Saturday, March 14, 2009

Purchasing Power and Productivity

Can you imagine an exchange that does not have productivity mixed in?

I believe that it is impossible to have an exchange without productivity mixed in.

Net productivity may be consumed in the exchange or may be generated, but there is always productivity mixed in with any exchange.

Money is not a necessary ingredient in exchange.

Exchange can occur without money.

I will illustrate these points with a simple example.

Suppose you owned 100 train cars filled with gold. Let’s assume that the cars are secure and that people are willing to accept gold in exchange.

Could you purchase a hamburger with some of your abundant supply of gold?

The answer is a dependent yes. There is a prerequisite of productivity.

Someone must till the ground, plant wheat and make flour. Someone must raise and slaughter a steer to have the meat. Someone must plant a tomato and make ketchup. Someone must collect these and other related ingredients and resources into a single location and prepare the hamburger. And all of this has to happen in an environment that includes the producers being better off to exchange their product rather than keep it.

In addition, your gold would not have been secured, mined, refined, and aggregated unless someone engaged in productive labor.

Additionally, it is possible to exchange the makings of a hamburger for a quantity of fresh chicken eggs, instead of money.

Thus we see that productivity is a required component in exchange while money is optional. This is a critical point.

Think of costless money as a lazy and uninvited slob who barges in to your private dinner and forcibly takes the head seat at the table, demanding your honor and obedience.

Remember, the dinner cannot even occur unless gentle, honest productivity is at the table; perhaps this is productivity generated by the dinner party or perhaps captured by force. But always productivity will be present.

To be clear, money is not required at all. In addition to money not being required, unless it is honest money, money goes even further and steals from your productivity while giving nothing back.

Money gets up from the table, well fed by your labor, with your silverware in his pocket and various other articles openly picked up on the way out the door, all to be delivered back to his masters; masters who control his very existence by the stroke of a pen.

What does this mean?

If productivity is involved in every exchange and money is never necessary in any exchange then we can draw a few simple conclusions.
  1. Apart from Productivity, costless money will never feed even one person one meal.
  2. Productivity alone, without money, is capable of providing food, shelter and wealth.
  3. If a person were hungry or cold and had the choice of solving their problem by choosing one and only one of these two elements, then choosing a quantity of money without productivity would leave them in a worse condition, while choosing from a pool of productivity would enable them to be warm and well fed.
  4. In the case of a gift, the same holds true. If we give costless money apart from productivity, the recipient has nothing. If we give productivity apart from costless money, the recipient has a gift with usefulness and value.

Costless Paper Money

We see that gold apart from other productivity cannot provide anyone with a meal.

What about costless money?

Suppose in our nation there are 1,000,000 acres of farm land and 10,000 factories which produce our food and the products we value in exchange.

Now imagine that we print one trillion dollars.

Do we now suddenly have more acres of farm land? Do we now suddenly have more factories?

Someone may say, no, but with this new money, now we can build more factories!

Why can we? Will you build the factory with paper? Will you plant paper seeds in a paper field? No…? Then what do you mean?

I can only purchase more if I produce more things for which people are willing to exchange their own production. As we produce more and more efficiently, there will be a need for more acres and factories to engage in production. Increasing production requires real resources; bricks and steel, acres and seed - not paper.

All that costless money does is grant the first users of the New Money the fraudulent ability to lay claim to your productivity and property which they have not worked to acquire.

I could print money today and immediately acquire your entire year of production from your factory or farm, without doing anything productive myself. I would simply take your labor and property with the stroke of a pen.

The Keynesian monetary system we labor under does this every single day.

Government Stimulus

Since only productivity applied together with real resources can feed a person or increase one’s wealth, the only thing anyone can ever give in exchange for any other thing is productivity.

When the government issues new costless money into the system and the banking sector multiplies it yet again, the costless money only has value to the extent that productivity is absorbed into the costless money.

If we had trillions and trillions of dollars, but no one planted crops or made things, we would be a poor nation. Consider Zimbabwe. A few decades ago 1 Zim Dollar would buy as much as 1.47 US Dollars. Today it takes 37,456,777 Zim Dollars to equal 1 US Dollar.

Do big numbers on slips of paper make a nation wealthy? No. Impossible.

Therefore when the government prints costless money, your property and productivity are necessarily used to impute value to the new dollars, but someone else gets these "valuable" new tokens. They are worthless on their own account, apart from your labor.


The clear and logical economic arguments against the current stimulus and our monetary system in general are somewhat involved and will not be covered in this article. However, the point that we want to convey is this:

The only thing government can give away is productivity and since government produces nothing, they can only give away your hard earned and valuable productivity. Costless money is nothing except a tool to steal what belongs to you.

Furthermore, if we produce nothing then there is nothing to take and nothing to give away, regardless of how many money tokens are created. Again, observe Zimbabwe for an example.

The more we produce, the more the government has access to, which will be used to do the things government does best; destroy liberty and enslave people.

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