Sunday, January 12, 2014

Economics – Chickens, Cows, and Money

People place a lot of importance on money, which is understandable. Bartering was once the major method of payment. In some eras something as simple as salt or spices were worth more than gold. The more rare an object the more its worth in comparison to other goods and services. The more rare the tradesmen, the more their worth.

People can't provide everything they need for themselves. Let's say that a farmer needs a cow for milk. The cow cost ten chickens. Most cows are raised in a different village so the farmer has to haul the ten chickens to that village for trade. Most times he takes 11 chickens because one might die on the way.

Someone decided a long time ago that gold coins were a lot easier to carry around. One gold coin is worth 10 chickens. The farmer doesn't need a wagon to carry a single gold coin with which to buy the cow. He simply sold ten chickens to a village that was closer. Sounds pretty simple doesn't it? Well it was until the bankers came along.

You see, the bankers love gold. They buy gold and sometimes charge others to store it in a vault. They sometimes have so much gold it's not worth much. In the banker village a cow is still worth ten chickens, but it takes 10 gold coins to buy a cow. That doesn't matter too much except the bankers need chickens and they are so busy making gold coins they don't spend much time raising cows and chickens. They usually buy everything they need.

Eventually all the towns with which the bankers traded, the value of gold decreased because people began to have so much. This excess of gold eventually spread out to all villages until the day came when the farmer would need 10 gold coins to buy that cow, even though the cow is still worth 10 chickens. This leads to new problem.

Ranchers produce most of the cows in the area. Ranchers wanted more gold so they started producing more cows. Soon they were overflowing with cows. They eventually had to start selling the cows for 5 chickens just to get rid of them. All the villagers began to buy up cows until everyone had all they needed. The value of cows dropped to almost nothing. In the end, ranchers had the same amount of gold that they would have had if cow production had never been increased.

The same thing kind of happened with the bankers. They kept making gold coins until gold was nearly worthless. Eventually it would take hundreds of gold coins to buy chickens because the chicken farmers never over produced. When there is too much of one thing its value drops.

People of today often do the same thing. The government makes the paper you trade for stuff. Paper has no inherent value, but society has placed value on paper with certain words. That's kind of okay except when government makes too much of that paper. We could say one paper is worth ten chickens. You might think that the government could just make all the paper money it wants and people would have lots of paper to buy chickens. It's much like the bankers and gold. Too much of anything drops its value.

Countries all around the world produce their own paper. It would be silly for them to trade their paper equally with American paper because the government is printing so much. For the printed paper to have a fixed value it must also have a fixed quantity.

The government gives farmers printed paper in order not to plant something. The government decides they want corn to be more expensive so they give the farmers printed paper not to plant corn. Because beans were too expensive and in short supply government began paying other farmers to plant beans to raise the quantity.

It looks to me that government is like some of the bad kings of old. They told people how to live. It is easy to control people when you control the food supply and the printed paper or gold supply. People were meant to be free creatures, but government enslaves them. As long as government controls the economy, it controls the people.

Basic economics is very simple. Government wants people to believe it's something only a massive bureaucracy can understand and control. If we look back to some societies of old we will notice everyone worked for the king – the land owner. Farmers and shop keepers kept what the king didn't take. Kings were notorious for giving land or loaning armies to friends and those who could do favors in return. In some places hunting animals for food was reserved only for royalty. The government of today greatly resembles the kings of old.

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