Reason for a New Age

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    What you will expect to see here are discussions of politics and tangentially economics. This blog will do its best to present a rational look at the world of today, how the modern world came into place, and the issues that are currently being discussed in the public realm.
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Posts Tagged ‘money’

Tying it All Together

Posted by publius2point0 on 2010/02/07

Having now discussed money, loans, stock, and all of these topics, we can formulate a simple miniature model of a free economy.

Before I do this, let me note again that economics started in philosophy. The goal was to figure out how man works and what rules he needs to live by to achieve happiness, while not impinging on others happiness. Understanding the basic idea of a free economy does not mean that an unrestricted, free market is the ideal. There are certain reasons why it has a tendency to produce good things, and understanding the apparatus by which this takes place allows one to, ideally, make decisions on how one is best to legislate. But all legislation is, at heart, a restriction of freedoms. The free market does generally work, but it does work better on paper than it does in the real world unless you use legislation to force people to act like their paper analogues. The free market is not a perfect solution for humanity, but it is the best one yet discovered. Possibly a better solution doesn’t exist. But there are certainly still ways in which it can be improved.

Our Model

In my blog titled “On Scarcity“, I introduced the “food unit”. 1 food unit is the amount of food that a person needs to eat a day to survive. In an traditional, subsistence farming civilization, a person would need to produce about 1 food unit, every day, for the entire year, just to live. Subsistence farmers rarely did much better than this, but we will say that we have a group who produce 1.2 units every day.

In a community of 100 individuals, we would then have 120 food units of wealth being produced each day.

Wealth and money are distinct terms in economics. An easy (and perhaps wrong) statement of the definition of “wealth” is that if you were to take away all money and commerce, whatever goods everyone is left with is their wealth. Unfortunately, this becomes tricky for one should class personal skills as a wealth, like medical knowledge or acting talent. Farming knowledge would count as a wealth as well, but we are going to ignore that fact for this discussion.

Personally, I think that the food unit is a good measurement of wealth. A person can live without shelter or skills or anything else, but he must have at least 1 food unit every day. As the only true necessity in life, everything you ever purchase that is not food, is diminishing your ability to purchase food. If you can safely afford to do that, you are already wealthy compared to nearly all of humanity since we evolved and all of the rest of the animal kingdom that ever has existed.

We will suppose that our community of 100 farmers is formed principally of specialists. Rather than each one trying to maintain a balanced diet within his own farm, one specializes in corn, another in raising livestock, yet another in fishing, and so on. Because of this, they have invented the concept of money. Our farmers get together periodically, selling most of their produce for money, and purchasing most of what they need from others with the money they have earned. Because of this, they each are able to get a balanced diet, and yet their personal amount of money never changes.

To make things easy, we will suppose that each of our farmers has $1.20. Each one might sell a dollar’s worth of his own produce, enriching him up to $2.20, but of course he then goes out and purchases $1 worth of produce from others, putting him back to holding just $1.20. In either case, the total wealth of the community (120 food units) equates exactly to the amount of money in the community ($120).

One of our farmers, who we will name Damon, comes up with the idea for a device that could double the production of all agrarian farmers. Since 80% of our farmers are of this type, Damon’s machine would increase the wealth of the community to 216 food units per day. The problem is that in order to invent his machine, Damon needs six months of R&D and production time. He can do all the labor himself, but he won’t be able to farm during this time.

With an excess production of 20 food units per day, the community can support Damon for as long as he needs. But, mankind has a particular quirk that if the same fellow shows up to beg for free goodies every day, pretty soon the charity runs dry and the people become antagonistic, telling the guy that he’s wasting his time and he should get back to farming if he wants to eat instead of fooling about with some wild-eyed project. Damon might be able to sell the community on the project to start with, but if he has to sell them on it again and again each day for six months, he will likely have to give up and go back to farming.

