The most pressing obstacle to getting on with our lives today is the precarious nature of our national economy, not the manufactured “crises” of healthcare or global warming. We find ourselves on the brink of unsustainable national debt, and the unintended consequences a continuation of those policies would bring on. I would like to discuss these issues, but to take these conversations out of the political arena, I need to describe the landscape from which I come. I will be offering arguments that are rooted in economics, not politics.
I apologize up front if this opening bores anyone, but it is necessary to following sections on the particulars of our policies.
Value – wealth – is created by human activity upon raw materials of lesser intrinsic value. That value, intrinsic or added, is determined by markets consisting of buyers and sellers, each working in their own best interest. If you understand that, you understand economics. No one invented it, it’s merely the calculus of human interaction.
Our nomadic hunter-gatherer ancestors followed herds of game in largely familial bands, gathering fruit, nuts, berries and greens along the way. They lived at the whim of injury, disease and weather, and their GDP consisted of what they could carry. Division of labor wasn’t so much skill-driven as by gender – the men and older boys hunted, stood guard (if necessary), learned to make tools and weapons and built and maintained structures; the women, girls and children maintained the encampment, managed the food supply, did most of the skinning and butchering of kills, tended the fire, and filled-in providing security for the encampment when hunting parties were out.
Thus it went for the better part of 3½ million years.
The development of agriculture (~9500BC), somewhere in the fertile crescent from the Levant around to Mesopotamia, was a paradigm shift. Fixed-site living eliminated the nomadic imperative, permitting the accumulation of wealth and tribal sustenance of the old, the sick and the lame. Encampments became settlements became villages became towns became cities. Campfires became council fires became ovens became heaths, and we learned everything from baking to metallurgy. Wikiups and Yurts morphed into buildings and cathedrals. Specialization exploded as social complexity blossomed.
GDP exploded.
Specialization yields a rich variety of products in the marketplace, and that pretty much put an end to barter (“could I get change for a cow” not having much practicality), bringing about an abstract exchange medium (money) that facilitated the purchase of many things from many merchants, and in undefined quantities. At this point, a society’s treasury contained artifacts of value (jewelry, sculpture and flat art, religious icons, etc), raw jewels and precious metals, and the currencies of various societies, including its own. Coastal societies often used shells or pearls as currency, some Roman provinces used nails and iron bars. Mostly however, they used jewels and precious metals. “Money” had intrinsic value – gold or silver in known weights.
Most classical banking practices were introduced in 1129 by the Pauperes commilitones Christi Templique Solomonici (The Poor Fellow-Soldiers of Christ and of the Temple of Solomon), more commonly known as the Knights Templar. They would accept money from Crusaders or travelers going to the Middle East, and issue them a receipt, which could be drawn upon (in whole or in part) at any Templar outpost along the way. For this service, the Knights took a mild fee. Private banks sprang up in Europe, issuing denominated “receipts” in the form of paper currency, backed by gold or silver. The more people who trusted the issuing bank, the more places one could use the “scrip” as an exchange medium.
For the most part, this was the state of money until well into the industrial revolution.
“Fiat currency” – paper and ordinary coins issued without intrinsic backing – had been around for quite awhile, but usually in small states, and wasn’t much used outside their borders. Manufacturing was creating prosperity faster than governments could acquire silver and gold enough to issue enough currency to keep up with the demand for it. Most nations ceased backing their currency, allowing the printing of money as needed. And that raised problems.
The diplomatic term used is that a nation’s currency is backed by “the full faith and credit” of issuing government, meaning that they won’t suddenly change currencies, or drastically revalue its money. This is necessary to assure those who hold your money (or instruments denominated in your money) that it will retain its value, else they will move their savings and investments into something else. This development meant that national economics now had two faces – fiscal policy (how government manages its money), and monetary policy (how government regulates the value of its money), and they are of equal importance to the overall economy.
Posted
03-07-2010 6:33
by
Eagle Watch