approving higher, frequently limitless, gifts from people, firms, or unions.
This ability to hold large sums of money and this friendliness with major political factors can ultimately result in risky corruption and potential abuse of democratic procedures. You can visit this helpful site to learn more.
Economic Context: Soft Money and Hard Money
In the economic context, though, the terms hard money and soft money refer to quite different things. The term hard money therefore refers to actual money funds that are supported by a physical item such as gold or silver. In the past, there were hard money mechanisms and all types of money were exchangeable with precious metals.
This was a sound and secure monetary framework because the value of money was anchored against a tangible item. For example, the gold standard was in use in the 19th-early 20th centuries to guarantee that paper means could be exchanged for gold. But then hard money systems had a drawback, the system was rigid and this was a problem because it constrained the movements of the government to respond to financial shocks and the business cycles.
In the economic context, soft money is ‘paper money,’ which is a form of currency that is not backed up by gold or any other physical asset but by the word of the government. This is important to know when you consider hard versus soft money and what the difference between them is. Most of the contemporary economies employ soft money regimes in which the central bank retains the discretion over the money stock and/or monetary tools and conditions.
By allowing for such flexibility one can counter economic issues including inflation and recession hence, economic stability results. For instance, as observed during the financial crisis of 2008, different central banks resorted to pursuing quantitative easing whereby new money was infused to the economy, something that cannot be done under a hard money system.
Nevertheless, that is where flaws of the soft money system come into play: the main one is the reliance on government’s trust and another one is inflation risk. You can click the link: https://sgp.fas.org/crs/misc/IF10477.pdf to learn more.
The several political implications of hard money and soft money
The political consequences of demands for hard money and soft money are quite deep, which affects the processes of election campaigns and democratic participation. Often hard money is preferred because of its strict regulations and it lacks features of anonymity in comparison to soft money.
The provisions related to disclosure of hard money contributions make certain that the public can follow sources of collected funds as well as the amounts given to candidates. This increases the level of confidence that the electorate has over the electoral process and reduces the vice of corruption.
Still, it is cumbersome with contributions in hard money which can cause equal challenges to candidates given the fact that they may not be in a position to fund themselves up to compete with other equally competing candidates.
Soft money, in contrast, has become the object of serious concern and discussion because it is completely uncontrolled. Opponents fear that it provides opportunities to rich people and corporate stakeholders to pressure the government with the detriment of democratic principles. The unrestricted flow of soft money poses the danger of swamping political competition and thereby tends to benefit those who have more money.
As a result of such concerns, a number of campaign finance reforms have been introduced to check on the use of soft money. You can learn more about the BCRA OF 2002 or McCain-Feingold act by clicking the link. Another act that was later signed into law was meant to affect the use of soft money in federal elections.
The act barred national political parties from soliciting or expending soft money and all hitherto restricted spending on contributions for state and local parties. Nevertheless these attempts have been followed with the emergence of loopholes and legal challenges which indicate the continuous fight against the exchange of financial power and democracy.
Hard Money and Soft Money and Their Economic Significance
That is why the economic aspect of hard money and soft money is as important as the political one. This is thanks to hard money systems which are based on more reliable kinds of assets compared to other systems relying on so-called ‘fiat’. On the other hand, the application of hard money restricts the flexibility of the economy and the possibilities of actions by governments in the case of financial turmoil.
For instance, the Gold Standard ended up having adverse effects during the Great Depression as countries that belonged to this system experienced a lot of difficulty when enhancing the expansionary fiscal policy that can significantly worsen the economic deterioration.
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