Damon would do much better to have a supply of cash ready, up-front, to pay his way through 180 days of labor. As a paying customer, no one can complain, since they are being enriched by his folly either way.

Selling off his excess 0.2 food units each day without buying back any excess, Damon could slowly build up a supply of money. Of course, to build up enough money, he would have to work for 900 days to earn $180. Since there is only $120 in the whole community, Damon and everyone else would have to accept trading with those who are in debt. Technically, this would be a fairly irrelevant thing since money is all a fiction to begin with, but people have a tendency to be wary of accepting $1 in credit from a person who has -$2. More importantly, by wasting 900 days, the whole community lost out on 720 days where they could have been producing 216 food units per day. Trying to do it in this way is less-than-optimal.

The community has the wealth to afford allowing Damon to do this, and he can sell them on the idea at least once, but cash-wise someone will have to go into debt. The answer to this problem that’s been found in modern day is the creation of a community bank (or central bank).

Damon goes to the bank, which might be overseen by some governing council that represents the community. He asks for $180 so that he can create his machine. Once he has his machine, he will be able to pay back his loan by selling it to others. The community bank accepts this, seeing that it is for the good of the community, and simply prints off $180. There is now $300 in our market.

Where does that money come from? The simple and non-philosophical answer is that the community bank is in debt, but since no one trades with the community bank and the village elders are saying, “No no, everything is fine! Just fine! Nothing to see here!”, no one much cares about this. A more philosophical answer would be to say that we suppose that Damon did work for 900 days and drive everyone else into debt. Knowing that he did/will do his part in saving up money, we deduct it all from his future self and put it into the present as a way to offset the debt that the community would have gone into as individuals. We raise the tide so that once Damon takes all their money, they still look and feel like they aren’t in debt–when in secret they have simply pushed that debt off onto the community bank.

Ultimately, how you choose to view it doesn’t much matter since it’s already being done and you’ve already lived with it being like that just fine. This is proof enough that people are happy enough to accept this method of operation.

For six months, thence following, Damon works on his project. Each day he trades for 1 food unit until he is left with his original $1.20. Everyone else in the community now has about $3.02. The central bank has -$180.

Damon knows that 80% of the people will want his machine and so he produced 80 machines to sell. Since this took $180, he spent $2.25 per machine. If he sells at that rate, he breaks even. Damon would much rather profit.

A farmer who will live for 40 more years, with Damon’s machine can make 34,176 food units. Without the machine, he can only produce 17,088 food units. If each farmer thinks to himself that $1 is equivalent to 1 food unit, Damon can charge $17,087 to buy one of his machines and a farmer would still eventually see a profit. Since he has no competition, Damon has no particular incentive to charge anything less than he can feasibly get away with. If he can make $17,087 * 79 people, he’ll not only never need to work again–at current prices–but he’ll also be able to see to the secure and easy futures of many of his descendants.

But of course, the farmers want to make as a great a profit as they can as well.

Let’s say that either group would be happy with 20% profit. Damon will charge no less than $2.70 and his fellow farmers will pay no more than $13,670.40. In this case, Damon would of course simply charge $13,670.40.

In the real world–and an item I realize that I forgot in Evolution, Instinct, and People, is that people are fairly short-sighted. Profit that can’t be attained for 30 years is something that most people wouldn’t really consider. Out on the edge of the bell-curve you might find one fellow who is willing to do this–the so-called early adopter–but to sell all 80 of his machines, Damon will need to lower his price. In fact, gradually lowering his price until all 80 units are sold is of course the route to the greatest profitability–though this takes longer and more finesse than simply charging whatever the lowest price is that can move all 80 machines.

Let’s say that the average price at which Damon sells comes out $100 per machine. Our entire market only has–at this moment–$300 in it. To buy Damon’s machine a further almost $8000 must be created. Our 80 farmers each end up going to the central bank and taking out loans for up to $100 each. Damon pays back his $120 quite quickly, but the market is still inflated to over $8000.

