Huge Deceptions: In the ‘discipline’ of Economics! Let’s review!
I am somewhat shocked at how little my retired friends (here in Arizona) understand about economics and money. I visit and talk with many every week and most seem totally confused and deceived about many economic concepts. Most of my retired friends have advanced degrees in various disciplines but few seem to comprehend economics or money. Let’s review a few concepts which I think are confusing and not well understood by most Americans. After teaching on these issues for some 40 + years, I realize that concepts can be interpreted differently by experts in the same discipline. This makes the issues even more confusing! So let’s review a few concepts and see if we can discern their real meaning!
This advice is good and helpful! Think of economic ‘words’ as having many different meanings! Each speaker on economic issues may use ‘words’ in radically different ways! Beware!
I might add that my thinking is enhanced when I start with First Principles and then proceed to current events. First Principles reveal the meaning of a concept when it originally started. What happens as time progresses is that any concept can be changed in meaning with various unique changes in real-time events. This is why going back to First Principles is so important for understanding the original meaning of a concept. Today, we have speakers who use ‘words’ as if these ‘words’ have a single meaning. This is deceptive and leads the uninformed to the conclusion that a ‘word’ has a fixed meaning. All meaning is really dynamic and changes occur frequently as events change. So let’s start from First Principles! I think this might help you discern the key words within the discipline called Economics!
Wisdom emerges from understanding First Principles! This has been my experience! Keep in mind, however, that Austrian first principles may be different from Keynesian first principles!
1. Money: this word is extremely deceptive and confusing. Just what is money? If we go back to the beginning we can discern that this ‘word’ originally denoted some ‘thing’ (item) within space/time nature which people chose as their proxy for ‘VALUE’. When I exchange my eggs for your bread the immediate issue which arises is: what are the relative ‘values’ of these items of wealth? If we conclude that a dozen eggs equals a loaf of baked bread, then we can conclude that this is a ‘value’ for ‘value exchange. If we later discover that people in our marketplace exchange 1 ounce of silver (say a coin) for a loaf of bread, then we can conclude that my dozen eggs may also be worth 1 ounce of silver. Money emerges when we watch and observe what happens in a marketplace where people exchange ‘things’ (production) for other ‘things’ (production).
Money is merely a ‘word’ derived from our consciousness which we use to represent the marketplaces concept of ‘value in exchange’. Money emerges from a marketplace and then becomes our proxy for this subjective concept which we call ‘value’. Money has always been some item from nature which people choose in a marketplace as their substitute for ‘value’. Money can be any item or object which people desire as a general proxy for ‘value’, and then a medium of exchange, and then a store of ‘value’. It later gets recorded as a ‘unit of account’ when book-keeping becomes necessary. Later in its evolution, money takes on the nature of a unit (a currency) which represents our debt obligations and our credit transactions. Think of this word ‘money’ as a ‘name’ for some ‘item’ which people choose as their proxy for ‘value’! This is a First Principle for understanding the word ‘money’!
When America started we had no official ‘money’. After debate and observation of human behavior in a marketplace, our Congress chose the item called SILVER as our item representing ‘value’. Thomas Jefferson and Alexander Hamilton were the most informed about the nature and evolution of money. As they observed our Colonial marketplace they discerned that most Americans had faith and confidence in the precious metal called SILVER (when trading in a marketplace). This then became America’s choice for our word ‘money’. SILVER was viewed, in the marketplace, as containing or having ‘value’! This is why it could become MONEY (our proxy for ‘value’)! So keep in mind that the word ‘money’ refers to some object which is perceived as containing/having VALUE. The word ‘intrinsic’ value emerged later!
The Peso or Spanish silver coin emerged in the marketplace as a first choice for representing the word MONEY (our proxy for ‘value’)! Later this silver coin was assayed and it revealed 371.25 grains of silver! Our Congress adopted this reference point for our American currency unit (the dollar)!
2. Currency: this concept emerged AFTER the people within a marketplace had chosen their object (item) of value which they called MONEY. Money comes first as it is the real PROXY for ‘value’. After the marketplace chooses their concept of MONEY, then the next step is to choose a CURRENCY. The word ‘currency’ emerges as we need to CALCULATE ‘value’ when we buy/sell/exchange. This means that we need to invent another ‘word’ to represent this concept which we call CURRENCY. Americans and their initial Congress (in 1789 – 92) debated what their currency should be and what ‘name’ to call it. They finally concluded that they did not desire the old British currency system but desired to create their own system. So what did they do?
