Friday, February 06, 2009

The great economic experiment

This is the first post concerning the state of the economic world as I see it, maybe my last. The issues talked about affect all of our kin and all of our future namesakes. I probably will present the economic facts with a slight bit of distortion and with huge gaps in knowledge, but I think you will find these ideas potentially of some worth.

The history of money
Economy and civilization are tightly intertwined. If fact, I cannot see a situation where once can exist without the other. As our civilization grew, so did the complexity of our economic systems. Kings minted coins, countries printed paper. The reason why the countries and kings were involved is twofold I believe. First, economies function best when there is a common medium of exchange. Secondly, it is hard to tax your people if they all have different mediums of exchange or just barter. Of course, a system that only the King or state wants will only last so long.

The governed also enjoyed the advantages brought by money. Money did not rot like the food they grew, so it serves well as a means to store wealth. Is a lot easier to exchange, once everyone agrees on what it is worth, the than the raw goods and services they had.
For most of our history, “money” has been a tangible item. In some cases, it was an item that held utility: cows, wheat, or something else. I am not so sure you can call that money in the traditional sense. In other cases, it was an item that was highly desired (such as gold) or an item that was declared and agreed on as medium of exchange (seashells). For me recently, money really has just become some numbers on the screen. I watch the inflow; make sure it is less than the outflow. I monitor the outflow, for irregularities and look for ways to lessen it. Money for me is really just bits and bytes that buys me bites for the belly.

For much of our history, the amount money has been fixed to some degree because of it’s connection to the real world. Gold was real, printed money was able to be traded for gold. Recently money has been decoupled from the physical world. An American dollar is only worth what people will pay for it in other currencies. They decide the worth of the dollar based off the relative strength of the American economy or their economy - it is a strange circular relationship. Additionally, we have been able to manage money better because the advances in computers and software. The power of the electron has given us power over financial data that no other civilization as ever seen before. Needless to say we have come a long way from counting the number of cows that we are owed on our bare hands.

The system is the problem
Every system that has been put into place was an attempt to fix a perceived problem. Driving on the right side of the road, fixed the problem of not knowing which side of the road you are supposed to be on. Schools are supposed to fix the problem of dumb people. Money solves the problem of commerce, and it solves it remarkably well. We moved off of the gold standard to remove the limitations that gold placed on our money and our economy. The problems of a currency that has no inherent value are also painfully clear. If you hold on the cash, you slowly lose value due to inflation. If you take any real risk with your cash to maintain your wealth, you are “investing” and past performance is not indicative of future performance, as the last ten years have show you.

I am not some reactionary saying we need to go back to the gold standard. The system we had was flawed and our current system is not so hot either. We need to move forward. We need a system that can accommodate our powerful economy, our need for liquidity, our need for growth. It also needs to provide for stable growth to allow individuals to growth their wealth without having to get degrees in finance. Of course, if I knew the exact details I would start the system myself and become king.


Dawn Summers said...

Your back! Whenever I watch 24 I think about your clever body count posts. :)

Anadrol said...

Interesting reading! Thanks for opening another view to that theme! Ana