If you ask where inflation comes from, this is your answer. The central bank continues to go further and further into debt as people borrow against their futures.

An interesting thing, though, is where I supposed that $1 is equivalent to 1 food unit when the farmers do their mental math to decide whether to buy Damon’s machine, and how much to buy it for.

Back when Damon only had $1.20 and each of our farmers had $3.02, it’s fairly likely that the price of food would have increased. Everyone, knowing that everyone had $3.02 to spend, and being greedy, will charge more for their own produce. This all evens out so that no one ends up any richer–they just continue to stay at the same equivalent level of financial standing–but it means that the cost of food increases with inflation. Thus, when Damon considers how much he wants to charge, and when the farmers consider how much they want to spend, they will do this math, adjusting for inflation. Quite likely Damon will end up charging $200 per machine rather than $100, because the farmers would view the value of their future produce as being worth double what I said. This would mean our economy becomes worth over $16,000 instead of over $8000.

But then once our community is producing 216 food units per day, far more than is needed for 100 people even allowing for a desire for excess, some of our farmers will decide to become actors or to embark on similar ventures as Damon did and forgo farming. A full half of our community may stop being farmers. This means that half of our money will go towards watching plays or investing in new technologies or whatever, and only half to food. Instead of food commanding 100% of our market, it now only represents 50%. When our market value went from $120 to $300, the price of food matched that equally. When it goes up to $16120 (say), the price of food might only go up to $8060.

Remember, though, all of this is borrowed money. As our farmers farm, actors act, and so forth, some percentile of their earnings goes back to the central bank, until the central bank is back to zero debt.

When that happens, how much money does everyone have? Let’s work through what really happens, since everything still isn’t so simple as all that.

1) Our farmers each give Damon $200. putting the bank at -$16,180. The farmers maintain their $3.02 having borrowed everything they need from the bank.

2) Damon has $16,001.20. He pays back his loan to the bank, leaving himself with $15,821.20. The bank now has -$16,000 exact.

3) The farmers establish a market for select produce and a market for less-than-perfect produce. They charge $10 for 1 food unit of select produce and $2 for normal produce. Damon doesn’t work at all, he just spends money. Having the option to buy the best, he always does so, losing $10 each day for his food. This is only about 10 cents, divided out among all the farmers.

4) Since the farmers owe back their loan, as they chip away at Damon’s money, they maintain a level $3.02 apiece, gradually shrinking the total amount of money in the central bank. When Damon starts getting down to having $30 or however much, he stops buying the $10 produce, and so the price of select produce is lowered and lowered.

5) As Damon (or his son as may be) approaches only having $3.02 himself, there arises a distinction. While he only has as much money as everyone else, he is the only person in town who doesn’t owe money to the central bank. And so the distinction of select and normal produce remains. Damon still has greater purchasing power, while as the rest of everyone has to live cheap and send all profits that they make off of Damon or each other back to the bank.

6) Eventually, everyone has $1.20, including Damon, and the bank has zero debt. But, the value of produce will be only something like 60 cents per 1 food unit. The amount of money has equaled out, but the community still has more wealth than it did when this all began. Only half of their number work at producing food anymore, splitting the money pool.

The wealth of the community equals 216 food units as soon as Damon has sold all of his machines. They may only continue to produce 120 actual units of food, since that’s all they need, but the value of food has declined. People are willing to trade away food for other sorts of labor because they have plenty. The monetary value that they use at any given time is based on inflation, the imbalance of money distribution, and so on. But the important thing is the value of wealth and how it is distributed. Giving more money to one guy may make him feel like a king for a while, but everyone wins through in the end. The people at the bottom of money ownership might have less money, but the price of food and all other things decreases. They might have to take the bottom wring of food and acting and other products, but before there was no acting or other products besides food. With free time, people are able to study medicine and science and create products that become, in the eye of the consumer, as valuable as food itself like vaccines, houses, and cars. People consider profit that they can give back to the central bank to be the excess that comes after having attained a permanent residence, a car, baby vaccinations. This takes longer to pay back the central bank, but the world is better for it.


