Opus 2022-240: From the Club to the Wad

Economic activity has come a long way.  At each stage you have had problems but each step also made it possible for more people to live better.  If you are living by hunting and gathering you don’t have a chance at the things a basic worker can have in modern capitalism let alone in early village life.  

I would imagine the first level of economic activity was the club.  The club?  Yeah.  The guy with the biggest muscles and heaviest club took whatever he wanted.  He did fine but the other guy was not thrilled with the transaction.  One of the problems with Big Club Economics is that eventually the little guy finds you asleep and you cease to be a problem.  A sleeping Big Club is trumped by a group of sneaky Little Clubs every time.

I would guess the next level was barter.  If you grew wheat and the guy down the hill raised cows you might trade him some grain for a few steaks.  It might be possible to trade eggs for sox.  It began to give people the advantage of having a certain skill and being able to specialize.  The problem was that trade was limited to what you could carry.

Eventually people found a way around trying to carry an engine block to trade for a dining room table.  They went to some kind of coinage.  It might have been special belts of rare shells or it could have been gold nuggets.  It was whatever was light and valued by enough people.  Eventually they got to bullion coinage.  Gold didn’t have much worth in itself.  It was too soft for tools but it was pretty.  You could not eat it and wearing it didn’t keep you warm, but people valued it and it became a measure of value.  Silver and copper also were used.

As people got more prosperous the items they wanted to buy got bigger and heavier.  So did the bag of gold.  Paper receipts began to replace actual gold coins.  This might have been notes written by a banker or a business.  A bank might sign a note saying you had enough gold on deposit to buy the house.  It eventually became paper money issued by the government and making the claim that somewhere the physical gold and silver was locked away.  You could take your paper into a bank and demand gold if you wanted to lug it around.  I can remember silver certificates that said as much.

Gold backed paper money sounds good but keep in mind that the governments found ways to lie about it.  They had done it with coins before.  There were at least two ways the government could cheat with coins.  One was to melt them down and remake them with less precious metal in them but the same face value.  Another was to shave off the outer edge and melt it down to make more coins.  With paper it is even easier.  You just print more and claim you have the gold to back it up.  That is fine until people start demanding the gold.

We have now moved beyond that.  The government no longer claims they have anything to back up the money.  Take a look at a dollar bill.  It says “Federal Reserve Note”.  It says “this note is legal tender for all debts, public and private.”  It is now called fiat currency.  That means it is money because the government says it is.  Its value is totally based on confidence of people and their willingness to accept it.  Think of it as a glorious Ponzi scheme.  As long as the next guy is willing to take the paper, it has value.

We may be coming to the point where people want more than government issued paper.  When fiat currency becomes valueless we will need to turn back the clock and learn new economics.  It is going to be a rough adjustment.  I would suggest it will become a combination of barter and coinage.  When preppers talk about getting ready for bad times they often stress precious medals.  Another thing to stock up on are small items that can be traded such as soap, 22 cartridges, toilet paper and anything else that may be hard to get.

I am not an economist, but neither are they.  

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