After debate and review of economic history, our Congress decided to invent a ‘currency’ to go with their concept of ‘money’. Money was viewed as ‘silver’ and now they needed a concept and name for their ‘currency’. Since our first Congress did not want to continue with the British monetary system for our new nation, they decided to invent an American currency unit. They chose the ‘name’ Dollar! But what is a ‘dollar’ without a definition? It is nothing! So to make our ‘dollar’ meaningful for exchange, trading, and saving…our Congress defined the ‘word’ Dollar in terms of their prior choice for Money. Silver had been chosen as their ‘money’ so if the word Dollar was defined, then it would have meaning in the marketplace. So what became the definition of the word ‘dollar’?
After thinking events over (based upon prior Colonial experiences) they concluded that the Spanish silver coin (called the Peso or Piece of Eight) would be a good example for our American currency unit. After an ‘assay’ of this Spanish coin they discovered that it contained 371.25 grains of pure silver. This ‘assay’ then was used as our reference point for defining our ‘word’ Dollar. The result was that we now had MONEY (the commodity called ‘Silver’) and a CURRENCY (the word ‘Dollar’ with 371.25 grains of pure silver). It was now possible to create our first American Mint and start to coin our money/currency for the marketplace. This started with the Coinage Act of 1792 and our first mint located in Philadelphia, Pennsylvania. Americans could now create ‘prices’ within a marketplace! Can you discern how ‘money’ emerges and how a ‘currency’ emerges?
This minted coin became America’s representation of MONEY and a CURRENCY! The word ‘money’ was the precious metal called ‘silver’ (intrinsic within the coin) and the word ‘currency’ was the word ‘dollar’ (chosen by our first Congress)! Americans could now calculate their subjective VALUE (in the marketplace)!
3. Value: the concept called ‘value’ is the trickiest concept of all economic concepts. Just what is this subjective concept called ‘value’? What we need to discern is that this concept does not EXIST within our space/time universe. Value is really an internal (inner) concept of our mind or consciousness. There is really ‘no such thing’ as VALUE within nature. This concept is similar to ‘love’ or ‘beauty’. Both ‘love’ and ‘beauty’ are inner perspectives which we discern…and which we then label with a word. We should call all these ‘inner’ concepts something other than a ‘thing’ or an ‘object’. I like the word RESULT (for all these inner concepts). Love is a result! Beauty is a result! Value is a result! These concepts are really ‘names’ for our subjective perceptions. Each person has a concept of ‘love’, ‘beauty’, and ‘value’. Think of these ‘words’ as events or results which emerge from one’s subjective thinking!
Within economics, however, we use this word ‘value’ for all units of wealth which we create from nature. Bread is given a ‘value’. Eggs are given a ‘value’. Land is given a ‘value’. Houses are given a ‘value’. We give all units of wealth a ‘value’ (subjectively) and we then quantify this subjective result with our ‘currency unit’. Since we chose ‘silver’ as our money and the word ‘dollar’ as our currency, we can now give every item of wealth a ‘value’ in terms of our chosen money/currency. What happens in a marketplace is that ‘prices’ emerge from our trading, exchanges, buying, and selling. Prices emerge when we have a real MONEY, a real CURRENCY and when we THINK about each items VALUE! Understanding these First Principles is key to discerning the real meaning of these important WORDS!
The concept called ‘Value’ emerges from our thinking when we exchange, trade, buy, sell! Value derives from the philosophy of Capitalism since we all OWN private property! Wealth are the material items produced from our natural resources and the land! Playing sports is not a form of wealth (keep this in mind)!
Let’s conclude with the evolution of these words which started from First Principles. Today, the word ‘money’ is used in many different ways and with many different meanings. Some use this word to refer to our paper notes and coins. Others will use this word to refer to our cyber money units (which I call our Bit-dollar). Others view the word ‘credit’ as a form of money. Debt is considered to be an obligation derived from prior money transactions. Today, we have words like ‘inflation’ and ‘deflation’ which result from our money transactions. The confusion over what is money, credit, debt, value, currencies gives everyone mixed understandings when listening to various financial pundits. Who is saying what? What is meant? Why all the different words, meanings, and understandings? Beware of words as you listen/think/read!
Austrian economics is also different from Keynesian economics! Each has unique interpretations of economic concepts and the meanings of economic events! We live mostly with Keynesian economists, today!
My suggestion is to first go back to First Principles for an understanding of the original meanings of these WORDS. My First Principles are derived from my understanding of how events started here in the United States of America. Then ask questions from a speaker or pundit (whom you respect) to discern what his/her meaning is when they use these WORDS. Ask: What is your concept of money? What is your concept of a currency? What is your concept of the word VALUE? ASK questions and then start to THINK for yourself (independently). Each pundit or expert may use these words in various and confusing ways. Let the listener/reader BEWARE…as understanding comes from an accurate and logical expression of these important WORDS. Deception is RAMPANT today as I listen to various pundits and their prognostications! I hope the above helps somewhat! I am: https://kingdomecon.wordpress.com.