No one truly understands how monetary systems work because they are not founded on facts. They are founded on concepts like "confidence" and "value". The problem is that confidence and values change frequently and unpredictably. Facts remain constant. All monetary systems are out of sync with the Natural Economic Order of the universe.
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What, then are the general facts? First, the Natural Economy provides life support for free. No one has to pay the universe to have plants produce nuts, berries, tomatos, coconuts and bananas. No cow or chicken has ever demanded money to produce milk or eggs. Second, the Natural Economy is abundant. Sunlight beams aboard the planet 24 / 7 / 365. It is the direct energy source for all plant life. We produce enough food to feed every human being. We could power all human activities only with solar and its renewable derivatives: wind, hydro, wave, bio-fuels, and geo-thermal. Third, the Natural Economy values all life forms equally. It doesn’t give less sunlight to snakes and spotted owls than it does to dogs and human beings.
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The Natural Economy of the universe is based on "sharing with", freely, abundantly and equally. Monetary systems are based on "withholding from". I will let you have what I have, only if you give me something that I value. If you don’t have anything that I value, I’ll go find someone who does. If what I have happens to be something that would save your life, oh well. "It’s not in our national interest." is a very convenient excuse to practice very unloving and unnatural behavior.
This is the kind of analysis we get from William Daniels at that bastion of liberal, leftist thought,
the Daily Kos. I don't know where exactly Mr. Daniels' expertise lies but one thing I do know with absolute certainly, Mr. Daniels is woefully ignorant of both economics and the natural order.
Mr. Daniels asserts that finance (and by implication I assume economics as well) is founded on nothing more than unpredictable concepts like "confidence" and "value." Now, yes, there must be confidence by those who engage in any market in the market itself as well as confidence the transactions one engages are not fraudulent. But this is not something that is unique to markets or financial systems.
We also need confidence in the political order we find ourselves in and we must have confidence in those who aspire to high office as well. The really major problem in confidence involves not free markets but government and the abuse of its power.
Our founders understood this very well so they crafted a governmental system who's prime objective was to limit the power of government and not the power of free markets. This fact is something we have gotten far from in the last 40 years and something the Obama administration seems to loathed. So confidence is something that arises whenever human beings come together to do anything collectively and, therefore, should not be used so as to disparage markets, financial or otherwise.
However, unlike government which can wield its coercive power so as to destroy any confidence in it with impunity (see what is going on right now in Iran), free markets, if left to their own inner workings, give rise and sustain confidence. As Adam Smith rightly argued, in seeking his or her own self-interest, the butcher, baker and candlestick maker will do everything in his or her power to ensure his customers are content with their service and with the items they sell.
If they don't, if they engage in fraudulent acts, customers will simply choose another butcher, backer or candlestick maker. This freely acted upon collective action by customers has the dual virtue of removing a bad apple from the market as well as delivering a crushing blow to his or her reputation.
As for "value" Mr. Daniels seems to be genuinely confused here. Value in any genuinely free market is always subjective. The value of any service or product sold on any free market is a function of the consumers. The consumers determine the value of any product or service and will therefore determine its market price. Now I know liberal, leftist like Mr. Daniels have a real problem with this.
You see, liberal, leftist delude themselves into thinking that what they do, what they produce has intrinsic value and if you and I (us consumers) don't agree than the problem is with us. This is the impetus behind the fairness doctrine. Proponents of this kind of government intrusion into the radio market clearly recognize the consumer has voted "NO" to the dribble they want to spew from radio stations. This can be seen in the growth and popularity if conservative radio when compared to the paltry results and often outright failure of leftist or "progressive" radio.
Hence, this is why they demand public funding, yes, your taxes and mine, for public radio. You see, when the leftist fails in the free market, they seek the coercive force of the government to impose their wishes on everyone else.
What Mr. Daniels fails to comprehend is that whenever any two people engage in voluntarily exchange of money for services or goods, it is a win-win transaction. The person surrendering his or her money values the good or service more than the money he or she is relinquishing. The person relinquishing the good or service values the money more. Without this basic fact, there could never be any transaction and hence there could be no market, financial market or otherwise.