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On Scarcity

Posted by publius2point0 on 2010/01/06

An item that I skipped over in my previous blog was the discussion of pricing. I said that money translates any sort of labor into any other sort of labor, but as you might note by looking around in modern society, not everyone’s labor is worth the same amount. And if everyone works (labors) for 40 hours a week, wouldn’t it seem to make sense that we each earn the exact same 40 hours worth of labor credit? Well no, because of this thing called scarcity (also known as supply and demand.)

Before talking about the economics of scarcity, though, let me first touch on the philosophy of it.

The nature of evil is tied in with scarcity. Many people think that humanity is evil, that there are demons that force us into evil acts, or simply that certain humans are evil. Yet, if you find someone who has done something that you find abhorrent and ask them about it, they will almost always feel justified in the action. And of course they wouldn’t have done it in the first place if they hadn’t felt justified at that exact moment, leaving it safe to say that everyone acts according to their belief of what is a moral thing to do, at that particular moment in time. Only retrospection can change that into having been an immoral act.

For the quibblers out there saying that “justified” and “moral” are not the same thing, let me explain further. Unless you hold that morality is black and white, rather than shades of gray, then you would agree that a moral act is anything where you have weighted things to be on the lighter half of grays. The goods of it outweigh the bads. Ergo, it is justified.

But so then, if everyone is at all times acting morally, how do we end up with “evil” acts? Well let’s say that there are only two people on a deserted island and only enough food for one of them to live. They can either both die or one of them can kill the other. Neither of these is a particularly pleasant outcome. Once starvation sets in and the instinct to survive kicks in, you can’t really blame one for killing the other. You might tsk at him a bit, of course, and it might even be that in his place you would have been able to restrain yourself, but that’s actually part of the point.

Different people are different. Our ideas of what is or isn’t morally justified, our personalities, our personal aspirations, etc. are all different. How we will respond to scarcity varies. Sometimes our individual personalities can create scarcity where there wouldn’t naturally be any. There might be a million rings that were all made in the same mold, entirely indistinguishable from one another. They are ugly, even, and basically unwanted by anyone even for their base elements. However, one of them was worn by Elvis for two seconds in 1974 and X Elvis fan must have just that one. That might mean that he will pay thousands of dollars for it, or it might mean that he’ll walk into a museum and swipe it from the display. It just depends on how much it seems worth it to him (which, again, he will only do if he finds it justified.)

Overall, scarcity creates conflict. Governance, laws, social hierarchies, moral guidelines, and standard operating procedures all exist as a way to allow the individual to achieve as many of his personal desires as he can without getting in the way of others being able to achieve theirs. Pricing is just another method that humanity has dreamed up to be able to achieve the peaceful allocation of limited resources.

Previous to the 20th century, as an example, actors were nearly unanimously considered an underclass of thieves, whores, and wastrels throughout the world. When life was so hard to live that a person had to work all day just to earn just enough food to support himself and his family for just one day, the person who ran off to wear costumes and act like a fool was hardly to be respected. Of course, you might also term this “jealousy”. These people were looked down upon because everyone else could only wish that they didn’t have to spend every day working under the hot sun, sowing seeds and harvesting crops.

Let me introduce the concept of the “food unit” as I intend to use it again in the future. More than anything else, humans need food. It takes a certain amount of labor to create enough food for a person to survive. If he can’t get that, he dies. And before modern technology came to aid, most of a person’s day was dedicated to the basic task of doing as much labor as needed to create enough food to survive one more day. 1 food unit is the amount of labor it takes to create enough food to survive for one day.

