“Why do you say that when the government prints money, it’s a form of theft? I don’t understand how more money hurts anyone.” (Yes, she really did use complete sentences, and didn’t sling a single, “like” in either of them.)
I furrowed my brows for a few seconds and looked at her with my best, “I’m thinking about how to best answer your question” look. “Let’s start with a critical definition. Wealth is the things we own, and the things we create with our labor. It’s easy to see what a factory worker creates, but the service you provide is just as much a part of wealth. Your clothes, car, house, cat, lunchbox, makeup, theater tickets… all of that is your wealth. Each of those things is also the creation of the labor of someone else. It’s a cycle, like an ecosystem, where everything is linked to both upstream and downstream events.”
She furrowed her brows for a second and nodded with her best, “Oh, my God, why did I ask this old codger a question like that?” look.
“Okay. It’d be pretty tough to carry all of your wealth around with you, right? And some of it, like the service you provide here, can’t be carried, anyway, right? So we use money to symbolize our wealth. When you spend 8 hours of your life here, the company says, “We can’t give you the value that you created tonight because it’s an abstraction, and you can’t carry one of those.” So they give you money as a symbol of what that service is worth to them. You can put that money in your pocket and go to the store, right? If you need a new coat, you can’t pay for it with the service you provided here, but you can use that money. So money is sort of like little notes from others that testify to the value of what we have created for them. Because an economy is an ecosystem, everyone in it is affected in some way from everything that is created, and money makes that possible. The shopkeeper may not have benefitted directly from the service you created for your customers, but because we use money, she can benefit from it indirectly.
“So money stands for wealth but it isn’t wealth, itself. All of the wealth in the ecosystem equals all of the money in it.” She nodded, and her eyes weren’t glazed over like I see so often in people of all ages when they accidentally find themselves challenged to think. Great kid
“So can you imagine what would happen if anybody who wanted to could print money? The money your neighbor prints would have no wealth behind it; it would not represent anything but the value of the paper and ink. They might print a zillion dollars, but it would be like… ummm… a picture of a steak, instead of a real steak. No substance – empty.
“But because all of the wealth in our ecosystem equals all the dollars in it, and there are more dollars, what happens to the value of each dollar? Your neighbor didn’t introduce any new wealth to the ecosystem, so all those new dollars have to get their value from the wealth that was already there. Every dollar in the system is now worth less real wealth. Let’s say a loaf of bread – which is real wealth - is worth one dollar. If you double the number of dollars in the system, how much will that bread-wealth cost? Two dollars! What happens if you introduce a thousand times as many dollars? That’s right; the bread-wealth costs a thousand dollars. There is no more real substance behind your dollars, they’re just puffed up with air, like a balloon. That’s why it’s called “inflation.”
“As long as everyone’s supply of dollars increases at the same time, there’s no real harm, but that’s never going to happen. Will the company increase your per hour rate to cover the increase in the dollar supply? Ha! You know the answer to that, right? Yes, sometimes we get what they used to call “cost of living” increases, but that does nothing more than put another pump of air in the system.
“But the government taxes you on a percentage, right? So when you pay 50 cents of every dollar to various taxes, you lose that much of the value of your labor. Let’s say that in the beginning, you got paid 100 bucks because that’s what your labor was worth. Then the government quadruples the supply of dollars, and because the amount of wealth hasn’t changed, each of those your dollars is now only worth 25 cents. Did your paycheck increase? Nope. You still get 100 bucks, but your paycheck is now only worth 25 bucks. Here’s a really fun thing: you still have to pay 50 percent of your dollars in taxes. You started out with 100 bucks that represented 100 bucks of wealth, and had 100 bucks of purchasing power. Now, your 100 bucks only represent 25 bucks, and have 25 bucks of purchasing power, then the government takes 50 of them, leaving you with 50, with the purchasing power of 12 dollars and 50 cents.
“John M. Keynes was an economist (college vocabulary for idiot) who didn’t have a flippin’ clue about the relationship of money to wealth. Everyone in our government today is a Keynesian, because they were educated by professors who were also economists. These morons really think that if you print more money, you create real wealth. To them, your work is of absolutely no value. To them, you are a little cog that gets money and gives it away again. They even talk about the velocity of the money as it goes through your hands.
“Now we’ve just covered a lot of ground on a long, complex road, right? But get this: the complexity of the whole thing is multiplied by the number of people in the ecosystem, and by how many times money changes hands. Think about that for a second. There are so many variables in the equation you might as well say they are infinite, but Keynesians believe they can keep track of all of those, and make sure everyone comes out okay and nobody loses everything they have ever worked for, and they mean to do it not based on the value of the wealth or the labor that creates it, but on the value of the individual, and of course, they are the ones who will decide the value of the individual. “Economic indicators,” they call ‘em. Imagine standing on the bank of a great river, and poking a stick into the water. Because you can feel the pressure of the water on the stick, you claim you really understand the river and can control it better than the laws of physics and the rest of nature.
“Can you say, “utterly, completely, absolutely insane?”
She nodded, and the light in her eyes was a joy to behold. “Yep.”
27 Oct., 2012