How would you design the economy?

[onefour1]

If you were in charge of coming up with an economy, ie designing the money structure and the rules by which all the people were to live by, how would you do it? What would be, in your mind, the best economy for everyone, assuming you are not a tyrant? What things would you keep from our current economic system and what would you get rid of? What new ideas would you introduce?

[seanD]

Are you asking that with or without a Christian theological context?

[onefour1]

Are you asking that with or without a Christian theological context?

Asking in any context.

[seanD]

Asking in any context.

Spiritual flaw in mankind and his insatiable drive for excess aside... a barter system.

[onefour1]

Spiritual flaw in mankind and his insatiable drive for excess aside... a barter system.

I was thinking that a barter system would be good but lately I've read an essay by Murray N Rothbard entitled, "The Case Against the Fed " where he gives the folowing argument:

"But this system of "direct exchange" of useful goods, or
''barter," has severe limitations which exchangers soon run
up against. Suppose that Smith dislikes fish, but Jones, a
fisherman, would like to buy his wheat. Jones then tries to
find a product, say butter, not for his own use but in order
to resell to Smith. Jones is here engaging in "indirect exchange,"
where he purchases butter, not for its own sake, but
for use as a "medium," or middle-term, in the exchange. In
other cases, goods are "indivisible" and cannot be chopped
up into small parts to be used in direct exchange. Suppose,
for example, that Robbins would like to sell a tractor, and
then purchase a myriad of different goods: horses, wheat,
rope, barrels, etc. Clearly, he can't chop the tractor into
seven or eight parts, and exchange each part for a good he
desires. What he will have to do is to engage in "indirect
exchange," that is, to sell the tractor for a more divisible
commodity, say 100 pounds of butter, and then slice the
butter into divisible parts and exchange each part for the
good he desires. Robbins, again, would then be using butter
as a medium of exchange.
Once any particular commodity starts to be used as a
medium, this very process has a spiralling, or snowballing,
effect. If, for example, several people in a society begin to use
butter as a medium, people will realize that in that particular
region butter is becoming especially marketable, or acceptable
in exchange, and so they will demand more butter in
exchange for use as a medium. And so, as its use as a
medium becomes more widely known, this use feeds upon
itself, until rapidly the commodity comes into general
employment in the society as a medium of exchange. A
commodity that is in general use as a medium is defined
as a money.
Once a good comes into use as a money, the market
expands rapidly, and the economy becomes remarkably
more productive and prosperous. The reason is that the price
system becomes enormously simplified. A "price" is simply
the terms of exchange, the ratio of the quantities of the two
goods being traded. In every exchange, x amount of one
commodity is exchanged for y amount of another. Take the
Smith-Jones trade noted above. Suppose that Jones exchanges
2 barrels of fish for Smith's 1 bushel of wheat. In that case,
the "price" of wheat in terms of fish is 2 barrels of fish per
bushel. Conversely, the "price" of fish in terms of wheat is
one-half a bushel per barrel. In a system of barter, knowing
the relative price of anything would quickly become impossibly
complicated: thus, the price of a hat might be 10 candy
bars, or 6 loaves of bread, or 1 /10 of a TV set, and on and on.
But once a money is established on the market, then every
single exchange includes the money-commodity as one of its
two commodities. Jones will sell fish for the money commodity,
and will then "sell" the money in exchange for wheat,
shoes, tractors, entertainment, or whatever. And Smith will
sell his wheat in the same manner. As a result, every price
will be reckoned simply in terms of its "money-price," its
price in terms of the common money-commodity.
Thus, suppose that butter has become the society's
money by this market process. In that case, all prices of goods
or services are reckoned in their respective money-prices;
thus, a hat might exchange for 15 ounces of butter, a candy
bar may be priced at 1.5 ounces of butter, a TV set at 150
ounces of butter, etc. If you want to know how the market
price of a hat compares to other goods, you don't have to
figure each relative price directly; all you have to know is that
the money-price of a hat is 15 ounces of butter, or 1 ounce of
gold, or whatever the money-commodity is, and then it will
be easy to reckon the various goods in terms of their respective
money-prices.
Another grave problem with a world of barter is that it
is impossible for any business firm to calculate how it's
doing, whether it is making profits or incurring losses, beyond
a very primitive estimate. Suppose that you are a
business firm, and you are trying to calculate your income,
and your expenses, for the previous month. And you list your
income: "let's see, last month we took in 20 yards of string, 3
codfish, 4 cords of lumber, 3 bushels of wheat. . . etc.," and
"we paid out: 5 empty barrels, 8 pounds of cotton, 30 bricks,
5 pounds of beef." How in the world could you figure out
how well you are doing? Once a money is established in an
economy, however, business calculation becomes easy: "Last
month, we took in 500 ounces of gold, and paid out 450 ounces
of gold. Net profit, 50 gold ounces." The development of a
general medium of exchange, then, is a crucial requisite to
the development of any sort of flourishing market economy.

