From Barter To Bankruptcy or Money For Dummies - So Simple, Even I Understand
It's that old - time religion
It's the kingdom they would rule
It's the fool on television
Getting paid to play the fool
-- Neil Peart/Rush; The Big Money; Power Windows, 1985
Read this short article as an excruciatingly simple though informative introduction to answering the questions:
1. Why is money so volatile?
2. Why is it a patriotic duty to oppose the Federal Reserve Bank?
And as you read, please remember, that the United States Constitution is one of the greatest documents ever written. 'Cause on the money issue, it may be our saving grace.
Now don't get me wrong. I don't expect to instantly convert you to some fanatical crusader or anything :). But after reading this article, and the one linked at the page bottom, you might at least feel a little less inclined to believe it the next time your boss blames inflation on you - you may also be inclined to never-the-less forgive your boss, and direct him or her to this article, and the one linked at the bottom of the page.
How Money Works
Introduction
Often the simplist of concepts can seem elusive. We won't investigate why that might be so, but money is one of these simple concepts, and we will investigate it.
So lately, I've taken to learning about money systems. I've come to the conclusion that our (U.S.) money system (and that of most of the world) truly is, "the root of all evil." That's because our money system encourages the pursuit of money as an intrinsically valuable commodity while paradoxically, encouraging a Monopoly game mentality of fast, and loose, risk free speculation as opposed to money being a means to a more worthwhile end - the upshot is, you, and I, the proverbial "little guy", get screwed.
Understanding how money works is key to understanding many modern day problems - (both economic, and otherwise) such as the Enron scandal, and other recent corporate scandals, as well as issues revolving around the IMF (International Monetary Fund), the Federal Reserve Bank, the gold standard, the fiat money system, and world politics in general.
To understand how money works, it's useful to start at bottom so to speak.
The Barter System
Now, you've probably heard the following story before, but maybe not quite as simply rendered (I hope) as here. So stay tuned a moment or two.
Civilizations used to have simple systems of trade. There was no abstraction such as money. If you wanted something, you either made it yourself, or you traded something you already had for something you wanted. This is the barter system.
The Money Abstraction
The barter system has the obvious drawback of being very bulky - it's difficult to carry with you, everything you might want to trade. So trade systems became more sophisticated. We invented the concept of money. Depending on your knowledge or point of view, the concept of money is very simple, or very complex, and confusing. For most of us, a few moments thought reveals we have very little understanding of the concept of money.
Often issues only seem complex because we don't have enough knowledge to even know what questions to ask to help us gain understanding. That's in fact the case with the concept of money which is really, or at least should be, a harmless improvement to the barter system and therefore no more or less good, old fashioned, and down home.
Read on, to learn why things are not however, as simple as "an honest day's work, for an honest day's pay." While the following is very informative, I encourage you to continue beyond as well, by clicking through the link at the end of this article.
There is really only one question we need understand the answer to, in order to understand money:
1) How is money linked or tied to actual products such as agriculture, houses, cars, clothes?
The answer to this question is really the key to understaning money. I mean, of course, money itself is worth virtually nothing. It's made of paper, or cheap metal, and printed up, or minted in manufacturing plants. It's only value lies in the fact that for every dollar printed, there exists an actual product. So the manufacture of money, and the production of goods, and services should be in lock step with each other.
For instance, the situation with money production should go something like this:
1.1) I produce something of value - say a piece of furniture - for which people are generally willing to pay (a matter of supply and demand), say 200 dollars.
1.2) So now that there is 200 dollars worth of product in the market, 200 dollars can be manufactured.
So far, in the above description, everything is going very well. The market and the money supply are in harmony - that is, for every product or service, there is an appropriate amount of money created and made available so people can conduct trade without having to carry around all their stuff like in the barter system.
That's about all there is to it. I mean sure, the money system can get more complex - there are stocks, and bonds, and a whole slew of other Wall Street type money formats, but they are basically all the same - just different forms of paper money.
You could stop reading this article now, and still know most of what you should know about how money works. Read on for a little more explaination about the root of most of the world's economic problems.
Smoke and Mirrors
Now the problems arise - and this is crucially important to our understanding of many, or most, if not all, present world problems, both economic, and social - when the manufacture of money, and the manufacture of goods, and services, gets out of lock step with each other. There are basically two scenarios in which this can occur:
1) Like when there's lots of paper money, and no goods or services to justify the paper money - say, because the money gods incorrectly projected there would be 10% more production than there was, and thus minted 10% too much money. We see this frequently, and it leads to:
a) inflation - a situation where there's lots of money floating around, but few goods or services to justify the money, so prices go up, and your money becomes worth less than what it should.
b) higher taxes for most of us. This is because the money is worth less, so the governement comes and says they need more money to pay for the services they provide you.
2) Or even worse, but fortunately much less frequently, when there's plenty of goods, and services, but there's no money circulating! - This last is an example of a robust economy strangled by a lack of money with which to conduct trade!
It is worthwhile to reiterate that money is an abstraction. And as is the case with all abstractions, within the gap between the abstraction (money), and corresponding concrete reality (goods and services), there is lots of room for trickery, corruption, reality twisting.
And through various means - many of them invloving corruption such as we've seen in recent corporate American scandles of which Enron is an example - embalance between the money supply, and goods and services is just what happens. Many believe this sort of embalance happens all too often, because it is facilitated by elements of our economic system that encourage it or fail to take sufficient measures to prevent it from happening, because this embalance greatly benefits a tiny few (the top 1% of the wealthiest for instance) and at the same time, hurts the rest of us - our money becomes worth less so we just work harder for worth less money, and pay more for goods, and services, and pay higher taxes, while the rich sit back, laughing their asses off, and raking it in!
Finally, if you're like me, you pretty much think money grows on trees. A bit of an exageration perhaps, but what I mean is that it's tempting to think something like, "Well, we made up this money system. It's just an abstract concept. So what's the big deal? We'll just, at some point, wipe the slate clean, and we'll all start over from scratch." Mmm. The easiest refutation of this easy out idea is simply to respond with, "Try telling that to they "guy" to whom trillions of dollars are owed." This "guy" means to be repaid, and he won't take no for an answer.
The foregoing is the basic story - the simple version. But believe me, it gets much more interesting. By all means, please, read on!
The Mandrake Mechanism - Similar to above link, but perhaps even more precise and easier to understand.
And, actual congressional support for fiscal sensibility? - Congressman Ron Paul, MD.
Pretty comprehensive money system info.
Is The US Already Bankrupt? - The big picture as pertains to our economy here in the US. WhatReallyHappened's Mike Rivero makes short work of this elusive topic. Read, and be enlightened.
Bryan McGregor Hoover
bhoover@wecs.com