Mark N wrote:That was a great explanation Atomic. Now if you could explain economics for the people that think you can just print more money to save an economy
Money, eh? Hmmm... just finished reading Atlas Shrugged, and remember the comment in there that the State's only fundamental responsibilities are Police, for protecting the citizens from each other; Military, for defending from invasion by outsiders; and Judiciary, for defending the people from each other and from the State. Everything beyond that is Contract -- a formal agreement freely adopted for the benefit of the several parties.
OK then, how to explain money.
First -- Some people think exchanges are always a Win-Lose proposition. Wrong. If you buy a can of beans at the store, you wanted the beans more than what you paid for it. The store wanted the money more than keeping the beans on the shelf. You both got want you wanted: a Win-Win situation, by way of free exchange.
A thief wants your wallet more than he cares for your health, and you want to live another day. This is not a free exchange, so it's a Win-Lose. Theft, fraud, extortion, etc, are not free exchanges. Any offer you can walk away from
is a free exchange. So by definition, every
free exchange
IS a Win-Win exchange. You are Both better off because of it.
Second -- Og doesn't have to give up those stone arrowheads he's been making just because Wug offered him some bear skins. He's got plenty already, because he's good at
flint knapping. He wants some woven baskets, so he tells Wug. Wug knows that his sister Moot is an excellent weaver, so he trades skins for baskets. Moot now has some great stuff for her family's comfort, and hire others to gather reeds so she can make more baskets. Wug gets his arrow heads to keep hunting and feed his family, and Og gets sturdy baskets. Og can now hire others to bring him flint, in the baskets, in exchange for bearskins, so he has more time to make arrowheads. Everybody chooses what they want and what they exchange for it. Win-Win all around, and more so -- Og's flint hunters and Moot's reed gatherers now have a source of bearskins they couldn't previously afford. Capitalism has improved their lives.
Third -- If everybody in the village can agree on a common medium of exchange, then they can use that instead of haggling over how many arrowheads buys a basket, bearskin, or basket of gourds. Instead, they can agree on how many exchange units are worth a bearskin, etc. And, the reverse is true! Now, one can say that a bearskin is worth X number of
Cowries. Cowries are hard to come by (lovely, small purple/white shells brought hundreds of miles from the coast), they're durable, and interchangeable (
fungible).
This way, Worth (utility) is transformed into Value (cost). And, since they're fungible, anybody's Cowrie is as good as the next one. You don't have to worry about the gourds being moldy or bruised, or the size of the bearskin when calculating the trades. Money simplifies transactions.
Fourth -- Cowries may be common as dirt at the coastline, but a month's travel inland makes them valuable by their rarity. If it's worth it, anyone can put up the cost of having another caravan bring more to you, in exchange for, no doubt, some huge amount of food, skins, baskets, and arrowheads. But because everyone in the village knows what those things are worth in time and effort to grow, harvest, hunt, and make those items, their Value won't decrease. If, on the other hand, the caravans just keep coming and simply dispose of their Cowries for whatever reason, and not demanding any payment in exchange, this makes their Value pretty much Worthless - anybody can have as many as the want.
Thus, money is Valuable only when recognized as a standard unit of exchange, and that unit has some Worth - some effort must be made to get it in free exchange. If you simply print endless money, it becomes worth less, and the value falls, and prices rise to compensate
because the sellers maintain the worth of their products.
Ta da!
Money is a form of contract. The people agree the State's unit of exchange has value. If the State makes the money worthless, the people suffer.
P.S - If you think the above exchange story is silly, just remember -- Obsidian arrowheads were found in Britain that came from an obsidian mine in Syria. Not just a few, but thousands, and dating back 8-10 thousand years. Do you think they were Valuable? Somebody did!