Subsistence farmers, having to make it through the winter and to support children until they are able to labor for themselves, have generally produced slightly more than 1 food unit per day. Out of laziness, they will often not produce more than enough for just that purpose. The winter is 1/4th of the year, so our farmers need to produce an extra 0.25 units per day, and to support babies and toddlers, let’s say that they will need another 0.25. In total, a subsistence farmer can be said to labor for 1.5 food units per day. Only 0.25 of that is excess, and that’s only when there are no small children about.

In this setting, less than 1/4th of all people could be actors. There simply isn’t enough food for it.

An actor cannot earn less, on average, than 1 food unit per day. If he earns less than that, he dies or–to survive–goes back to working as a farmer. But if he’s working the same number of hours as a farmer, and a farmer’s labor is worth 1.5 food units per day, then it would seem only fair that he earn 1.5 food units as an actor, no?

So you ask, is an actor a scarce resource? Well let’s say that 95% of everyone would rather be an actor than a subsistence farmer. This makes sense since subsistence farming is a backbreaking profession whereas acting can actually be quite fun. If everyone who wanted to be an actor decided to go for it, then out of a population of 1000 people, we would have 50 producing 75 food units per day, and 950 acting. 50 people making 50 food units doesn’t even support the total population, let alone making it through winter.

Now like I said earlier, the whole point of law and governance and all of that is to try and get the available resources to those who most want it while getting in the way of others as little as possible. If, in this scenario, some cruel stroke of fate decided to make the 5% who were happy to be subsistence farmers work as actors and the rest of everyone as farmers, this would be the worst possible situation. The ideal situation for the actors would be that those who most wanted to be actors were made actors. But the ideal situation for the farmers would be that those who were the most talented actors become actors. If these two groups were the same, then all would be well.

In my previous blog, I mentioned the case of Daisy, Ed, and Francis, where all of them are specialists in the manufacturing of widgets. Within that realm, however, their skills at different parts of the process might vary. The way that life is, what field of work you would like, and what your personal talents are, aren’t necessarily going to be synonymous. You might love the widget industry and want to be an engineer for it. Minus the talent to be an engineer, you will have to decide whether you would rather do another job in the widget industry, or if you would rather work on attaining some other occupation at which you would be sufficiently talented, even if you aren’t as interested in it as widget making.

This is all a balancing act. The world would be best if everyone could do what they wanted and if everyone who wanted to do something was very good at it. The world would be worst if no one could do what they wanted and if everyone was very bad at their profession. For most of history, this was actually fairly random. You were born into a family of farmers or you were born into a family of blacksmiths, or you were born to be the king. Whatever that was, you were raised to be it and you’d be lashed and goaded into performing that task. Humans as fairly malleable beings and having a tendency to gain some fondness for what they know and have experience with, don’t do terrible in this sort of scenario, but I think you can see that a better system than birth-mandate would be preferred if possible.

Given the freedom to make an attempt at another profession will almost always be a better system. Those who are interested in something will work harder to become good at it. Personal talents are, while perhaps genetically limited, malleable to at least some extent. Determining your own talents and being able to find work which matches that is, also, still better than being forced to do something which you had no say over at all.

Returning to our population of farmers then, 95% of them will consider acting. But this is on a gradient. Some of them will only slightly prefer acting over farming while others would do just about anything to become an actor. The ones who are most interested will work at becoming an actor the hardest. Of those, the ones who receive the most positive feedback from their beginners attempts at acting, will try even harder to become an actor. But in the end, only those who can earn at least 1 food unit per day from the rest of the community will actually be able to become a professional actor. Whether they can charge more than 1 food unit depends on how many farmers decide that they can safely part with their excess, whether they personally have any interest in seeing a play, and whether they believe that the play will be sufficiently enjoyable as to part with their food.

Like I said, the practicalities of the situation is such that less than 1/4th of everyone can become an actor. But once you weigh in all of the other factors, it may be that only one in every thousand people can successfully make the jump and he may be forced to work for exactly 1 food unit and/or even have to work longer days than farmers do to earn it. If you say that this isn’t fair, then I’d have to wonder what better solution there is, given the scarcity of things and individual talents and desires? There may be such a system, but as of yet we haven’t found it.

