From: wag5@quads.uchicago.edu (john peter wagner)
Subject: Money;Economics
Reply-To: wag5@midway.uchicago.edu
Organization: University of Chicago Computing Organizations
Distribution: usa
Date: Mon, 7 Sep 1992 03:43:40 GMT

	What is the nature of money?
	Imagine an island with two people; one person is gifted in picking
coconuts; the other is skilled in catching sardines.  In a simple state
the two do not know the other exist; they fish and/or pick coconuts,
their production of food per unit time we shall call 'A.'  Now,
let us suppose that the two people decide to trade surpluses; i.e.,
they reap the mutual benefits of specialization.  In that case, the
unit of production per unit time is 'A+B,' where 'B' is the added
advantage from specialization.  Suppose, however, that coconuts can
only be picked during a certain season of the year.  Does that mean
that the coconut picker has nothing to offer the fisherperson for his
fish?  How can the picker get fish from the fisher?  Well, the coconut
picker can offer a 'promissory note,' or something which, at a later
date, the fisher could give to the picker for coconuts.
	Thus, both fisherperson coconut picker can specialize in their
fields, reaping the greater payoff if the 'promissory note' is both
trusted and can be realized, even though normal physical trade of goods
is physically impossible.	
	The 'promissory note' comes in many forms.  Gold, since it is
given an abstract value, can be the blood of specialized trade.  Even
if the coconut picker gets ill and cannot perform, the fisherman, given
a scenario in which there are other people who value gold, can use the
gold to purchase the necessary complements to its lifestyle.
	If, however, the value of gold were non-existant, the specialization
system which depends upon gold would fall apart and people would revert
to subsistence.
	Governments which guarantee money, or the value thereof, seem
to do it in return for the power which they achieve as controllers of`
the currency.  This is a symbiotic relationship between specialized trade
which depends upon trust(money) and the government, which seeks to
guarantee that trust.  It's like a collection's agency, if any of you
are familiar with such.  The collections agency is given the bad check
by the unhappy business, in return for a fraction of the check's value
in 'hard' cash, and the collections agency uses whatever means it has
to have the check issuer pay up on the check.  The store gets some
hard cash, and can continue accepting checks, and the collections
agency gets some hard cash of its own.
	What does all of this mean to us in the U.S.?
	Well, remember that money is only a promissory note for labor, which
is the true nature of a specializaed economy; coordinated labor.
Government, which uses its share of the blood, the money, uses that
blood(money) to cause people to labor for it.  If the value of that
blood decreases, i.e., the people give less labor in return for it,
(Which could happen for any number of reasons, including growth of value
of alternate currencies) then the government must either 1)force the
people by some means to value the currency,2)switch to some alternate
currency, or 3)take a larger percentage of the currency to compensate
for the devaluation.(There may be other methods)
	1)By law money is and has been protected by government as valuable
(legal tender) throughout time, by legal means(police, jail, fines, etc.)
However, in that case use of the currency in face-to-face transaction
becomes less profitable than dealing in clandestine or loophole protected
or unacknowledged alternate forms of currency. Thus the trade in gold
, D-Marks, Yen, etc., which may raise in value relative to the dollar, exists.
	2)Any of you familiar with the 'cross of gold' business around
the turn of the century know of governments which switch currency bases.
In that case, Germany switched from backing its currency by silver to gold.
The resultant world devaluation of silver caused many other governments
to follow suit.  In America, the silver mines were threatened and political
debate grew heated and caused the decay of the dollar.  Eventually the
dollar switched.
	3)Governments take a larger percentage of currency to get their
necessary labor done.  What happens then is that the currency is further
devalued.  Why?  Well, let us take the original example of the coconut
picker and the fisherperson.  Suppose the coconut picker gives the fisherperson
promissory notes worth twelve coconuts.  The government steps in and takes
two coconuts' worth of the promissory notes.  The fisherperson, who has
to make ends' meet, is unhappy, and finds a solution other than the
government-taxed promissory note, thus leading to devaluation of the note
in further tarnsactions.  The next time the coconut picker has to offer
more notes for fish.  Thus, either he has to work harder for his same
amount of fish, or he will switch with the fisherperson to some other
form of currency.  This much increased devaluation of the currency, in the
sense that the government would need to spend more of it to get the picker
to pick, would result in increased taxes(if that method were selected).
There would be a snowball effect. Maybe this is why the Mayan civilization
disappeared.
	4)An absurdity, yet practiced nonetheless, the government could
print more money, which would devaluate the currency in a fashion to that
found in 3) above, and is widely frowned upon. We find this happening
in countries with triple digit inflation, where the government snowballs
its printing into economic chaos until the people decide to shoot the
rulers.
	So we see that any plans by the government involving a fixed
yearly expenditure would rely upon the constant or increased valuation of
the currency.  If this does not happen, then the government, to preserve
its policies(labor), tends to monkey with the economy, further
devaluing the dollar, and leading to very interesting capitalist behavior.
Any increased taxation which will tax money acting as blood, an agent
of bonding or what have you, in a specialized economy, will have
negative effects, notwithstanding the temporary holder of that money,
be they wealthy or in poverty.  Thus, a tax, aimed at wealthy,
middle-class or poor, will shake up the economy, in the same sense
that draining blood from the liver, pancreas, or brain will have a BAD
effect upon the entire life-form.

			J. Wagner
P.S. If I made a spelling or grammar mistake, don't blame me-blame the Schnapps.