Saturday, May 4, 2013
Capital & Currency
I need to make a distinction between 'capital' & 'wealth.' I don't mean wealth in the class usage, meaning riches. Poor people have wealth, just not as much as the rich. And of course, capital is only a representation of wealth. Capital & wealth are very similar, & seem like the same thing at times, but there are subtle differences. A farmer who owns a farm might be capital poor, but has wealth in his farm & what it produces. A security guard might be dirt poor, with regards to liquid capital, but might own a home, some cars, or a collection of high tech flashlights. A retired cop might have a large portfolio of stocks, ira's, or other liquid capital, & it is all part of his 'wealth'. Capital, though, is the most fluid (and fickle) measure of wealth. Since it is just a representative, it can purchase real goods or real estate. But a pile of representative capital can lose value through inflation. Most capitalists keep their stash invested, to keep it from being depleted. Sometimes it works, & they make more capital with their capital. But other times, it doesn't, & they lose money. A retiree or pensioner depends on the currency to be stable, for their income to have value.
Wealth provides our basic necessities. Human beings need food, water, air, & protection. Air is free, for now, & water is fairly easy to come by. Food is historically cheaper than any time in history, but that can change. Protection includes shelter, & is a pretty major expense & concern, even if you're homeless. Camping or living under an overpass might be free, but it requires a lot of your time & effort to survive. Protection can be clothing, healthcare, or a means of fending off thieves or invaders, in addition to shelter.
Getting food is not that easy. If we all had to hunt for our food, a lot of us would go very hungry. The deer & rabbit population would deplete very rapidly, without an organized food distribution network. Roots, wild asparagus, & berries would get harder to find. Hunter/gatherers need a larger area, without a lot of competition. Farmers can cultivate more food in a smaller space than hunter/gatherers, & is a more practical method of providing food for larger groups. It is how we grew to the current numbers on this planet. If we all had to survive on what we ourselves hunted or gathered, i guarantee the world would not have the population it does now.
Most of us work, or used to. We use our time & abilities to trade for goods & services. We attach a value on our time & ability, & get that back in capital, which we buy the food & other necessities, as well as luxuries, like computers & internet access. But someone has to require our services, for us to make the exchange. If i am a skilled buggy whip maker, I can sell my wares to provide for my needs. But if the demand for buggy whips declines, i cannot increase production to make up for it. I need to adapt, or i cannot survive in the open market. Or, i can elicit sympathy from others, or con them into giving me their wealth to meet my needs. Or, i can get the govt to take wealth from other producers, to subsidize my outdated or obsolete venture. But if very many people do this, you will get fewer & fewer producers of actual wealth for the nation. Eventually, the representative capital will collapse, since the fiat part.. the declared value.. is no longer respected or recognized by those making the exchange. Hyper inflation has gutted the wealth of many people throughout history.. and a lot of it not that distant. Many current nations have major problems with their currency & inflation, because it has no credibility.
All of the 'quantitative easings' & other dumping of printed money into the economy has the end result of depleting our true wealth. It dilutes the earnings of the laborer & steals their savings. And taxation is merely taking from the producers. A good govt takes a minimum from the people to provide justice, protection, & collective projects like infrastructure. A bad govt over burdens the people with taxation for foreign wars, redistribution, or other non-productive policies. Infrastructure & protection INCREASE production, & make the nation wealthier. War, welfare, & redistribution are leeches on the producers.
A nation may go through cycles, or the economy may shift to different sectors. We might go from agriculture to manufacturing, to high tech services, to weapons, or some other product. But we have to produce something. We cannot survive on printed money. This is the problem with the current practice of 'financial sector' money shuffling. That is moving the economy OUT of a production based system, into a pyramid scheme. That is where you have an illusion of increase, but it is only from the constant flow of capital. THAT is the engine that drives a ponzi scheme. Nothing is produced, just money being shuffled around, pyramidded so the upper tiers get more, until the flow stops. Then it all crashes down. An economy cannot survive with ponzi scheme parameters driving it.
A stable govt can provide a currency, & 'declare' it's value (fiat: literally, let it be done). If the citizens agree, & use this method of representative exchange, it makes transferring goods & products easier & more efficient, & opens up markets for other goods & services. The us govt had a 'gold standard' for nearly 150 yrs, to provide stability for the currency. The rest of the world was volatile, & currency was at the root of many a civil war.
But, if fiat money is manipulated by hidden agendas, or is used to fleece the producers out of their wealth, eventually the producers get wise to the scam & stop using it.
'Follow the money' This is often brought up for just about any subject. But if you dig deeper, & 'follow the production', you'll see that IT is the true driver of the economy, not currency. Look at any industry, or any service, & you will see production driving or supporting it. EVERYONE depends on the producers of the nation, even if they are in a support role. So economics is quite simple, if you ignore the cacophony of noise & commotion intended to obscure truth, rather than reveal it.
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered." ~Thomas Jefferson
The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation. ~Vladimir Ilyich Lenin
With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people. ~Friedrich August von Hayek