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ECONOMICS – built partially on psychological ‘Deception’ and terminological ‘Confusion’!

August 30, 2013

From my many years of teaching as well as my valuation experience, I can emphatically say that the profession of economics is built partially on psychological deception and confused terminology. I have been teaching the concepts of economics for some 40 years at various venues. Economics is not like chemistry, biology, or physics in that most of economic theory is based on human action and human psychology…not observed items from Nature. A profession like physics, for example, is based on observations from Nature and sound objective logic (mostly). This also goes for biology and chemistry. Economics, however, is much more subjective and intuitive with human nature playing a huge role within the profession. Let’s just discuss three concepts which confuse and deceive many students of economics.

Money, Value, and Price emerged historically from human psychology…within a marketplace!

First of all let’s think about the concept we call ‘Money’. Money, in reality, is not found within nature. Money is not found within the natural environment which we experience daily. In fact, ‘money’ does not exist as an object or thing within our physical universe. Money, in reality, is a concept of consciousness and derives solely from human psychology. In other words, ‘money’ is invented by human beings to serve a role or purpose. The first ‘money’ was probably a shekel of wheat, barley, or oats. This ‘name’ called shekel derives from the farming environment some 5,000 years prior to today. The ‘name’ then evolved into a shekel of silver after human beings chose silver as their item of value for ‘money’. Today, the shekel is merely a ‘name’ and ‘number’ within the computer screen (a virtual currency unit).

One of the first invented items used as ‘money’ was the shekel of wheat, barley, and oats! Money emerges to serve as a tool for the valuation of products exchanged in a marketplace!

Later in our history the silver shekel emerged as an invented ‘money’!

Over our 5,000 years of monetary history human psychology has invented many different items to serve as a tool for their ‘money’. Farm products were probably the first items used for ‘money’ and later durable and permanent items such as silver emerged from the marketplace.Many students of economics seem to lack this understanding on the origin and nature of ‘money’. I have discovered from my teaching experience that many students assume that ‘money’ is an item in nature that is permanently ‘money’ for all time. This deception is sometimes difficult to change. Today, however, more students of ‘money’ have discovered and concluded that ‘money’ is an invented concept which changes over time and place. Money originates as a concept of consciousness and then the ‘name’ money denotes some item chosen by human psychology within a marketplace.

Today there is a psychological battle over what should be ‘money’. Should money be physical or virtual? What role must money play to be viable as a trading unit? Can virtual money solve the valuation problem within economics?

The second concept of economics that is extremely deceptive and confusing is the concept of ‘value’. Economics is based mostly on this concept. Value (the concept) derived from human psychology after Capitalism emerged as an economic system. Capitalism created the concept of ‘private property’ and private property evolved into the exchange of items produced from private property. Once we produce an item (say wheat) from private property and desire to exchange this item, the concept of ‘value’ emerges from our psychology. What is the ‘value’ of a unit of wheat (say a bushel) when exchanged in the open market? What is the ‘value’ of any item produced and/or exchanged in the marketplace? The psychological concept of ‘value’ emerges from our consciousness…and is a very important concept under the System of Capitalism and ‘private property’. But what is ‘value’ objectively?

The concept of ‘value’ starts out as subjective and within the human consciousness. This means ‘value’ is totally psychological! ‘Value’ is not inherent or intrinsic within an item…nor is value an item within nature. Today, many consumers think of ‘value’ as a quantified number specified in a currency unit (dollars)!

In reality, ‘value’ does not exist in nature. Value is not inherent within any item of nature. Value is not intrinsic within any item of nature. So what is ‘value’ objectively? Value, in reality, emerges from our consciousness and this ‘name’ is applied after we exchange an item for another item. Value is an experience within the marketplace (a result) which is important for maintaining fairness and objectivity when trading and exchanging. If I exchange a bushel of wheat for a dozen eggs, then a value relationship has been established. This reference point can then be applied for subsequent exchanges provided participants in a marketplace agree with the exchange relationship. We all are familiar with the sale and purchase of houses. Single family properties are exchanged and then a ‘value’ relationship (a result) is established. Value, however, does not exist in nature and is not inherent or intrinsic within a house, site, building, or any item of personal property. Value is always subjective and within the human consciousness!

