Do you know the value of the dollar? This could be any currency, but the dollar is what I am most used to. We often speak of people who have no concept of the value of the dollar. What we mean by this is that somebody does not place value on the dollar. Truly, I doubt that most people in the formerly free world still have an understanding of the value of the dollar in actual terms.
Where most people go wrong is in assuming that the dollar has a real value. Most people seem to assume that the dollar has some magical property called value in the same way an electron has the property of an electrical charge. This leads to a number of fallacies including the belief that the dollar value of anything is a fixed and immutable quantity. The monetary value of the dollar is actually variable. Crediting a million dollars to the account of every living person on the Earth would not result in the elimination of poverty.
The increase in price that would result is not the result of anything like greed. Greed is a nice bogeyman in that it is a dark concept with no real meaning and can, as a result, be used as an epitaph for any behavior that we do not like. If we were to suddenly add billions of dollars to the world, the monetary value of the dollar would go down with respect to the monetary value of what you wish to buy. This means that each dollar is now worth less while the monetary value of the object of your desire has not changed. You will notice that the poverty level would rise to some point between the top and bottom of your new economy.
When I was nearing my teenage years, I modeled out an economy. It seems that everybody who knows about it is partial to communism prior to truly understanding it. I discovered that the monetary value of the dollar is what you can get somebody else to trade you for it. Changing the distribution of dollars in my economy simply changed how much people wanted them and that actually eliminated their monetary value. This world would see that as infinite inflation.
Why does this matter? If you believe that the dollar has a fixed value, then you believe that having more dollars increases a population’s buying power. Since monetary value, buying power, of the dollar results from the imbalance, you end up producing greater poverty in the honest attempt to eliminate it. Increasing the buying power of the dollars you already have actually requires driving down the value of the things that you are trying to buy. Partially, you can do this by increasing the supply with a form of industrialization that decreases the expense of producing each unit.

This entry was posted on Friday, October 26th, 2007 at 1:29 am and is filed under Mulligan Adventures. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.