Economics and the Meaning of Money

    I usually look at the economy as a form of applied sociology. Money is only worth something if people believe that it is worth something. This applies equally to gold and jewels as much as it applies to pieces of paper with people's pictures printed on it. In a similar fashion, money is distributed according to the rules (explicit or implicit) that people decide upon.

    A barter system works when each person (or family) is capable of doing most things needed for survival on their own. They then trade things that they have in excess for things that others have in excess. I give you an extra chicken and you give me a bushel of potatoes. I give you a length of material that I have woven and you give me a chair. Barter is a mixture of labor, materials, difficulty, and time combined into value.

    When each person can NOT do most things they need for survival, the barter system becomes very inconvenient. It is necessary to keep records/charts of equivalences. One type A chair is equal to two meters of cloth. Two type B chairs are equal to one type A chair. Ten chickens are equal to one meter of cloth. This complexity arises out of the need for each family unit to trade for many different types of things. Once this happens, the next step is to equate the value to something in common. Ten seashells represent the value of one chicken. A meter of cloth is equivalent to 100 seashells. Every item of value can be represented by a certain number of seashells. This representation of value is called money.

    Once the value of work and things have been "abstracted" into money, it is very easy to lose sight of real value. The work done by an experienced, talented teacher is probably worth more to society than that of a software developer -- but the software developer probably makes a higher salary. In "capitalistic" societies, the control of money is considered to have value in itself. That is, if I possess one million seashells then I no longer have to produce anything of value myself -- the circumstances (earned and saved, gifted, or inherited) of having the seashells allows me to distribute some portion to other people who then produce the actual value (plus more for me to hold).

    Within "new age" philosophy, it is popular to think that the economy is no longer a "zero sum" game. That is, each and every person, can earn as much money as she/he wants -- that there is not a "fixed pot" of X seashells in the pot and each can have as much as they want without reducing the amount that others are able to have. That's a happy philosophy but is it true?

    Although money makes lots of games possible with the distribution and use -- the basis of money still goes back to production and use. If 100 people each want a fish but there are only 50 fish then the value of each fish will rise until the 50 people who most want a fish have them and the other 50 do not have them. If 100 people want a fish and there are 1000 fish, then the value should (the concept of money makes direct value difficult if not impossible) be equated to that combination of labor, materials, difficulty and time mentioned above. An abundance of resources (fish) causes value to go back to basics.

    Our global economy makes distribution of resources extremely unequal. Most people estimate, however, that there are enough resources (food, labor, energy) to support everyone currently on the planet. The fact that that does not happen is a problem with distribution and allocation. But, there is still a limit. Perhaps at twice the population there would NOT be enough for everyone (in an ideal world). This argues that it is a "fixed pot" -- there is a limit of resources to be distributed. In order to eliminate the fixed pot, it is necessary to get rid of the limitations of resources.

    Is there a way to eliminate the limitations of resources? I will look at that possibility in the next blog.