Valuation of a home is a subjective result and derived from subjectively selected comparables! House values are constantly changing from month to month and year to year! There is no single point value for any property!

The third concept of economics that is deceptive and confusing is the concept of ‘prices’. What are ‘prices’? In reality, ‘prices’ do not exist within nature. Prices are not inherent within a product or item offered for exchange. Prices, in reality, are ‘derived’ from our consciousness and then applied (mechanically) to items offered for exchange. Prices, historically, were derived using physical money units. If our money unit was 1 ounce of silver and this silver was minted into a 1 ounce coin, then ‘prices’ would be derived from exchanging this silver coin for other items within a marketplace. In other words, ‘prices’ emerge from buy/sell transactions in a marketplace. Today, we denominate ‘prices’ in mostly virtual currency units (called dollars in the USA). Dollars today are virtual and imaginary, yet a ‘dollar’ is perceived as a symbol, name, and number which has acceptance in the marketplace. Any unit which gives people confidence and logic tends to work as money for a time period.

Value and prices are derived from the subjective consciousness of traders, speculators, marketers, and manipulators! These mathematical results change from moment to moment and day to day!

In conclusion, economics is quite confusing and deceptive for the lay person or casual student. Money does not exist in nature (a reality of life), Value does not exist in nature (a reality of life), and Prices do not exist in nature (a reality of life). Yet these psychological concepts are essential and important if one is to understand economics and monetary policy. All items in our global marketplace are ‘valued’ by human psychology daily. Items (for exchange) are then given a ‘price’ using a currency as the medium. Prices then become reference points for subsequent exchanges and valuations. This process is ongoing and extremely confusing and subjective in todays virtual/imaginary markets. Since we now ‘price’ most items with a virtual unit of money; and this virtual unit of money is derived from the consciousness of buyers/sellers/lenders in a marketplace; and our marketplace is now mostly the computer screen and mathematical strategies; confusion, deception, and manipulation is rampant in our various marketplaces.

Confusion, deception, and manipulations of prices make decision-making difficult! Our Central Bankers create money units arbitrarily and subjectively. Rampant speculation also affects prices in the marketplace!

Today, we have derivative markets, currency markets, futures markets, commodity markets, bond markets, and stock markets. All these various markets have evolved into Global Markets. Today, ‘value’ and ‘prices’ are derived via the transactions by traders who click their mouse to buy/sell/trade within these markets. Traders today use advanced computer strategies and platforms for their trading activity. This process is within real-time and 24/7 in most markets. The concepts of money, value, and prices vary within our Global trading markets. This makes exchanges even more confusing and deceptive. The lack of objective standards means that today’s markets are eclectic and volatile. The subjective psychology of traders, investors, consumers, and speculators all play a role within our markets. None of these activities are objective and/or scientifically stable over time. Caveat emptor is necessary for today’s markets!

Derivative markets emerged after the closing of the gold window (1971). Today these markets are a problem! A collapse of the derivative markets would produce a domino effect for our entire global economy! There is no current solution to our derivative issues if our markets start to deflate!

Economics is a profession which is difficult to master and teach. The key concepts, however, are the three above. Money, Value, and Price are these key concepts. All these concepts are derived from our psychology and NOT from nature. Few seem to discern this difference. Silver and gold are derived from nature but the use of these items from nature for our money is a human decision and invention. The ‘value’ of a silver  or gold coin is subjective and changes daily with the psychological whims of traders within our global marketplace. The ‘prices’ of silver and gold change daily as traders subjectively assess the supply/demand and desire for this commodity. What we witness within our computer screen are the results of millions of subjective/psychological decisions within our global marketplace of computer transactions. Confusion, Deception, and manipulation play a role within this casino type system. Enjoy! I am:  https://kingdomecon.wordpress.com

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