Money

In the created universe, the law of cause and effect governs all things. Whether in the realm of the physical, the psychological, the economic, or the political, actions have consequences. The laws of creation don't require our belief for their operation. What goes up, comes down. It comes down whether we believe it will or not. It is affected neither by our charm, our ingenuity or the depth of our self-deception.

In human affairs, cause and effect operate as reciprocity. You give me a Christmas card; I give you one. I lend you twenty; you pay me back -- and if you don't, you're unlikely to see another twenty. Saints may turn the other cheek, but in the realm of egoity (you and me; us and them) we all keep careful score.

What goes around comes around. Actions bring reactions. You scratch my back, I scratch yours. Part of becoming an adult is accepting the inevitability of all this. Sure, there are folks who try to game the system, get something for nothing. They play the lotto, go to Las Vegas, kite checks, take things and forget to pay for them. These people think they can beat the house, but in the long run, the house cannot be beaten. Sooner or later, these people lose. There isn’t anything uncertain about it. It’s built right into the system.

We live in a complex society. What started out as simple barter has become an intricate web of international multiparty transactions. Somewhere along the line, money was created to denominate the relative value of the things we exchange -- our time, our effort, our resources. Money permits me to exchange my time selling advice in California for a barrel of oil pumped out of the ground in Canada, a bale of cotton spun into a bolt of cloth in India, a television set assembled in China, or a pair of shoes cobbled in Brazil. If I don’t need these things right away, money lets me hold onto (“save”) the value of the work I’ve done until I do need them. And it even lets me pledge the value of work I haven’t done yet. I can buy something now (“borrow”), and promise to pay for it later -- assuming I’m willing to pay a little extra for the convenience.

The monetary system today is incredibly complicated – so complicated, in fact, that almost no one understands it. But as complicated as it is, the system is still subject to the law of cause and effect: reciprocity. If I give something up, I want it back. And if I have to wait, I want something extra.

As the term is used today, “money” no longer represents an interest in precious metal --silver, gold –- or anything else. A twenty dollar Federal Reserve note entitles me to receive another twenty dollar Federal Reserve note, nothing more. The dollar (and the euro and the yen) are all “fiat currencies”, meaning they exist solely by fiat of the governments that issued them. Their "values" represent nothing more than ideas – numerical indices of what we owe, and what we are owed. The continued existence of this system relies on nothing more nor less than the assumption by each participant that the other participants will continue to honor the system. In other words, it relies on an assumption of stability. If that assumption goes, the system goes with it.

The value of a fiat currency ultimately depends on the supply and the demand for it. Over time, the demand for a currency rises (and falls) with the overall output of goods and services in the economy that uses it. The supply of a currency is determined by the government that issues it. If the amount of a currency is kept more or less in line with the output of goods and services in an economy, the value of the currency remains more or less stable. If the amount of currency grows faster than the economic output of the economy – as for example, if a government is printing money to fund expenditures for wars, retirement benefits, social programs or anything else that is out of line with the government's receipts – the supply of the currency winds up increasing faster than economic output, and that currency declines in value. When this happens, the people holding the currency experience what is known as “inflation”.

Thus, inflation represents a collective attempt by the people in a society to live beyond their means -- to borrow money they have no way of repaying. When this happens, other nations may be willing to provide goods and services in exchange for the debtor nation's currency for awhile, but that willingness will decrease over time. As it does, the debtor nation's currency will decline in value. Since the currency is inherently worth nothing more than the paper it's written on, there is essentially no limit to how far its value can fall.

The world is based on reciprocity. Countries, as well as individuals, are subject to the law. There are those who try to game the system, of course. Ultimately, these countries lose. There isn’t anything uncertain about it. It’s built right into the system.