Money! Money? money...
Section 3 Newsletter, March 1984, #7, April 1984, #8 and May 1984, #9
The Bible says that the love of money is the root of all evil. Professor Soddy defined money as the nothing one gets for something before anyone can get anything.
Money was invented as a convenience when trade became too complex for barter. It is an abstraction of real wealth, a promise to pay on demand to the bearer the full value. It represents real wealth in a more convenient form. Money, therefore, is a medium of exchange. As such it must have certain properties. It can't be used for anything else, and the total amount should remain quite stable. This is the reason for the selection of precious metals and stones. Consider, for instance, the use of an item of real value, such as water. Water is almost as easily lost as it is gained. If money fell from the sky rather than having to be earned by exchange for the fruits of human endeavor, human endeavor would no longer be in demand and it alone is the source of all true wealth. Although the value of water is without question, using it as money is impossible. With that settled, at least we no longer have to worry about a mass exodus from California, Florida, and Arizona.
Monetary value is established by scarcity, demand, the amount of human labor required to produce it and the cost of the materials. The price of air cannot be calculated; it is too abundant. Does this mean it is worthless? Hardly! On the other hand the price of wooden, artistically designed, hand- crafted garbage cans would probably be quite high and the demand for them infinitesimal. If any were to be produced, the price would have to be nearly zero to move them and those buying them would probably find some other use for them. It must be noted that virtually all that makes life worth living cannot be given a price: love, beauty, or the capacity to enjoy the things that money can buy. We describe something of great value as being "priceless", a treasure without bounds.
Ideally, the price of goods would be determined by auction. The stock market and the commodity futures market are good examples. Many items do not, and cannot, fit such an idea. The price of locomotives, paper-making machines, and aircraft carriers are certainly not determined by auction.
What does the price of an item represent? It is simply an agreement between the buyer and seller, nothing more. Money, obviously, is not even a measure of value. The price of goods is a measure of an almost limitless number of variables. To make matters even more interesting, the computation of these variables is different for different types of goods. Price is also a function of time. The price of a case of ripe bananas will decline as a function of time. In six months it might become negative. In other words you would have to pay
someone to take it away.
Small wonder that economic analysis based on monetary measures of economic activity fails so miserably. Economics can be referred to as science only in the lightest of terms. The Science of Economics is sort of a standing joke. The reason is that its practitioners are using a rubber band for a ruler. Under such circumstances it is surprising they function as well as they do. Technocracy Inc. proposed that energy be made the measure of economic activity. Nothing can be moved or transformed without an expenditure of energy.
As money is an abstract representation of wealth, it can be further abstracted itself. This probably first took the form of a check stating that the bearer had a certain amount of gold on deposit in a vault. This was later formalized into paper currency--a more convenient form representing a given amount of gold. Paper money was so much more convenient than gold that nearly everyone left their money in bank vaults. The bankers realized that no one really knew how much gold the bank held and that as long as no one knew, the bank could get away with issuing more paper money than the bank really had gold backing it. From this little deception, the banks learned that what they really wanted was to own debt in the form of loans on which interest could be charged. A bank with nothing but money is a poor bank.
The next step in this fictitious little game is to get rid of gold as backing for the paper money; after all, someone might want it. The banks became convinced of the danger of gold- backed currency during the depression of the 1930s when this is exactly what happened. Credit cards and electronic banking have added a new dimension to the abstraction. Now not even currency is necessary. Credits and debits are entered automatically in digital data files with interest automatically added or deducted as required.
Credits and debits are entered automatically in digital data files with interest automatically added or deducted as required. This situation has generated some interesting aberrations. Although gold itself was no more than an abstraction of real wealth, it at least was a physical substance that no amount of juggling of books could produce or destroy. The new money (paper) can be much more easily manipulated and electronic banking makes even this manipulation invisible.
Paper money can be printed much more easily than gold can be mined. Well! This is very nice! Now it is possible to produce wealth by just turning on the printing presses. But wait a minute! We haven't increased the amount of physical wealth, just the amount of money to buy it. With more money available to purchasers, the price of the goods is just bid up to the level required to absorb the additional money run off on the presses. This is called inflation. With more money available, old debts now become easier to repay. The banks are, of course, on to this aspect and simply adjust interest rates to allow for the inflation rate plus profit. Purchasers of such things as long-term bonds can find themselves with a negative profit. This, of course, reduces the desire to buy such things. But on the whole, a little inflation seems to be a good thing. Those who benefit from it are happy; those who don't benefit appear not to understand the situation well enough to complain. It could also be argued that if no inflation existed, little money could be made from financial manipulation. The only way to add to one's own personal wealth would be by adding physical wealth or improving productivity.
If a little inflation is good, a lot must be great! Right? There are many examples in recent history of the chaos that is caused by the hyperinflation of a nation's currency. A hyperinflation means that money rapidly becomes worthless as the quantity of it available becomes increasingly abundant. People who have money try to trade it for almost everything that will maintain its value. This can include anything from gold to toilet paper. When no one wants the money any more, currency collapses. It no longer is a medium of exchange but the equivalent to junk.
If money is withdrawn from circulation, the reverse of inflation, or deflation, occurs. This most frequently happens when banks become nervous due to excessive outstanding loans or too many defaults are occurring on existing loans. If the banks' own checks bounce or no money is there to cover depositors' demands, a run on the banks may happen, forcing them into bankruptcy. Money is tight. Loans are difficult to get and interest rates are high. At this point many things begin to happen. People who have invested in inflation by buying a house, for instance, with the idea of quick resale and profit suddenly find that loans are not available to potential buyers. Companies dependent on loans to remain in business begin closing their doors. Businesses that had planned to expand defer those plans. And all businesses try to make their operations more efficient so they can cut their prices and hopefully stay afloat in a shrinking market.
All of these vicissitudes have one thing in common--they hurt. It can be argued that this helps to keep people sharp and on the move. This is something like learning not to sit in the road by getting run over by a truck. It works, but there must be a better way.
Social consequences: Nearly all ideological disputes revolve around the distribution of money or wealth. The world seems divided into two camps. One camp believes that the individual is responsible for his own happiness and comfort. The other believes that society should be responsible for the welfare of the individual. In practice, neither side seems to fully accept its own teachings. Both have many shortcomings.
The capitalistic societies of the west operate more efficiently than the socialist societies of the east but are quite ruthless regarding the human values of those who do the work. The profit made off workers is the only "bottom line" that counts. While on the other end of the production line, the criteria is, "Let the buyer beware." It is less of a social organization than a large collection of competing pressure groups, all vying for more money, power, or whatever. The streets and prisons are cluttered with the human debris that could not adjust or adapt to society's requirements. One of the largest and fastest growing professions is the legal profession. This is not a record of a happy society.
The application of technology and energy to the social system is destroying the price system by destroying all the properties that price is based on. As has been noted, price can be placed on only those items that are the result of human labor. Also, as the quantity of product reaches or exceeds demand, price approaches zero. Thus our technological motion attacks the price system at the two most fundamental requirements for its maintenance: scarcity and input of human labor. The movement to a new stage in human social evolution is inexorable and unstoppable unless we decide to cancel the planet with our nuclear weapons.
Technocracy has proposed the institution of a system of energy accounting for each item produced on a continent-wide basis. Goods and services would be distributed without cost because a price system can no longer be maintained. Efficiency would be maintained and advanced by energy balance analysis.
Technocracy is not an ideology. It is not a value judgement of the proper disposition of financial resources that includes one group and excludes another. Technocracy is an analysis of the resolution of our present social difficulties.