In the history of mankind, every society, including
primitive tribes, rapidly developed money in the above
manner, on the market. Many commodities have been used
as money: iron hoes in Africa, salt in West Africa, sugar in the
Caribbean, beaver skins in Canada, codfish in colonial New
England, tobacco in colonial Maryland and Virginia. In German
prisoner-of-war camps of British soldiers during World
War II, the continuing trading of CARE packages soon resulted
in a "money" in which all other goods were priced and
reckoned. Cigarettes became the money in these camps, not
because of any imposition by German or British officers or
from any sudden agreement: it emerged "organically" from
barter trading in spontaneously developed markets within
the camps.

Throughout all these eras and societies, however, two
commodities, if the society had access to them, were easily
able to outcompete the rest, and to establish themselves on
the market as the only moneys. These were gold and silver.

Why gold and silver? (And to a lesser extent, copper,
when the other two were unavailable.) Because gold and
silver are superior in various "moneyish" qualities—qualities
that a good needs to have to be selected by the market as
money. Gold and silver were highly valuable in themselves,
for their beauty; their supply was limited enough to have a
roughly stable value, but not so scarce that they could not
readily be parcelled out for use (platinum would fit into the
latter category); they were in wide demand, and were
easily portable; they were highly divisible, as they could
be sliced into small pieces and keep a pro rata share of their
value; they could be easily made homogeneous, so that one
ounce would look like another; and they were highly durable,
thus preserving a store of value into the indefinite future.
(Mixed with a small amount of alloy, gold coins have literally
been able to last for thousands of years.) Outside the hermetic
prisoner-of-war camp environment, cigarettes would have
done badly as money because they are too easily manufactured;
in the outside world, the supply of cigarettes would
have multiplied rapidly and its value diminished nearly to
zero. (Another problem of cigarettes as money is their lack
of durability.)"

I think he makes a good argument that medium of exchanges would develop and thus a common currency. What do you think?

[seanD]

Gold and silver is one of the biggest con jobs I've seen of late. Trust me, I'm no Keynesian, but the logic behind gold and silver doesn't work. Gold and silver is only valuable as long as there is a monetary system structure in place that uses a primary currency, which gives these precious metals its value. But if there is a primary currency, then there's no need for gold and silver as a secondary commodity other than side trades. If the monetary system collapses, then gold and silver will be rendered worthless. Under these circumstances, actual necessities like food, water, fuel, alcohol, toilet paper, etc., would then become the primary currency in its place. Therein lies the paradox, hence therein lies the con. The current gold and silver hype is being primarily fuel by gold and silver commodity traders and retailers, such as people like Mike Maloney.

Granted, because of our insatiable drive for excess, a barter system won't work in the long run either. Community cooperation would also be required for it to work successfully, but at least it's based on actual human labor, thus not only can't be mass produced, but would actually enforce community cooperation as a necessity for it to work and to survive.

[seanD]

Onefour1, I didn't mean to sound so harsh in that last post. It's nothing personal against you. It's just that I'm seeing a whole lot of people getting sucked into the gold and silver investment hype -- with everything from claims of a gold and silver manipulation conspiracy to a belief that there will be this great "reset" of the economic systems by global leaders -- expecting certain things to happen in the future, when they might actually end up potential victims of a huge letdown.

[onefour1]

SeanD, I think you make some interesting points. I have often used the phrase, "You can't eat it" when it comes to gold or silver. Some say that gold and silver have intrinsic worth but to me personally I don't find gold or silver to have much intrinsic worth. It appears from Rothbard's (who doesn't appear to be Keynesian at all) example that when a large amount of trading goes on, a medium of exchange tends to surface to facilitate trade. Trading his fish for butter in order to buy wheat seems logical under the circumstance since the holder of wheat doesn't like fish. I think that with any currency whether in gold, silver or paper, people have to buy into the fact that others will be willing to trade it for those things that have true intrinsic worth. So a question to any of the readers of this thread, Do you think precious metals have intrinsic worth other than a perceived worth because it has risen to become the medium of exchange? Please explain. Did gold and silver have more intrinsic worth in previous generations and now we simply value it out of tradition? I don't truly understand why gold and silver were so valuable. Perhaps jewelry was in high demand by many people. Perhaps it still is. Maybe there are industrial reasons why gold and sliver have some intrinsic worth but do they have this worth across all of society?

