As an overeducated millenial forced to live through a second Trump administration, I feel that if only we could educate people more on what things are, how they work, and how not to be dumb this all gestures wildly could have been avoided. I believe that the main point and article of faith that people have that prevents them from making good civic policy choices comes down to the core concept of money. Namely, what even IS money?
There are a number of answers you will get from people on this question, I shall list a few: A Medium of Exchange, A Store of Value, Gold, A Tool of the Opressor. I think for the most part this is all an effect of what money actually is. Money is a unit of measure, much like an inch, mile, degree, or second.
Now, what is money measuring exactly? Great question, it clearly measures the value of a thing. For example a loaf of bread costs 5 bucks. But, the problem there is obvious in the statement itself, the value being referred to is in itself it is self-referencial. A foot, mile, yard, and inch can all measure the same exact distance represented in different numbers, but we could all understand that and get an idea for basically the same distance these different numbers are representing. But now try to do the same thing with money, you will tend to fall back to just understanding the value that the dollars are trying to represent in terms of the dollars themselves, this gives the illuision that the money itself is the value and thus the thing to protect, own, etc.
This intuition is wrong on its face. Yes, Money is a unit that there can only be so much of and we treat it like a property, something to own, but what it is doing is representing total productive capacity in a community at any instanenous given point in time. That concept is kind of weighty, so lets go through an example.
Imagine a country with 10 people in it, and this country produces nothing but the same loafs of bread, every loaf is equal and one person makes 1 loaf per year. The government in Breadistan issues a currency and in the first year they issue 10 dollars. Because we have such a simplified economy, the only thing people need to sell or buy is bread and only 10 loafs are made per year that means the productive value of this economy is 10 dollars, each loaf is worth a dollar. Imagine now nothing changes in production or number of people, but the government issues another 10 dollars in year two. Now you have 20 dollars in the economy representing 10 loafs, making a single loaf worth 2 dollars. This is inflation, the government of Breadistan has issued new currency, with no new productive capacity to back it thus giving us inflation. The dollars in the economy went up with nothing to back them meaning the unit of measure changed.
Now lets get complex, say 5 new people came of age and began producing their one loaf of bread in the same year the government had 20 dollars in their economy. Well the productive capacity of the economy went up, 15 loafs per year, as did the currency, 20 dollars. In our very simplisitic explanation we now have a price per loaf of 1.33 dollars per loaf. We still have inflation in Breadistan but since a doubling of the currency was met with a 50% increase in productive capacity inflation is less then it would have been.
One more example, say one of your 15 people in this country make a new bread making machine, now everyone in Breadistan has the ability to make 2 loafs of bread in a year. The government was unaware of this change and issued no new currency in year 3 leaving us at 20 dollars for the economy. Now we only have 20 dollars to represent 30 loafs of bread resulting in a price of 66 cents for one loaf. We have deflation in breadistan now, prices have fallen due to productivity going up.
Now lets take an aside to deal with "hard" currency, this is exactly how Gold would act when used as a primary currency as well. There is some desire to view Gold as special because it has "intrinsic" value. The only value gold has is that the government cannot issue more of it at their will. The government has to spend some productive capacity of their nation in the search for new gold to keep up with the demand for more currency. This held back nations and societies during the mercantile age due to leaving productive resources going idle because there was no money to induce those productive resources to act. This means that fiat currency and hard currencies are the exact same when it comes to what money is.
Ultimately money is a unit of measure that is provided and maintained by the government and utilized by the citizens to organize productivity organically. It measures an instanenous snapshot of the total productive capcity in the community utilizing the currency at a point in time. It solves the problem of decision making by decentralizing the power to make decisions to the lowest possible units.
With that out of the way, there are some obvious lessons to take from Breadistan. One is that money is actually a public utility, not personal property to be owned. You can think of your current networth and bank account as essentially answer the question of "how much of the nation's productive capacity are you entitled to at this current moment". If you spent all your networth some slice of the nation's productivity would be dedicated to fulfilling whatever your demand might be. Once you can conceptualize money this way, a good portion of what the federal reserve and legislature does begins to make more sense. These scenarios could be explored in future blog posts.