Mr. Daniels provides the lame example of someone withholding something that would save someone's life so as to put into high relief his grossly mistaken view of the market process. In a free market, if there truly is something out there than can genuinely save lives than this very fact will spur competition.
Competition by those who will strive to supply this item as efficiently and as cost effectively as possible. This competition will automatically result in a lowering of the price of this item to as to make it available to as many people as possible.
It is only when government steps in to regulate the making of this life saving item or when government intervenes in the normal market process by granting monopoly control to just a few providers of this item that we have the scenario Mr. Daniels paints for us.
It is government that stifles competition and makes the production of such life saving goods so expensive so as to place out of the reach of most people.
It is government that tells people, "sorry, you must wait months and months for the life saving good" or "sorry, you are too old to obtain medical treatment, just go home and die" as is often the case in many countries that have national, single payer health-care.
Mr. Daniels has confused the corrosive, indeed deadly, economic effects of government intervention into the market for the market itself--financial or otherwise.
This, of course, has the dual effect of generating antagonism and animosity towards the free market on the part of the general public who then demands even more government intervention thereby not only exacerbating the problem but also expanding the reach and span of government. This is precisely, by the way, the strategy being utilized by Obama and something which Mr. Daniels no doubt wholeheartedly supports.
Don't blame the market for this Mr. Daniels, please do some reading in economic history such as "Antitrust and Monopoly" by Dominick T. Armentano or "How Capitalism Saved America" by Thomas DiLorenzo. The scenario you paint comes from a result of government intervention not the free market.
Mr. Daniels woeful ignorance of basic economics is imminently displayed when he argues the "Natural Economy" (apparently a construct of his own making and which I understand to be nothing more than simply Nature) provides life support for free, is abundant, and lastly, values all life forms equally.
Mr. Daniels could not be more wrong and the only reason he can make such an absurd argument is because he is ideologically driven by false environmentalist propaganda as well as an unfounded hatred for the free market. This ailment is something which seems to infect so many on the left.
Mr. Daniels, what the Natural Economy provides in abundance to mankind is energy and matter. This energy in the form of natural resources needs to be transformed into goods we value and need both to simply survive as well as goods that make our physical existence comfortable.
For more on this please read
this magnificent piece by George Reisman. Here Mr. Daniels confuses the simple matter and energy supplied to us by the Natural Economy for the goods which only come about by the application of human effort and human intelligence. The goods we manufacture are a product of the human mind not the Natural Economy Mr. Daniels.
The Natural Economy also does not value all life equally nor does it support life for free. Fristly, animals Mr. Daniels have fur, fangs and senses among many naturally endowed gifts which we humans do not posses. We enter this Natural Economy naked in every sence of the word and it is only by the application of intelligence that allows us to survive, thrive and, happilly, occupy the top of the food chain.
Secondly, since we must exert effort and time in transforming our surroundings into something that will sustain us, we therefore incur a cost since any effort and time we expand on any given activity is effort and time we can not expand on something else.
Opportunity cost Mr. Daniels, hopefully you can recall your Econ 101. I doubt, however you even took the class since your understanding of economics is so abysmally erroneous.
The driving force in this transformation of the Natural Economy into the goods and services that we all need and depend on Mr. Daniels is the free market. No other form or human organization has ever been design which can accommodate this transformation process with greater efficiency and equity than free market capitalism. By insuring those who take on this transformation activity are able to enjoy profits, all the goods and services the human mind is capable of producing will be produced.
Corn growing, shipbuilding and the production of brass is exactly this transformation process and the motivating factor in all of these activities is the self-interested pursuit of profits Mr. Daniels that makes all of these wonderful things possible.
So these are the facts. Mr. Daniels is an economics ignoramus who has confused the natural order for the active, purpose driven, intelligence guided, self-interested motivated human action which underlies the principles of economics and finance.
He wrongfully imputes to the "Natural Economy" that which is more appropriately imputed to the human activity of transformation which has lifted us beyond the level of primitive savages where we lived in mud huts and wiped our rears with leaves and grass--the kind of life the most vociferous environmentalists want to impose on the rest of us.
Whatever reason you have for reading Mr. Daniels, read him for an understanding of economics and finance at your own risk.