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The poverty of ideas

October 6, 2014

Economists are typically so preoccupied with wondering about how much money there is and where it goes that they never stop to ask where it comes from.  And if they did bother to ask the question, they would get the answer wrong.  They would say that money is a store of value produced by a government, backed by its promise to pay.  But what they are describing is fiat currency – actual physical banknotes, not money.  Money, in the sense of an intangible standard of value and exchange, is a product of the human imagination.  It is an entirely imaginary concept, and no currency, whatever its attributes, can accurately represent something that does not exist except as an idea.  Money is like society as a whole: a convenient but unreal agreement.  Human beings find it useful to create a simple, numerical concept and agree that that concept represents a certain amount of wealth, which then can be said to bear a definite relationship to a given amount of goods or labor.  The physical underpinnings of the idea, such as printed notes or bullion reserves, are irrelevant.  Take away the general agreement that money exists, and wealth which is measured in monetary terms vanishes.  If money is not real, calculating wealth on the basis of an acquired sum of money is pointless.

This suggests two things.  First, that monetary wealth bears no relationship to real wealth if the former can be made to disappear with a change of opinion – if it can be “thought away”, in other words, which it can.  Second, it suggests that money distorts the exchange relationships involved in the trading of goods and labor by adding an unnecessary extra step to the process.  All human transactions are fundamentally a form of barter.  When thought of in those terms, money seems more than just inconvenient, it seems outright ridiculous.  Trading a physical object or service for an imaginary idea, and then attempting to trade that idea for a physical object again?  Such a transaction seems to border on the absurd because of the obvious pitfalls involved in it, should the idea fail to be accepted as having value at either stage of the transaction.

Furthermore, it is important to bear in mind that specie, whatever the advocates of intrinsically valuable currencies may say, is not actually money.  A gold or silver coin is a physical object first and foremost.  The perceived value attached to it is only secondary to the fact of its existence.  The accepted value may vary; the existence of the coin does not.  Payment made in specie is really just a form of barter, since one object is exchanged for another of approximately equal value as understood by both persons involved in the exchange.

Instead of defining wealth in terms of imaginary concepts, why not define it instead by the degree to which it is useful in supporting human life?  A breakdown of the concept of wealth on this basis suggests that it may be divided into four categories:

  • Land.  Necessary to meet humanity’s basic requirements for food, shelter and clothing.  If human beings have land, they have immediate access to these things.  Possession of or access to land thereby becomes the most valuable form of wealth, because without it, physical life is impossible.  The specific value of a piece of land, and thus the wealth of its possessor, may be measured by the number of human beings it can permanently sustain.
  • Products drawn from the land.  This includes crops, produce, and game, as well as inorganic items such as lumber and minerals – what the modern market terms commodities.  These products cannot reproduce themselves in isolation from the land and therefore cannot sustain human life on their own, in spite of the fact that they are essential to it.  They are valuable to humans, but not to the same extent as the land from which they were derived.
  • Products drawn from the land and modified considerably by human ingenuity.  This includes books, tools, machines, and so on, manufactured items rather than raw materials.  They cannot support life, although they can make it easier and more productive; therefore, they are of lesser value to humans than either land or raw materials, but still useful.
  • Products created entirely by human ingenuity.  This category embraces items such as shares in a business, units of currency or exchange, inventions, information, philosophies of organization or behavior, and so forth.  It includes everything legally defined as intellectual property, plus a number of things that are not commonly thought of as intangible property.  Such items have no existence outside of the collective imagination of a group of individuals, and consequently no value in sustaining life at all.

There would obviously be more subtle gradations within the second and third categories, where the traditional determinants of value, labor and scarcity, would continue to affect perceptions of an item’s value.  However, while affecting it, they would not determine it.  The defining factor in calculating value – and thus wealth, which is a multiple of value – would be distance from the land.  Why?  Because, as a rule, the farther an item travels from the land, and the more labor and effort is put into its production, the less critical to human survival it becomes, and the less adaptable it is to basic human needs.

By this sort of definition, the farmer in central Africa who subsists entirely on the produce of his land is wealthier than the billionaire investor whose fortune exists only within a monetary system established by common agreement with his fellows.  Remove the concept of money, and the former would survive with his wealth undiminished.  The latter would not.

And more importantly, the farmer would survive, period.  The investor would not.  The farmer can feed himself using his land.  The investor cannot feed himself using his penthouse or eat his private jet.

Two further points may be drawn from this discussion.  First, economists who claim that money provides an easy standard of comparison for different products and that it allows disparate objects to be more easily traded are overlooking the role that perception plays in human interactions.  It is not necessary for the relative value of two objects to be exactly fixed before they can be exchanged.  All that is necessary is for the men making the exchange to perceive the values of their respective items as being equal.  In theory, it may be more efficient across an entire economic system to eliminate possible ambiguities by providing a standard of value that allows products to be compared precisely, but such a standard is not necessary for either survival or comfort.  Second, since money is merely an idea, were a money-using population to become widely aware of that fact, and of the way in which their reliance on shared ideas placed them at risk, they would likely choose to abandon the use of a monetary system altogether.

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