I took an economics course in college and learned two things; that economics is the study of how we attempt to satisfy our unlimited wants with limited resources, and that money is anything that has value. Unlimited wants? Thats a tall order, one that we have been unable to succesfully address since the United States became a world economic power. We now have the distinction of being the world's largest debtor nation as our pursuit of those unlimited wants has bankrupted us and reduced our currency to near worthlessness. The issue requires some corrective action; but what?
Presidential candidate Ron Paul (R Texas) wants us to return to the Gold Standard; that's a step in the right direction, and he has also mentioned a second currency, as I have recommended. I sent the proposal to Dr. Paul's campaign committee but can't claim authorship of the idea, but at least we're thinking along the same lines. But no solution to the problem will ever be enough if we don't understand how we came to this disastrous state.
About six-million years ago, before the Lords arrived, our ancestors were nomads, hunter-gatherers who roamed the forests and savannahs of the pristine world in search of small game, roots, and berries. Theirs was a pure subsistence economy; in modern terms we would call it a Consumer Economy, just like we have now. They didn't produce anything as everything they needed lay all about just for the taking. It was a hand-to-mouth existence but it had it's good points; none of these primitives went bankrupt, had their caves foreclosed, their clubs and spears repossessed; it wasn't all bad. These people lived from nature and were healthy; they didn't need doctors, psychiatrists, prescription drugs, health care, or retirement plans. Then something happened.
Eatly man, Homo Habilis, settled down about four-million years ago. They did this because of the introduction of agriculture, an art taught them by the Lords, as it seems unlikely that early man, habituated as he was to hunting and gathering, would have the time or inclination to develop horticulture on his own. Villages sprang up around the arable land and man acquired something he never had before.
Spare time. But wait! Let's back up a moment.
Lords of the World, you may ask. Settlers from somewhere " out there '?
Yes. Consider these facts. First, it is amply clear that isolated peoples never progress beyond the tribal level of socialization. Cultures advance only through contact with a more developed society: that's history. Where did it start? Even when hunter-gatherers came into contact with others of their kind, these others were no more developed that they were - so where could the advancement have come from?
Also, as old habits die hard, it seems very likely that the Lords would have taught early man animal husbandry: raising cattle, pigs, chickens, etc., as man was well used to killing and eating animals, and these had a nasty habit of running away.
And time was of the essence. People accustomed to satisfying their needs on a daily basis, employing methods that have proven successful, rarely take the time to think about other, more complex matters. Perhaps this is the source of mankind's inbred resistance to change. A primitive version of " if it's working, why fix it? "
No, there's much more to it than that.
Consider the development of agriculture. It is much more than popping a seed into the ground and watching for it to grow. The soil must be arable and conducive to plant growth; not all soils can claim this distinction. Another problem would be with the tending of the crop, a task that would necessarily involve a settled group of people to see to the proper watering and to ensure that no animal could just come along and eat the whole spread. Small tribal units constantly on the move would be reluctant to leave any of their small number behind to conduct such experiments for two reasons; one, their presence would be missed as important part of the hunting and gathering process, and two, those left behind would be vulnerable to attack by wild beasts or other small tribes which might not be too friendly. Then there is the question of when to sow a crop. Owing to the reasons already given for keeping the tribe together and on the move, it is also highly unlikely that any members would be afforded the time to conduct meteorological and seasonal research for the purpose of identifying the best time to plant and to harvest the crop. It's just too complicated to have been just " discovered ". But we got there eventually, and our reward for our labors was something entirely different.
Surplus. The subsistence economy of the hunter-gatherers was pure Consumerism flavored by immediate gratification. The only things that were traded were blows when two tribes found themselves eying the same boar. Or the same water hole. But with agriculture and the raising of domestictaed food animals, either those who produced it or those who became it, man was able to settle into more-or-less stable habitats. I personally claim descendacy from these people because their two favorite words are also my favorites: Free and More!
Surpluses had to be disposed of in some manner since they were perishable, or in the case of livestock, had a tendency to eat too much and multiply. Where on group had a surplus of cattle and another a surplus of pigs the two engaged in the first instances of trade, the exchange of commodities known as Barter. Simple?
Well, not entirely. Barter, though a primitive form of exchange, did have some stikingly modern considerations attached to it. One of these was Present-Value-Future-Value. A two year-old cow was worth more than one nine years old. A bull was worth more than a cow. There was also the matter of condition: animals were prone to disease and vegetation to rot and blights, some of which might not be readily apparent. Barterers took great pains in their deliberations. If all was well a bargain was struck. Simple?
