The Equanimist

Consideration of Current Global Policy within a Context of Sustainability

Posted in Uncategorized by equanimist on June 24, 2011

Note:  I did this series of cartoons quite a while ago and did not intend to publish them as such.  That said, within a context of current events, the brief outline presented here is good food for thought.  So I’ve put words to them… Expect exploration of these issues in pieces to come.

Many with whom I interact seem to think that a dollar is some kind of a static instrument.  They seem to think that the number of US-controlled US dollars at a given time must equal the number of US dollars necessary to cover every US debt; and that same must do so now or we’re in serious trouble.  This is just not so.  A dollar is not static.  It’s good for more than one exchange.  And debt isn’t all due now.

Ideally a dollar gets passed on indefinitely.  In Fig. 1, a person spends a $100.  This either buys something or pays down some debt.  The person from whom s/he bought that thing then buys something from somebody else or pays the money out to cover some debt or a wage.  The recipient does likewise…  The same $100 bill gets passed from hand to hand, over and over again…  Assume that the first person in the picture is paying down debt and the second person in the picture is paying down debt and the third person is paying down some debt…  Then the same $100 is put toward debt owed by many people.   Of course, in real life, people tend to keep some portion of the dollars that they receive as in Fig. 2 (below).

In Fig. 2, we see what quickly happens to a hundred dollars when it is spent and ten percent is saved or siphoned off of the economy.  Two things jump out at me when I look at this: 1) $100 becomes $73 pretty quickly; and 2) $100 covers $271 in the first three transactions.

I’m going to hold off on 1) and take 2) first.  Again, dollars aren’t static.  A dollar gets recycled over and over again.  So, if three people are in varying amounts of debt and that debt totals $271, a hundred dollars passed from one guy to the next might actually suffice to make everybody even.

Further, dollars don’t get passed around once or twice but again and again.  Assuming that everybody in a chain gets a certain percentage of each transaction, and that the percentage does not change over some period, then income goes up as money gets passed along the chain more quickly.  On the other hand, assuming a steady money supply over the same period, to the degree that saving siphons money off of the economy or people are added to the economy, there’s less money to pass from hand to hand, and incomes must go down.

In Fig. 3, it’s clear: when one guy saves a lot off the top there’s a lot less left to be passed around even if subsequent savers save only 10% each.

Now imagine twice as many people sharing the same amount—imagine that the first hundred dollars must be changed for two fifties to split between two guys.  Even in the Fig. 2 scenario, the second guy in the transaction chain would only get $45 instead of $90.  So, if the number of people served by some supply of money doubles and productivity increases with population growth and there’s no shortage of resources then it is possible and reasonable to double the supply of money in order to furnish enough money for everybody.

But there exists another important reason to increase the money supply: productivity increase that outpaces expanding population.  We’re not on a gold standard or a silver standard or any kind of commodity standard anymore.  Money, instead, represents discrete fractions of actualized human potential (adjusted for instantaneous estimation of growth of same).

In Fig. 4, a guy makes a widget.  In Fig. 5, a guy makes six widgets.  What happens if there isn’t enough money out there to buy six widgets at the going rate?  Either prices must come down, or five guys are put out of work [even if we were to think of other uses for them, since we haven’t increased money supply, we can’t pay them.]

Let’s suppose that we can’t think of anything for them to do other than make widgets, and we can’t simply increase money supply because raw materials are too expensive to justify based on our society’s productivity or because use of those materials is not sustainable (which is really the same thing said differently).  Then we’ve got to accept lower standards of living, or we’ve got too many people.  As China’s population problem and the results of “One-Child Policy” clearly demonstrate, it’s hard to get people to stop having babies.

Since you can’t just kill people who won’t stop doin’ it, and because we haven’t had a good pandemic in ages—since we don’t have any other natural predators—war may be the answer.

War puts people (temporarily) to work.

A ‘good’ war rouses the rabble.

But, perhaps most importantly, war leaves devastation in its wake, and war kills people. The end result of a World War can be like starting over—as long as nobody drops too many nuclear bombs.

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