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Money and Philosophy

Posted by publius2point0 on 2010/01/06

A point that needs to be made early in this blog is that the basis for Economics lies in the realm of philosophy. In fact, many of the various areas of science currently studied have their roots in this rather nebulous and largely unscientific realm. Sociology and Psychology, for instance, are both descendants and both overlap with one another and with Economics as well.

I bring this point up because it is rather unfortunate that most people are unaware of this truth. You will hear plenty of people talk about money as an evil, heartless thing that was created by the greedy and serves no purpose but to be able to lord it over others. And they will say that people should be giving. That a good person doesn’t care about money, just about being able to serve and aid others. As you will see, holding this sort of outlook is ludicrous if you understand what money actually represents.

Simply put, money is a measure of how much you have given to society. Yes, the paths can by labyrinthine by which a person adds his output to the sum total of human output, but the truth remains that money is always an exact measurement of how much the rest of society views you as having added to the collective.

Let’s take an example. Say that we have Adam, Bob, and Charlotte. Adam repairs household machinery and electronics like dishwashers and TV sets. Bob repairs furniture, rooves, plumbing, and other such things. Charlotte is a mechanic, working on cars, lawn mowers, etc. Between these three people, any sort of general home repair can be done. If something breaks, they have only to walk across the street and knock on the other’s door to get it repaired.

So now let’s say that Adam’s car breaks down. He goes over and asks Charlotte to fix it. She does so, and at the end Adam tells her to feel free to ask him to fix any home electronics she has.

Adam has just given her 1 Repair Point. It might not be a physical token that she can cash in, but certainly she has earned some good will with him up to that point. If she comes over to him and demands that he fix all of her appliances, plus vacuum her floors, plus drive her to the store, etc. then that’s not an equal trade. She has earned some good will, but only to an equal extent as she has displayed herself.

But so let’s say that Charlotte doesn’t cash in her chit at all. Rather than her laundering machine breaking, it’s her sewage system that gets all messed up. She has to ask Bob for help. When Bob repairs her plumbing, Charlotte could offer t0 fix something for him, but similarly to how she’s holding a chit for Adam without being able to use it, there’s not much purpose in offering Bob a mechanical repair if he can’t be certain when he’ll need it. What she does is tell him that he can either come to her if he needs something mechanical, or Adam owes her a favor if he needs any household appliances fixed.

For Bob, this is the ideal. He’s no longer holding a very specific token. He’s holding something that can be turned in for many possible services. And this is the first truly great thing about money. It allows you to translate your labor into other people’s labor. You don’t have to trade like for like. If I want to build a whole house from scratch, I don’t have to serve as a personal slave to my architect and all of his men for one year, to earn enough favor from him. I can work at whatever occupation interests me and, via money, translate that labor into my gratitude for the labor of my construction team. They can then take that money and use it for whatever services they need.

But so you might be thinking that I haven’t really proven that this is equivalent to the great, anti-greed, kindly, and giving morality that I said it would. You ask, why should Adam, Bob, and Charlotte trade at all? A good person will simply do a favor without asking anything in return, and of course receive everything he needs from others without having to expect some blackening debt to them.

The problem is that people aren’t good. Confucius, Jesus, The Great Spirit, Plato, etc. all of these philosophers/religions advised living a good and giving life like this. They had thousands of years to attempt to make this work. Yet, you’ll find that life, personal freedom, equality, etc. were no better in regions where these ideas flourished than in places where they didn’t. Karl Marx advocated using force to make it happen. This ended up even worse.

This isn’t to say that people are evil, just that we’re people. We have our limitations and personal quirks as a species. Any underlying philosophy which advocates living up to some sort of superhuman credo is, frankly, stupid. If there was ever an evidence that all of the divine laws that have been handed down to us over the millennia are bunk, this is it, I am sorry to say. Interestingly, it proves Ayn Rand and Objectivism to be wrong as well.

