Wednesday, July 29, 2015

Money is Not "The Root of All Evil"

Notions of money as "the root of all evil" run deep, in spite of the fact money has been a basic tool to get things done as long as anyone can remember. While it's tempting to dismiss what some believe in this regard, remember this deep distrust also affects monetary policy, in that it extends well beyond political boundaries or personal ideology. For these individuals, money holds the dubious distinction of being on a par with crony capitalism, or perhaps politics as a whole. But even though money can be an easy scapegoat for imaginary "sins", it holds the same important coordination roles which governments and markets are also responsible for.

One reason money has a "checkered" reputation in some circles, is that it doesn't coordinate economic activity as smoothly as one would expect. Granted, money fulfills its role quite well for the goods, services and assets which higher income levels seek. But proceed further down the income spectrum, only to discover that coordination patterns become less reliable for both services and asset formation. As a result - even though money is far more effective than barter - some elements of the marketplace remain incomplete.

Coordination patterns also depend on whether individuals still have direct links to local production capacity. Indeed, whenever money became a major component of local group settings in the past, this would precipitate a shift away from inter group coordination patterns, towards the externally defined patterns made possible through more specialized institutions.

So long as sufficient means remained for local groups to work with local resource capacity, shifts toward externally driven resource use would not be so traumatic. However, in the twentieth century, governments did not provide some citizens a chance to maintain sufficient forms of internal resource coordination. Even though populations were reimbursed in various ways when they lost means to production, it did not take many decades for redistribution to create imbalances in monetary flows.

As it becomes more difficult for governments to provide these reimbursements, local communities will need the chance to recreate monetary representation closer to home. Even though technology now provides much of today's tradable goods, time value on everyone's part can contribute to the knowledge based services marketplace of the future. New local institutions are needed to create more sustainable structures for services and asset formation. Given the fact that local economies cannot always provide the income levels which governments seek, local citizens will need to have a voice in consumption options which more closely match their resource and skills potential.

Whenever money is not a practical tool for all income levels, misunderstanding can gradually spread through social and political structures, regarding money's actual capacity. When this process continues too long, historical atrocities are sometimes the result. Even though much social unrest can be traced back to these economic roots of misunderstanding, it is not easy to stop the process if and when it is set into motion.

Further, the same hard won lessons of monetary policy from earlier episodes are too often set aside, as well. Historically, it is not enough to know when something is clearly wrong, to keep society from making the same mistakes. This is why money always needs to remain a pragmatic tool for multiple income levels. When monetary policy gives too many favors to special interests, the resulting economic imbalances can become practically impossible to address. On the other hand, when money is allowed to represent the economic capacity of multiple income levels, it can remain a source of liberation and freedom for all concerned.

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