Jan 10 2013

Bananas, Part 1

I think Mr. Mellish is a traitor to this country because his views are different from the views of the President and others of his kind. Differences of opinion should be tolerated, but not when they’re too different. Then he becomes a subversive mother.

Why The Fight Over The $1 Trillion Coin Is The Most Important Fiscal Policy Debate You’ll Ever See In Your Life

Joe Weisenthal, Business Insider

Jan. 8, 2013, 12:33 PM

(C)ontrary to all these people who say that this is a childish, non-adult proposal put forth by impish trolls, it’s actually quite the opposite. It may be the most important fiscal policy debate you’ll ever seen in your lifetime, because it gets right to the nature of what is money.

This question is central to any discussion about a country’s monetary and fiscal policy, and yet it’s almost never discussed, and virtually nobody understands it.

Almost everyone talking about fiscal policy imagines money to be a commodity of sorts that we can “run out” of if we don’t spend it carefully. In this sense, although we’ve long gotten rid of the gold standard, we’re still shackled with a gold standard mentality, where we think of money as a scarce natural resource that we need to husband carefully, lest one day the bond vigilantes show up at our door, causing us to go broke.

Now the reason I started writing this piece by talking about bananas is that I thought they were sufficiently arbitrary and ridiculous to attract your attention but I had to abandon that since they’re actually much more useful than money- you can eat them and then you’re only dealing with surplus bananas over and above Foster so please ignore any bananas that creep in and mentally substitute Yap Stones or Higgs Bosons that have a slightly different electron voltage.

You see the thing about money is that its only value except as a decorative object is that the government accepts it as payment and (at least in the United States) private vendors are also compelled to accept it as payment for goods or services offered by contract (every transaction is a contract) if the contract is written (the good or service is offered) using money as a medium of exchange instead of directly exchanging some negotiated other good or service.  In common use we call the transaction using money a “sale” and a transaction using something else a “swap”.

Now there are many reasons to use money as a medium of exchange, chiefly transportability and convenience.  Transportability is kind of obvious, you need some serious pockets to haul around Yap Stones, but most frequently suggested substitutes like Gold or Oil (somewhat more banana-like in terms of utility) suffer serious transportability problems, especially in larger amounts.

When we are talking convenience what we are saying is that for the vendor it is much much easier to value his product and sell it if they do not have to calculate an exchange rate for every possible transaction.  How many Goats are a Cow worth anyway and how much time to you want to waste figuring that out?  What we have developed instead is a Market where tokens may be received by the vendor and used by him to purchase other items and relative values are negotiated arbitrarily and automatically by the collective group of buyers and sellers that participate in the Market.  Arbitrary- I decide my Cow is worth 3 Goats.  Automatically- my neighbor will take 2 Goats for his Cow and unless I throw in some Chickens you’ll automatically take his Cow and save yourself a Goat.

See how complicated it gets?  And I deliberately chose Cows, Goats, and Chickens because they get around just fine on their own and you don’t have to stuff them in your Yap Stone pocket.

Now some people also think of money as a store of value, but that is just not true except on a temporary basis.

Let’s say I scratch in the desert around Ur and discover a pot full of Cow tokens.  I’m rich right?  All I have to do is go down to the Market…

Oh, yeah.  Over 5,000 years you say.  Well, at least I can sell them as decorative objects.  And at that they’re probably more valuable today than they ever were as Cows who would also be dead as Keynes in the long run.  If you want to see how a Market like that runs I suggest Pawn Stars and American Pickers.

I’ll give you $500 cash money right now.  Worth far more?  Not to me.  Neither rarity or antiquity represent value.  I don’t have people wandering in the shop asking for Ur Cow tokens every day so I’ll probably have them sitting on the shelf for a while.  Pleasure doing business with you, I’ll have Chumley write you up.

But, this is a good thing.

One of the problems with today’s economy is that Banks and Businesses are sitting around on a lot of Cow tokens instead of productively investing them in, oh… Cows let’s say.  The Cows would produce milk and meat and little Cows.  They would consume Grass from the Grass vendor but maybe I could get part of that cost back by selling him fertilizer.

That is a working economy.

Instead they are just putting tokens in a pot and burying them in the desert.  They are not growing into token trees or Cows but there is this expectation that in the long run you can dig them up and turn them into future Cows which are much less smelly and inconvenient than actual ones.  And as it turns out simply giving them more tokens doesn’t produce anything except more and bigger pots.

Next- more about pots in the desert.

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