Why Economic Cycles Won’t End

Standard

An economy is understood as a system of exchange where values move in a forward and backwards fashion. For instance, it can move from buyer to seller and back. The current monetary system does not accomplish this goal.

What makes a monetary economy

Essentially a monetary system cannot function without a governing body which oversees the flow of money. An association that advocates for certain selfish values can be formed by a small group of people and if it gains enough viral traction from a larger set of members it can impose the values as rules upon the remaining minority. This is what happens with the monetary system. Those who were in possession of political power decided to disseminate the idea that they have the responsibility to provide a uniform representation of value (money) straight out of the blue. The responsible body is known as the Central bank or, in the U.S, the Federal Reserve.

We as civilians have our property and commodities. We can easily exchange items for things we actually need from other people. Instead, we ask these people for money and they in turn ask for it back. The amount we ask for may not necessarily be the amount they ask for. Where does the extra money come from? This in essence is the idea of profit.

Gaps

We work on the mindset that the only reason something should be made better is so that it can bring in more profit and not that it can please people more. More fundamentally we don’t engage in trade because people need our products but because we need their money. It’s a selfish motivation at best.

If you see beef in a butchery you may ask for 100 shillings for the pound of meat you sell but the buyer who sells televisions may ask for a hundred times that amount. That is because the T.V is believed to be worth more than the meat. But who decided how much more? The market of course. What majority of the other buyers are willing to pay is what you will have to pay regardless of your level of wealth of present need for the item. Again, we see a traction game formed by sets of people called a market. There seems to be little room for real negotiation of value on a one on one basis.

Because of this a lot of dynamics come into play and they force the values of our commodities to shift upwards for no good reason. Inflation does not increase prices because things have gotten prettier or larger. They just inflate upon a vacuum of value. There is a steep miscalculation of wants and needs by most of us. Those who are poor value their properties or labour a little less while those who are rich overvalue their property. You are either one or the other. The money stands for how much the buyer values what we give them. But this value can only be realized later when you use that money to demand what they themselves own but have less value for. Somewhere inside that process lies an inequality. If you are giving up what you value to get what someone else does not value it puts you on an unequal ground with your buyer. The result is wealth gap by the millions

The reason we engage in this kind of behavior is fear and greed. Why else would someone ask for 25 million shillings for a house they built when they already have 250 million shillings in their personal bank accounts. How will that improve their lives in any way than it hasn’t already been improved? And why would someone take 30 shillings per hour from someone who can afford to give them 4000 per hour and still breathe easy.

The cyclic nature of an economy

Even with the basic premise of uneven individual perceptions of value, there is still a larger cancer that plagues our economic system. That cancer’s name is economic cycles. Imagine a poker master. He has a deck of cards in his hands. He then hands the cards out to players upon request. You ask for an ace of spade you get an ace of spade. Eventually, when everyone has his cards it becomes apparent that some cards are more beautiful than others. Suddenly, the master isn’t giving out more cards unless a trade agreement is reached. A player called Dave has two flowers. He asks his neighbor Todd for two spades in return for his two flowers. They trade.  With the two flowers in hand, Todd asks his neighbor Mercy who is out of flowers to give three hearts in exchange for the two flowers he has. He does the same to Dave who now asks why he is asking for three hearts and not two. Todd says he thinks flowers are more scarce than hearts and seeing his point, Dave realizes he needs to restock his flowers. Eventually in the course of the game, Todd has all the hearts by making a series of cheap trades like these. No one can play hearts except Todd. The game is at a standstill unless Todd can release his hearts. This is exactly what economists call a bust in the economy.

Poker

At this point, Todd decides to talk with the poker master and asks him to give Mercy and Dave two hearts each. To keep the game going the master agrees. As soon as the two hearts are in, Todd finishes the game with one of the many corresponding hearts he has. Everything is his but Dave and Mercy have nothing. Todd then decides to cut the cards in half so that he can share them with the other players since he cant afford to let go off them and remain with less than he had. All of a sudden they are all rich and they can play around for longer. They are now aware of Todd’s tricks and they decide that they will also stock up the other types of cards so that they can create some illusion of scarcity and take the game to a standstill. Now everyone either has a lot of spades or flowers or hearts in his hand. But to finish the game you have to trade or play them in. A frantic effort to trade sees them share out their cards cleverly and the cost of getting a hearts severely goes down. This is what economists call a boom.

But of course when the game ends, the sharpest player takes all the cards with him and inevitably leads the game to another bust.

Unless the objective of the game shift from having more of each type of card in hand in order to finish the game, and changes to having equal proportions of each type, the cycle will continue infinitely.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s