Monday, July 28, 2008

Primitive understanding of money


"Money is a man made creation and in itself worth nothing. Why are we compelled to affix price tags to everything?" I'm going to try to explain:

Money is just our convenient measure of the worth of things. It's a bit like saying gallons aren't worth anything, but at the same time more gallons of fuel are worth more than less gallons of fuel.

Perhaps some people might benefit by having a fresh look at money to realise why we measure things in this way. Some people have a very simplistic view of money and of economics in general. The kind of view you develop when you're a child in your parents' house.

Your mother is the source of a cake and other such treats, and if your brother gets more of the cake it means there is less cake for you. All pocket money and decisions about freedom comes from your parents, and you grow up to realise the importance of some of the rules they have established with you when you were young, like not letting you run across the highway when you're 6 years old. You learn that money for material things like video games, music, bicycles, skate boards and clothes comes from your parents, and you know that you can't have more of these things because your parents won't give you more money for these things, and they tell you that they don't have more money to give, so you realise that this money is important and you learn that the money at their disposal is finite just like the size of the cake is finite.

After school you might go and study, where it might be paid by your parents, or paid or subsidised from tax money, you go to educational institutions filled with teachers who normally have never achieved success in the commercial world outside of academia, or only know about getting education or educating others and getting paid by their employer, the educational institution, who gets their money from your parents either directly or indirectly through taxes.

Up to this point you learn that money is important, and that the disposable amount that anyone has is finite, and that it's their choice as to how much of that amount they want to give to others or not. You know that they get their money from employers, and employers decide how much they get or they don't get and that if they want to have more they have to convince these employers to give them more money.

Then you develop the belief that those who are poor are so because someone has decided to give them less money, and there are others who have a lot of money at their disposal who can afford to give these people more money, but don't. This seems all very unfair and is a bit like your mother deciding to give your brother two thirds of the cake and you only a third. You feel that to correct this, the employer or the government has to fix it by adjusting the portion of the handouts fairly. You also develop the idea that your mother, employer or government are what controls the allocation of money, and that you need to combine the strength of everyone in the same position in order to campaign and persuade these authorities to give you more. For instance if you and two of your siblings tell your mother that you don't want to eat asparagus, and want carrots instead, your mother is more likely to comply especially if you all refuse to eat or refuse to stop screaming together. The same goes in forming unions to prevent employers from exploiting you and your fellow workers, or forming lobby groups or nationwide strikes to convince the government. You develop the belief that this is the only way to bring chance and establish fairness.

I can easily see how this thinking develops. It's a product of the way we grow up and the society we grow up in. It's hard for us to understand how this came to be. We learn about previous kings, dictators and rulers of the past, so there's always been an elite class with more control over the distribution of wealth, just like our parents had more control over our lives while we were growing up. This way of perceiving the system is familiar to us, and we see the suffering of others, just like we suffered when our mothers took away a treat, freedom, privilege or pocket money if we didn't do something in a way she wanted. We focus on those in control, since they obviously have the means, and hold them responsible for the suffering of ourselves and others.

Perhaps you can start seeing it in a different perspective if you take a society from scratch. Let's start with a small family, mother, father and three children. The father goes hunting, the mother prepares food and feed the kids. The oldest child makes sure the younger children won't kill themselves by going out too far and fall into the river or get eaten by lions. The older child has learned that his mother and father is angry at him in unpleasant ways if he doesn't do what they say. They instruct and teach him to do things in this way because they want him to know what to do to stay alive and succeed, and help them stay alive and succeed at that. The younger children learn this at the same time. No money is involved in establishing the worth here, only love and the will to survive and better their life and chance of survival. When facing external danger like predators or food shortages, they help each other at fighting, hunting and sharing the food. Within the family you have natural solidarity, or socialism.

Brothers and sisters could implement some kind of measurement between each other when it comes to the value of their acts, for example if one gets more honey than the other they might fight over it to settle that and decide everyone should get an equal amount except for the one who's hurt the others on purpose during play, but if the oldest brother gets more meat then they could all agree that it is fair since he needs to be strong in order to protect the younger children from predators. See, even now you have to put a measurement on the worth to the older brother, even in a family structure driven by love and solidarity.

Let's say you have two families like this, the father of one family is good at hunting while the father of the other family is good at finding edible fruits and mushrooms. Since it's better to live on a diet of meat and fruits instead of just meat and just fruits because of the pattern of migration of the animals and the seasonality of the fruits, the two families share with each other.

But let's say one of the families don't provide as much of something as the other one, or not all the time, how do you determine how much fruit and meat do you share with the other family? What happens when the other family just eats a lot and get fat, and only bring food to you from time to time? So you learn to trade, the families swap fruit and meat with each other, but not in equal amounts because certain factors determine their value. In winter it takes triple the effort to find fruits as it is to do hunting, so you learn that you need to give triple the amount of meat for the same amount of fruit during winter. If the hunter doesn't agree that value with the fruit picker, he could decide not to trade at that value. He could either decide to stick to meat in winter or dry some fruits during summer to eat in the winter, or both. The fruit picker wants access to meat in winter so he decides to lower his price. Alternatively the hunter could decide that hunting is still less effort and a lot better than doing the whole dried fruit thing, so he decides that during winter it's worth paying more meat for fruit. In summer he has to hunt less for fruit since fruit is cheap. Hey presto, efficiency reached, in winter the hunter works harder and ends up providing meat for his family and the fruit picker's, and the fruit picker works harder during the end of summer so that he has enough fruit to provide for both families over winter. All this happened without having to rely on a higher authority, campaigning or violence in order to make things fair and efficient.

Anyway, that's Econ101. Unfortunately it's hard for people to take that concept and scale it up to more complex arrangements, like we have today. Where the hunter subcontracting the hunting duties to younger and healthier males to do the running around, where the price of meat is affected by running out of animals in the forest, where the fruit picker starts to grow foods, and find foods that can store through a whole winter, where they develop a medium of exchange (money), one that can be stored and traded later, where governments starts to determine the value of the medium of exchange and can create fake money out of thin air and the distortion and loss of value is called inflation, where the hunter can give meat to the fruit picker in exchange for a promise that he'll be given more fruit in summer, plus some extra since he had to wait so long etc.

We have the vast and complex system as we have today. Even while it's efficient, and everyone is better off exponentially more than before, and exponentially more than other older or failed experimental systems like socialism, communism, anarcho-syndicalism, feudalism and the likes, there are still some who suffer. We still want to blame the winners for the losers.

Unfortunately it's hard for people to understand exactly how and why, even many smart people. Instead we fall back to the way we understand the system as we learned to discover it as we were growing up under our parents and while being students. Some deny the fact that it was the system we have that gave us the platform to develop all the technologies we have today that makes life so easy for us that we can sit in an air conditioned office all day and work light and socialise with people around the world over the internet and get drunk afterwards, or at the bottom of the scale make it so cheap to produce food that there isn't a democratic and capitalistic country in the world where people die of hunger.

I hope I'm doing a charitable deed by trying to help educate people who struggle to understand all of this, since the well intended solutions to try help those who suffer can actually bring terrible suffering to this world.