Coins and Paper Money

So what does that mean today? For Rome burned and Nero fiddled – Aztecs have come and gone, same with ancient Greece, Persia, Egypt and England Once highly developed societies that had money and have come and gone as “rulers of the world”, what does this all mean to ME In America Today ?

Money is just a way to trade our effort (WHE.- Work Hour Equivalents ) for what we need or want. Barter is just not realistic for our complicated lives. So what is a good object to trade? Fish, beads, salt maybe? But as soon as some wiseguy finds a pile of one of these, he will be rich and not done any work and he will not be the last to do it. Valuation goes in the tank.(counterfeiting)

So how about a coin? Made of metal especially precious metal because it is hard to make or find more of it or counterfeit to dilute it’s value. But who makes this “Money”? If a independent business does, each merchant must trust the weight or weigh each piece, so transactions would be very local. Who knows if the private mint of “Far Away Land” is trustworthy?

How many people need to transact further away from “Local”? I don’t know this but just a thought?

On the other hand if a government mints the coinage or “money” it can legislate that it must be accepted, and in truth most citizens want to believe that the government will be honest and fair. But someone must play for this effort.

As Long as the merchants and citizens have faith or trust the value of the money it has value.

So….. why not get rid of the burden of coinage and use paper money????

Well, it still has to have the faith of the merchants and citizens. When I trade my WHE for a coin or paper money I want a fair trade. So when I trade for what I want or need, I want to know my WHE inside of that “money” are well spent. So "Money" is just a storage device for WHE’s, therefore it can be of anything agreed upon. Who would agree upon age device that reduces my WHE’s once it goes into the device? Still the device does not matter as long as it does the job.

But can you use lemons? I say not - yield on a lemon tree has zero correlation to WHE’s and if it was to be made so; everyone would have a lemon tree and some would find a way to have a huge harvest.

What about a promise from your local community bank they are nice people right? They can store the correct WHE’s and then debit the account upon a purchase or spending . If our story ends here, Yes! That would work. So private “money” issuance or banking still works; if the government will allow it.

If “money” gains value over time, very few people would spend it, because it would be worth more tomorrow. On the other hand in it looses value over time, you want to spend it yesterday; because it will be worth less tomorrow. In Nirvanastan (the idyllic kingdom) “money” is neutral in value and does not change, So you can store your WHE’s or spend them, depending on your values not the increase or decrease of the trading medium.

Currently in the good old USA, our money is loosing value, due to reasons addressed later. Therefore it makes the most sense is to spend that money NOW, here we have a simple reason for our consumption driven economy.

Just to buck the “conventional wisdom”, what if we spend our WHE’s right away, but not on consumables but on a investment or move that “money” back through our world, without owning it?

But can we continue to spend as our “Money” looses value? Is there an end to this road? Can changing what is used as “money” change this or have any effect at all?

So How does Money Work?

So with the ground work laid that the math is fine but it doesn’t account for human action and individual choices the Austrian school will need to be used for understand how we get from mathematical model to mathematical model.

So How does money work?

Well money is usually regarded as the metal and paper in your pocket with dead presidents on it. But hold on there Partner that’s a jump. In days of old there was no “money” so humans bartered. But, how many fish does it take in trade for a toga, or a mule? Or a vegetable to go with the fish? What if you trade a fish or grain or fresh produce for a chair or cart? One will be useless in a week and the other will just start to be useful? If our WHE (work hour equivalents) are stored up rather than traded daily we can “save” for that cool new chariot.

So we needed a neutral way to exchanges durable and non durable goods and services skip to the chase -- we used metal coinage; Gold being best, limited. valuable enough so a small amount was of high value (un like iron) a Roman solider with a ounce of it could buy a nice toga, good leather belt and fine leather footwear (still hold true today – a ounce of gold will buy a nice suit a good leather belt and fine footwear) Problem cured.

But Caesar being gluttonous with his spending (sound like any other governing body you may be familiar with) wanted to spend more than was being taken in (not that it was not a big number)

Boing! Bright Idea - Rather than increase the onerous taxes in place. Just take the coins and shave some metal off each one just a little to make more coins, (ie more coins, no more gold- oh yeah the new coins were supposed to be of the same value as the old ones Whoops)

Problem - when the next payday came around and the Centurion skips into the market to buy a fish for dinner and drops a coin. The merchant is shrewd and noticed that it was lighter in weight that every other coin he has received so he demands 2 light weight coins; Then quickly says “Have I gotta bargain for you, 3 coins for 2 fish”. Welcome to inflation, higher prices are a effect not a cause of inflation.

Can you see why a math only approach will not work in this story but human behavior is SO important to account for?

Pair of Dimes

Economic thought is somewhat limited to Russian, Germanic, Keynesian, Monetarist and Austrian schools (and a few pick and choose the pieces they like in each pile and ignore that they don't work together; we will summarily dismiss these heretics ).

Thomas Taylor concisely summarizes these schools as follows-(with some commentary added)

German historical school -
Sought to discover economic truth through the study of economic history. History repeating that's what you've got- these guy's are definitely looking out the back window they will be right, but after the fact.

Monetarist -
They Love free market economy, but everything has to move as one unit for their mathematical formulas to hold. Freewill and choice on a individual basis is not considered.

Keynsian-
For such a brilliant thinker he forgot to think through his theory, the last vestiges of hold outs follow this, but we have all seen this dons not work. this basic model is Government spends like a drunken sailor in recession and then government gets drunk on the power of spending and never wants to slowdown let alone quite. Don't forget the perfect competition ad pure monopoly none of which the world has ever seen, but it looks good in a book. oh yeah they love Math too.

Russians-
The thoughts of Marx are really regurgitated from the Anti-Baptist centuries earlier, Truthfully Communism is the finest form of government there is, right up until you add people. By the time you have the third person, Somebody wants more than he needs or somebody does not want to give as she is able. "From each according to his ability, To each according to his need". This model works best for separatist theocracies. (Amish, Quakers, Hippies and the like) Otherwise you end up with a dictatorship that calls itself socialism.

Austrians-
Only a couple of these guy where Austrian, but whatever. Uses deductive reason as opposed to Mathematics. Conceptual understanding , not quantitative relationships. A important characteristic is it's methodological individualism.Belief that economics in not a social force, social hypnotism or "society". Rather result of conduct of individuals engaged in activity. Human error, and uncertainty of the future and the inescapable passage of time is given due attention. Unfortunately no politician is going to fall on their sword to implement this model, it just won't advance their own careers. I do not believe this school will ever see Washington, unless the Tea Party brings it along.

So what are we to do?

A Pair of Dimes (paradigm) is how we look at the world, if you have read any self help book psychology text, sports coach or business periodical you have been hit over and over with the idea that we have Free Will and can choose how we think and what we do.

--- For those who hold predestination tight, **stop reading ** I will not persuade you and I don't want to get you upset------

Really if it is predetermined what will happen? why try! if you are going to Hell enjoy the debauchery, attending sunday school won't change it. If you are going to heaven , debauchery just won't be for you anyway, as one of the elect you will not be interested. This hold for personal and financial success too.

On the other hand if you have freewill and can choose you can make good and bad choices - I know, I've done both.

We must look at models and reason or think to see if they are true and work forever though out all of our lives, if they don't time to reevaluate (it's ok to do that ). We must choose to make the best decisions we can maybe, not the popular one or the easy one, but the best one.