Topic Tuesday #27 2013/01/22 - "Dollars and $ense"
I remember buying my first car. I was excited as I saved up $1,500 over a summer and was going to buy it outright. It was going to be a hunk of junk, a clunker - but what does a 16 year old care really when the freedom of transportation is promised? I wrote the check... I felt sick to my stomach. I wanted to retch at the thought of the exchange... All my hard earned coin was going to be gone in an instant. I did it anyway. I got the car and had my measure of freedom and responsibility. You never forget your first time, and that was my first car and also my first big check.In the world of finance, money has no value. Keeping this in mind may change your view of the world. Let me explain:
In the USA, we have dollars as our agreed upon currency standard. But what is a dollar? Two "sawbucks"?Four Quarters? Ten Dimes? Twenty Nickels? A hundred Pennies? Yes but not at all. A dollar is a promissory note. That's all. It's true worth is that of 'paper' (Though it's actually a complex blend of fibers more akin to fabric for durability-but I digress). We use them as a token of perceived value for the purposes of the exchange of goods and services. the currency itself has no intrinsic value at all. In the end, it's worth is a lie. But a convenient one.
I am a big fan of the barter system. I often wonder what I could gain from exchanging my skills with those around me. How much is my effort worth? I need a roasting hen for supper, so I could fix a sink, or repair a computer. Maybe saving your files from a crash would be worth a large pig or a cow, or painting my house in return, or maybe the paint. Hard to say. Very hard to say. Can we exist on it alone? No. Not really. What would the power company ask you in trade for a Kilowatt Hour to run said computer? What would the city ask in return for protection and clean water? It's a slippery slope to a feudal system. A liege lord and his castle keep taking care of the main functions of society while you pledge your loyalty to them. Or worse even... The company store, where you pay back your wage of effort to be always a little behind and become an indentured servant, slave labor, deep in a coal mine.
We do need regulation and standardization in a modern day. But let's review just 2 generations ago. Your grandmother could go down to the corner store and buy a loaf of bread for a nickel. She thought that was expensive. Today, the same loaf, though likely much worse for us, costs around $2. Over say 75 years, the cost of a loaf of bread inflated. It's a simple task to understand the real value of a loaf of bread. It feeds you. It provides nourishment. It is sustenance. You can't fill your belly with money alone and expect to live long. We go with the perceived value of money. The perceived worth of a loaf of bread, a liter of water or gas or milk and so on.
It's troubling to know that the money in your pocket is almost meaningless. What happens when the men behind the curtain, that decide how much money is in circulation and what interest rates to lend more promissory notes out with, decide to print more money and circulate it wildly? The money in you hand loses value. If the regulators pull money from circulation, and artificially constraining the economy, they make the money a more scarce resource and raise it's value, it's buying power. Supply and demand - on demand. When the economy can be manipulated in such a way as the $10 you have in savings is only able to be exchanged for a quarter of what it used to, when you earned it and traded your skill and effort for it, it makes you wonder if this is the right system.
Can we go back to a fixed system? One backed by gold (The Gold Standard). Would we want to? Commodities such as gold and oil and nearly everything else of value, are traded wildly on the stock exchanges of the world. Their value fluctuates wildly. Though the value of a dollar also fluctuates it does so at the pace of the Federal Reserve. They choose the base interest rates for borrowing, and decide how much money should be in circulation. They do so at regular intervals, so the cost of things like bread does not sway wildly out of control. It's not an enviable job. Someone will always tell you it's wrong. The sad thing is they are right in that it's always wrong for someone.
I could go on, but I want the conversation to carry it forward. Good or bad, the economy work this way in a far more efficient manner than a barter system alone could enjoy. I'm terrible at pricing my services, and will always be taken advantage of, or be made to feel like I am robbing someone if I price competitively. How many chickens is a computer rebuild worth?