SeanD, I am not easily offended over economic debate. I find other views very interesting and enlightening. We all need to look at ourselves and ask why we do what we do sometimes. Thanks for your post.

[Epoetker]

Gold and silver are poor substitutes for a functional civilization, truthful representatives, and a common culture that isn't actively toxic.

It's worth noting that the Bible mentions a strong economy only parenthetically as a reward for righteousness and strong civic morality. Obviously if you're too morally confused or corrupt to punish wrongdoers then a "strong economy" that brings easy prosperity and greater ability to the corrupt among you is an indifferent variable at best. If your people are disposed to use full bellies and lack of pressing present concerns as an excuse to go out and kill and rape, then your primary problem isn't really monetary policy.

That said, I believe the primary problem we have in today's economy is a careerist culture that assumes we need a group of professional managerialists on a commission board to take down companies suspected of monopolizing an industry, rather than a unitary executive who can maneuver properly against the slowly-corrupting and competition-destroying nexuses of business, law, and education that spit in the face of common work ethics, common legal understanding, and common preparation of young people for the future.

[onefour1]

I think we first need a very clear understanding of what corrupts an economy and what makes an economy strong. Once these principals are known and understood, they need to be taught as a mandatory curriculum in our schools and then laws that cannot be changed need to be enacted to ensure that these principals of a good economy are not violated. I believe that our current system has many flaws and the government and bankers like the way it is and don't want to change it. The purpose of this thread is to try and figure out what those principals are and what laws we might enact to make the system great and to keep it from breaking down. SeanD brought up an interesting point about whether gold or silver should be used as a medium of exchange. The story by Rothbard (quoted above) says that gold and silver rose to become the best medium of exchange simply by its nature of being rare, valuable, durable, and having the ability to be weighed, etc. Are precious metals a threat to a good economy or simply another commodity that when entering the market rises to become a medium of exchange? Should we outlaw the trade of gold or silver in our economy we are building? If so why? Should we pass a law that we must not use precious metals as a medium of exchange. Do medium of exchanges pose any problem for an economy? It appears to me that once a commodity becomes a medium of exchange, it gains value. Most people don't bank their other valuables but they seem to bank the medium of exchange. Are medium of exchanges inevitable in a free market economy? Should our economy be a free market? I believe it should. I think the freedom to trade whatever you have for whatever you want or need is fundamental for a society to function.

[onefour1]

According to G. Edward Griffin in his book, The Creature From Jekyll Island, "Perhaps the greatest example of a nation with sound money, however, was the Byzantine Empire. Building on the sound monetary tradition of Greece, the emperor Constantine ordered the creation of a new gold piece called the solidus and the silver piece called the miliarense. The gold weight of the solidus soon became fixed at 65 grains and was minted at that standard for the next eight-hundred years. Its quality was so dependable that it was freely accepted, under the name bezant, from China to Brittany, from the Baltic Sea to Ethiopia.

Byzantine laws regarding money were strict. Before being admitted to the profession of banking, the candidate had to have sponsors who would attest to his character, that he would not file or chip either the solidi or the miliarensia, and that he would not issue false coin. Violation of these rules called for cutting off a hand.

It is an amazing fact of history that the Byzantine Empire flourished as the center of world commerce for eight-hundred years nor, for that matter, even into dept. Not once during this period did it devalue its money. "Neither the ancient nor the modern world," says Heinrich Gelzer, "can offer a compete parallel to this phenomenon. This prodigious stability...secured the bezant as universal currency. On account of its full weight, it passed with all the neighboring nations as a valid medium of exchange. By her money, Byzantium controlled both the civilized and the barbarian worlds"

Evidently back in history, especially during the Roman era, some and especially the government would gather taxes of their coin and clip the coins. Clipping coins means to shave off part of the gold or silver off the coin making it worth less than its stated value and using the shavings to enrich themselves and form other coins. Placing more coins into circulation as well as debasing the current stock caused more money to be in circulation than goods and services and threw off the equilibrium of the market and caused its downfall. According to Griffin, the economy started slipping back into barter.

From this and other instances mentioned in Griffin's book, I don't think using gold or silver as a medium of exchange is bad. It is only the abuse of the gold or silver standard that causes an offset of the equilibrium of trade to occur. Debasing the currency and inflating the money supply causes inflation which is a hidden tax, which leads to other problems in an economy which we can discuss later. For now I simply wanted to put forth my opinion, based on the accounts of history that I have read, that I don't find gold or silver as a medium of exchange to be a bad thing in and of itself. I do find that abuses by those who have control of the money supply to be a major problem.