Sometimes More Is Less

In the essay I’ve Looked At Money From Both Sides Now http://www.troy.thoughtsaloud.com/2009/02/14/ive-looked-at-money-from-both-sides-now/  I mentioned my theory, mostly plagiarized from Ayn Rand, that money represents productivity.  Clearly a topic of little interest, given its low hit count.  But, I persist because I am convinced that the proper understanding of money and its relationship to productivity is one of the most important issues we currently face.  Likewise, the general ignorance about money is, in my opinion, largely responsible for our current economic/political mess.   So, here goes try #2, from a slightly different perspective…

As previously stated several times, money represents productivity.  This concept is easily illustrated by this ultra-simple example:  Suppose I have built a piece of furniture – built with my own hands.  This piece of furniture is obviously the result of productive work on my part.  Now, along comes you, you like the furniture and you propose to trade with me.  As it happens, I am not in need of any of the actual products of your productive work, so, you trade me money instead.  Money that you obtained from someone else in trade for your productive work.  Money that I have now obtained for my productive work.  Is it not clear then that this money circulates about, representing the result of productive work, in an endless string of trades?  Ergo I conclude that money represents productivity.

“So what?” you respond.

So this.  For purposes of our discussion, there are only 2 forms of productivity:

1. Past productivity (productive work already performed), and,
2. Future productivity (productive work expected to be performed sometime in the future).

Yes, I realize there is also current productivity (work being done this instant) but, any unit of productive work is in the “current” form for such a short time that it is not germane to our discussion.

So, if you are with me so far, we have determined that money represents either past productivity or future productivity.  Further, money that represents future productivity must be borrowed.  Borrowed from some entity that has an excess left form its past productivity.  Ergo, when we borrow money, we are actually borrowing productivity, with the promise that we will repay with our own productivity at some future time.

“So what?” you repeat.

Well, let’s apply these simple rules to the massive amounts of money being spent by our beloved government.  Since government is incapable of productivity itself, it must reply upon the productivity of its citizens.  Said another way, it must confiscate part of their productivity (money) for its own use.  Now, I don’t know about all of you, but I can assure you that I do not, at this moment, have enough money, left over from my past productivity, to pay the share that my government is spending in my name.  I think it is safe to bet that millions of other Americans share my predicament.  So, what is a government to do?

One thing they can do (and have already done to excess) is borrow the money.  Reflecting back on our rules, this means they are borrowing future productivity from some other entity.  It also means that me, your, and our descendants are on the hook to repay this borrowed productivity.  That is why we hear so many people (accurately) claim that government is “mortgaging our children’s future”.  Not a really desirable approach but it works (for a while).

But, what happens when our credit runs out?  That is to say, when other entities refuse to loan us more of their past productivity?  Interesting question is it not?  And, this is exactly what is happening as you read this.  Our largest creditor (China) is quickly coming to the realization they might not get paid for past loans to us, so why would they want to lend us more?  Can’t turn to Europe because they are swimming in debt just like we are.

So, our government laments, “what to do?”.  Ah ha! (imagine a light coming on in a politician’s hollow head)… we are the government, we own the presses, we alone have the right to “coin money”, problem solved!  We will simply print more money!!

Let’s apply our rules again.  Since money representing future productivity can only be borrowed, this new money cannot represent future productivity because our credit has run out.  Whoops, the only thing it has left to represent is past productivity.  Now, my friends, what happens when we add this newly printed money to the money that already represented past productivity?  Simple, it dilutes it.  Just like adding more water to you cup of coffee.  The coffee ends up not as strong as before.  Well, likewise with the money — it ends up not as strong as before.  That is to say, a unit of that money will buy less than it would before the dilution.

Our government calls this inflation.  I call it a clever way to steal our money and make it look like someone else did it.  That someone else being the grocer who must raise prices to offset the loss of money value.  Or the gas station, the clothing store, in a word, everyone you do business with.  End result?  It takes more productivity (on our part) to get us the same goods and services we are used to.  And the best part is that the stealing continues into the future, continues until the unlikely time when deflation restores the previous balance.

Think about it.  Government proposes to raise your taxes 10% and most of us have a fit.  Meanwhile, they steal 20% and we hardly even know who or what hit us.

Then, when the theives run for re-election, we send over 90% of them back to Washington to steal some more.  Why do we do this?  Usually because we let them convince us they will steal it from someone else and give part of it to us. Did you buy into this?  If so, ask yourself if the price of food, fuel and other necessities went up only for the rich?  You know better.  Yet we fall for it every time.  I can only conclude that, as a people, we enjoy being lied to and stolen from.  What else could explain this madness?

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