Day by Day

Tuesday, May 07, 2013

Making Money

There are sometimes lessons to be learned from even casual exposure to entertainment literature. Case in point is the Discworld series by British author Terry Pratchett, and one of the more recent books was titled, "Making Money", wherein a story is told with humor, bad puns, and a large grain of salt, but a lot of knowledge is explained in simple terms.

I won't go into detail, but an interesting point is made as to the basis of money. If you live on a desert island, a bag of vegetables is worth infinitely more than a bag of gold, but in the city, the situation is reversed, and several paragraphs are set forth to explain why this should be, and it boils down to a single point: people think the dollars are worth a dollar because - and for no other reason than - they are supposed to be worth a dollar.

I made this point once before on my own blog, but it bears repeating that every single purchase you have made, or will make, in your entire lifetime, is a barter. A swap. This for that. Whether for goods or for personal services, it is a trade of one for the other.

This piece of paper is what I will give you for that gallon of gasoline or loaf of bread. This handful of metal bits in exchange for a ride on a bus or subway train. This swipe of my plastic card's magnetic strip (to cause electrons to move from one computer account to another) in exchange for that new pair of shoes or a haircut.

Money is just a medium of exchange that makes it easier to swap things that can't easily be carried around (such as home repairs or medical expertise). Instead of offering to carve a fancy little statue in exchange for a place to stay, money allows third and fourth and fifth parties to be bypassed and adds the ease of transport, by giving you those little pieces of paper in exchange for those skills, whereupon you can take the little pieces of paper to the corner market and trade them for the loaf of bread you will need to earn more of those little pieces of paper tomorrow.

"This Note Is Legal Tender For All Debts, Public and Private" appears on every US currency bill, of any denomination, and is intended to emphasize that the bill is supposed to be acceptable as a standard means of intermediate exchange between two parties to any transaction. But please note that it does not say that people are required to accept it, merely that it would be legal for them to do so.

People accept those little pieces of colored paper at their face value, because they expect that the next person in the chain will also accept them in trade for whatever they are trying to get rid of, whether it's a fancy pair of shoes, a tankful of gasoline or a loaf of bread.

But what happens if they don't?

Not a damned thing. Remember that it is legal for them to accept it, but not required. And at the other end, they can refuse payment by any means other than currency or coins, although paying a large bill in coins can result in a sprained back (a mere 400 pennies - $4.00 worth - weighs a kilogram, which works out to $1.81 per pound). Quarters are heavier (about 176 to the kilo), but worth much more (176 quarters = $44, or $20/lb).

But what happens when people stop thinking that they are anything other than just pieces of colored paper, or rather heavier bits of shaped metal? What happens when the "Full Faith and Credit" means as much to the common man on the street as the Second Amendment means to the Obama regime?

Ask the Weimar Republic. Ask Zimbabwe. Ask Timmy "Turbo-Tax" Geithner.

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