Not exactly. There was also matter of supply and demand which affected the trade. If one of the traders wished to sell more than the other wished to buy, or vise-versa, this would affect the final agreement. The agreed terms of the trade constituted the Exchange Value, one of the characteristics of money. But because of the factors listed above, three trades of the same commodities could have three different values of exchange.
Barter was slow and some theorists have proposed that early man developed a set of standards wherein the values of commodities were based on a fixed relationship with a single good. The proposed standard in those days was one head of cattle against which the values of all other goods were compared. This would have proved to be of little added value: barter still took time.
Things plugged along this way for some time until the discovery of copper. Here we must pause to consider. If the development of agriculture presents problems explaining itself in terms of the itinerant, hunter-gatherer tribes, then the "discovery" of copper would present even greater problems. I believe that this was another gift of the Lords. Consider.
We are still stuck with the hunter-gatherer societies with no clear idea how they advanced their cultures while busy surviving in the primordial wilderness. Out there is was kill or be killed, the constant battle between predator and prey - and it still goes on today. The discovery of fire lent light and warmth, but it was out there, plainly seen and only needing to be harnessed. Copper is an ore that is not so readily apparent. It melts at just less than 2,000°F, much hotter that any wood fire used for cooking. What clue would the primitives have had of a metallic substance embedded in certain kinds of rock? And even if they knew, how would they conceive of making things from this substance? No, the simplistic view of history is just too full of holes. " Yeah! You guys go ahead and chase that wooly mamouth. I'll stay behind, build a real hot fire, and cook some rocks to see what comes out of them. "
However it came to be, copper waas the answer to barter, while being a form of barter itself but of a different kind. Being a metal, copper was immune from the ravages of injury, disease, aging, and decay: a pound of copper is a pound of copper, whether produced yesterday or ten years ago. In terms of utility, copper was also used to make a whole variety of impliments, tools and ( sigh! ) weapons; therefore it was a general good, rather than a specific commodity. Copper became the first Medium of Exchange, the fist specie metal. Economics really took off then!
The universal appeal of copper made it possible for trade to flourish as never before, and as it flourished it grew to transcend borders and waterways; caravans and ships carried goods ever farther afield, and copper was the blood that coursed through the arteries of trade. But as the volume of trade increased in most, if not all, commodities so did the amounts of copper needed to complete transactions. This caused a problem, since large amounts of copper were difficult to transport, and were always at risk of being stolen.
The Chinese are generally credited with the invention of paper money, but that is only a guess. This step certainly called for a literate society with a facility for the written word and some mathematics. Combining the need of some substitute for the transfer of copper from one place to another and the capacity for keeping records, it seems logical that one party to a trade would envision a solution: a Letter of Credit.
These letters of credit were not actual currency as they were not yet used for general ditribution, but they did have one characteristic important to money: they would be accepted by the issuing party for goods and services. Thus begn the trading of paper instead of actual metal - but you had to have the copper. Trade among nations relied heavily on thepossession of copper or the resources and manufactured goods to secure quantities of it. It was the first step in distinguishing between powerful and weak nations, later to be translated into wars of conquest. But for a time things went well; then a problem.
Over time it became apparent to the ruling powers that economies tended toward depression. There were two reasons for this: increased population, and the banking system of the time. Population growth acted on curency by thinning it out: if ten people equally divide a million dollars, each would have $100,000; if there were a hundred-thousand people, then each would have only ten dollars, a million people would have one dollar each. The need for currency putstripped the means to acquire specie metal, so more money was printed to keep up. This is called devaluation. In modest amounts devaluation does no real harm; carried to extremes it courts disaster.
The banking systemsback then also contributed to depressed economies by being storehouses for wealth, a place where wealthy merchants stored their treasure for safe keeping, where it was out of circulation. In fact they paid the banks for keeping their resources. Eventually banks started paying depositors interest and lending money.
All the while populations grew exponentially while the stocks of copper expanded by volume, creating the need for more currency. Expanding foreign trade further exacerbated the need for liquidity, and currencies began to devalue. As long as the value of a currency was predicated on a hard-currency principle there were natural curbs on population growth, levels of trade, and the dearth of money promoted greater efficiency. But our unlimited wants prevailed and societies began devaluating their currencies; when paper money replaced letters of credit, they began creating money out of thin air. Inflation became a fiscal way of life.
As stocks of copper grew apace with volumes of trade, it became less likely that one party would demand full restitution in copper, after all they were trading paper, and in the absence of any regulatory agency they just printed more coupons, which is what paper money actually is. Here, it is useful; to examine the phenomenon of inflation.
No comments:
Post a Comment