(from the "The Big Time" thread)
44. JMH:
How much work money does can be calculated…
Money does not do work. People and machines do. Money doesn’t. Money is not a thing, it is a measurment, and this fundamental misunderstanding causes all sort of problems. To continue the water metaphor:
Collecting naturally, water is relatively unproductive; it does limited work. Properly channeled and dispersed, it becomes more efficient and supports more agriculture.
Money isn’t the water, it’s the gallons we measure the water with. If the crops are dying in a drought, we don’t have a gallon shortage, we have a water shortage. We have all the gallons of water we want. Just change the size of the measuring cup and, voila, more gallons. In the money world, this is known as inflation and only believers in witchcraft think it creates more water.
When it comes to commerce, governments can do a great deal of good by establishing standard weights and measures. That way, if you and I are negotiating the sale of a gallon of water, we know we’re both talking about the same amount of water. The worst thing the government could do is frequently change the standards. If we’re trying to strike a deal where I give you a pound of coal at the end the month in exchange for a gallon of whiskey, but neither of us know what a “pound” or a “gallon” will actually be at the end of the month, our transaction becomes really inefficient. Neither of us can plan.
Money is a “weights and measures” thing too. Wild fluctuations in the value of money hamper economic activity because nobody knows what the yardstick they have to use will look like next year or next month. It takes longer to figure out the merits of a deal, and short-term deals are preferable to long term deals. There’s your “velocity” of money.
All “velocity” of money really means is how fast can people barter goods and services with one another - especially future goods and services. Stable money is the most efficient measuring stick to use in evaluationg those transactions. A society that has it can be highly efficient and invest heavily in the future. A society that doesn’t has to struggle along and fall behind.
Our monetary system of weights and measures has two serious problems that have led to rising inefficiency and the current economic slowdown. One, the massive debts the Federal Government - the keeper of the standard - have been running means sooner or later we’ll have a serious dose of inflation if the nonsense doesn’t stop, and the current crop are accelerating the spending, not slowing it.
Two, a host of institutions, public and private, essential to facilitating the use of money have become increasingly brazen about using their positions as middlemen to skim large amounts off the top. The “Masters of the Universe” on Wall Street didn’t provide anywhere near enough value to society to justify what they pocketed. An explosion of government supported or mandated “economic auxiliaries” (a polite word for parasites, e.g. welfare receipients, government bureaucrats, lawyers, regulatory consultants, etc) funded by extracting value from everyone else’s transaction are also part of the problem. It makes using the government-approved measurement of goods and services (i.e. money) less efficient because it is “taxed” so highly. This causes productive folks to go either “John Galt” or black market. In either case, we’re less efficient as a society.
The Fed will never solve this problem. It’s beyond their control. They can’t keep money stable when the federal government runs up deficits the size of Obama’s ego and the executive suites of half the moneyhandling institutions in the country are on the take.
Mar 19, 2009 - 9:27 am
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