To show what I mean, let’s return to our example. We return everything to its initial state. We have our three fixers, and none of them has done anything for the other yet.

Adam goes to Charlotte, asking her to fix his car. She does so, earning an appliance repair job from Adam. A month later, her laundering machine breaks. Going over and knocking on his door, Adam agrees to do the job. Charlotte goes back home and waits for him, but he never appears.

The next day, Charlotte goes over to his house and asks him what happened. Adam says that he had forgotten his tools at work, but would have them and be over to fix her laundering machine that night. Again, Adam never appears.

This repeats several times, until Charlotte gives up.

I’m sure all of you have encountered situations like this. While it’s only a percentage of people who are useless, they certainly do exist. In oldentimes, this aspect of humanity wasn’t really an issue because not working equated to death. If you had a child who refused to work on the farm or who would make excuses and not show up for work, he would be caned and forced to work. If that child got married and had his own farm, he would have to farm, or he and his family would starve. A person’s reliance on others was minimal. If you earned ill will from your neighbors, you could still live on without their aid. Of course, they might also shame you out of the town.

These days, it is nigh impossible for a person to be self-sufficient. It is however, entirely possible to get away without working at all, and still survive. This ability is, in fact, thanks to money though I won’t discuss the reason for it in this posting. Either way, I think you will note that money as an incentive is much kinder than canings and starvation. In the former Soviet Union, these were the only choices as well (substituting beatings, prison, and intimidation for caning).

But besides laziness, there is another issue with humanity that is solved by money. For this we need a new cast of characters.

We have Daisy, Ed, and Francis. Daisy and Francis are long-time friends. Neither of them much likes Ed. All of them are, however, specialists in widget making. They decide that they will team up and start a widget manufacturing business.

Any business requires someone to lead it. Sometimes someone has to get greasy and sweaty and work a sucky job. Sometimes someone has to spend long hours looking over numbers. Sometimes someone has to go driving all around the country looking for clients. A widget company which has the person best at manual labor doing the manual labor, the person best at accounting doing the accounting, and the person best at selling to clients doing that, will succeed where the company that has the wrong people in the wrong jobs will fail. You need a leader to tell people what they have to do to make the job work, and to figure out which person is best for what work. And in return, the workers have to listen and do as told. If the guy stuck doing manual labor wants to be the sales rep, but isn’t any good at that job, he still has to stay doing manual labor. This may be sad, but it is reality. And more importantly, it gets the very best widgets to the customers in the best manner, and even so everyone who was interested in widget making got to work in the industry (or at least, had a chance to enter the industry). You cannot say that for a world without money–where subsistence farming is basically your only choice.

Like I said though, how are you achieve this sort of status from our three workers? Daisy can’t boss Francis, nor vice versa, since they are friends. And neither of them even really wants to work with Ed. If Ed were to yell at Daisy, she would simply leave.

Money forces us to bind together and form hierarchical arrangements. Thanks to the ability to translate any sort of labor for any other sort of equal labor, everyone can use money. Everyone wants money. If person A has some and person B does not, B has little choice but to do as A asks. And since A becomes reliant on B for the continued production of products, he cannot fire B regardless of whether they hate each other, so long as they are still making money.

Again, this is all much better than caning and debtors prison, which are the former alternatives.

Hierarchies, also known as businesses, are also terribly wonderful. When I pay my gas bill, I do not have to go and do 1 second’s worth of service for the man who dug the oil well. I do not have to do 1 second’s worth of service for the man who refined the oil. I do not have to do 1 second’s worth of service for the man who laid out the pipe. The existence of money enables me to not only hand over the products of my labor to someone who has done a favor for me, but to give it to an entire group of people.

In summary, money is nothing more than a physical representation of the labor you have done for others’ sake. There is nothing evil about it. If there is an evil, it is in not earning any, for this shows that you have done nothing for others.

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