Friday, September 20, 2013

That's Where Our Money Goes

Now, looking at my last post from more than a month ago, where I said that money is flowing in the wrong direction, I can hear some readers saying, "Oh yeah, this guy is just a liberal who wants to stick it to the rich and blame them for all our problems." And they would be totally off base.

I have no problem with some people getting rich and some people not getting rich. How rich people get rich is, of course, part of the equation, but that's a political and philosophical discussion. I'm trying to get at the heart of this whole money thing.

So, what do I mean when I say that money is flowing in the wrong direction? I mean that it is flowing from people who actually provide goods and services, which is what an economy really is, to people who do little more than manipulate and trade money for its own sake.

That has three major consequences. First, it pulls money out of the productive sector and lets it accumulate in the unproductive sector, where it serves only a very few people. Second, the money manipulators, at least in countries like the US with private central banks, are allowed to create money without any real restraint.

Which, of course, lessens the value of the money. Now, I suspect that just adding money to the system would not, in itself, create a long-term problem, because the income and the prices will all work out in the long run. But when the creators of the money become the hoarders of the money, the vast majority of citizens lose ground to inflation.

The third problem with money flowing to the money manipulators is that it ingrains in us the notion that money has value for its own sake. We see money as a commodity rather than a medium. By letting one small elite group both create and keep the vast majority of the money in circulation, we make it harder for everyone to trade in real goods and services, and because we view money as the thing that has value, we have trouble finding our way out of the situation.

But the pieces of paper, the electronic entries, and even the gold and silver, are not what have value. They are just things that store value. They keep it safe for us—we hope—until we are ready to cash in that value for something else of value, some other good or service that we need or want.

Let's say that a new TV costs as much as you get paid for forty hours of your labor. The store that sells the TV has no need of your labor. But your employer does. The employer gives you a receipt, as it were, for your labor, and you can then trade that receipt for the TV. You still traded forty hours of labor for the TV, but you did it through an intermediary. That's what we call money.

But how does it all sort itself out? The store that's left with a receipt for your labor uses it to pay for the labor they need, plus the building they sell out of, utilities, the goods they sell, and enough profit (which is still just a receipt) so that the people who own the company can buy the goods and labor the want and need for themselves.

But this only works if everyone involved agrees that those receipts, in whatever form, are freely tradable stores of value. Otherwise they are nothing more than pieces of paper or information in a computer.

But how do we all figure out what those receipts are worth? Who decides how much of one's labor must be traded for a loaf of bread, or a TV? The answer is, "everybody." At least, that's supposed to be the answer. But it seems like a lot of this valuation happens outside of the market these days.

Which subject I will try to explore next time. I say "try" because up until now everything I've said it pretty straightforward, even obvious. But now it starts to get very, very murky.

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