What is money? It’s a medium of exchange – you use it to make purchases. To the average individual, money is also a means of cooperation. It transforms the value of your labor into a very efficient form of communication.
Suppose you’re a skilled chef who knows very little about carpentry. You could spend many hours struggling to make a bookshelf, producing a rickety and unlovely piece of furniture. It would be better to find a skilled carpenter and offer to trade your gourmet cooking for a well-constructed bookshelf.
Money makes this transaction vastly more efficient – you can choose from many different carpenters and compare their prices. Great companies have formed to produce mass quantities of bookshelves, which is much more effective than hiring out individual carpenters to construct shelves on demand, resulting in much lower prices to the consumer. You don’t have to spend time finding a carpenter you can trust, then waste more time haggling over the relative value of stuffed pheasant versus six feet of shelving. The value of your cooking skill is converted into money, and so is the value of the bookshelf. This is much better than bartering. Money is a swift, versatile, and precise vehicle for cooperative effort.
What is value? It’s more than just the number on a price tag. If you look around your home, you’ll find many objects with value that far exceeds their price: treasured heirlooms, gifts from your children, mass-produced artwork that you happen to like. Value is subjective… which means, in essence, it’s a function of choice. Would you risk your life to gather all those little knickknacks and crayon sketches pinned to your refrigerator, if your house were about to be destroyed in an earthquake, and you had only moments to evacuate? The situation would eliminate your choices in the matter, and the value of the items would diminish.
To put this in the context of current events, a comprehensive medical insurance plan with a high price tag would have great value to an older person, but much less value to a young person in the peak of health. Even if the young person is forced to pay the high price for this coverage, its value to him does not increase. Likewise, an insurance plan with extensive maternal benefits offers little value to a man. People assign less value to something they were given, or forced to purchase. Greater value is associated with goods and services they freely chose to acquire, and paid for with their own money. Everyday life is filled with many examples which illustrate this point.
What is power? It is the ability to impose your will upon others. Power requires compulsion, which can range from a mild set of incentives through absolute domination. Your best friends might be willing to honor almost any of your requests, but you don’t really have power over them. If you designed an elaborate plan for managing every aspect of their lives and finances, they would be unlikely to cooperate voluntarily. You would have to force them to participate.
In a constitutional republic, our elected government is meant to be the exclusive concentration of legitimate power. By definition, the amount of power exercised by the government increases as it grows larger. Power is compulsion – fines, subsidies, regulations, and imprisonment. More power means less freedom. Reduced freedom means less value. As money is drained away from free citizens, their ability to cooperate voluntarily is reduced… and only voluntary cooperation produces genuine value.
This is the dreadful equation of socialism. Money can be used to create value, or it can fuel the exercise of power, but not both. You can see this happening around you, right now. It has happened everywhere in the world, every time central planning has been tried. It would happen even if politicians were the selfless, compassionate, disciplined civil servants they claim to be. The fantastic corruption typical of socialist states, most definitely including our current Administration, serves to weaken the rate of exchange between value and power. The high-performance fiber optic communication lines of free-market capitalism have been torn out, and converted into feeding tubes for our bloated central government. Every dollar you pay the government in taxes and regulatory costs is another moment of your time that cannot be invested in willing cooperation with others.
It is possible to ration subsistence, but not prosperity. Americans are slowly, painfully beginning to appreciate the difference between those two levels of existence. We’ve been so prosperous, for so long, that we lost sight of how far our economy would collapse when value was traded for power. The arithmetic of poverty and unemployment is simple, and merciless. Free people multiply. The all-powerful State is only good at division.
Cross-posted at www.doczero.org.
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