From Beatnik to Business Major:
Taking Econ 101 for Kicks
After two years of wandering around in different economic locales, trying to look at various societies from an economic point of view, and generally poking my nose into other people’s business, I thought I should make another attempt to answer the question, “What am I talking about?” I went back to the books about economic theory and the college econ texts, and even Samuelson’s dreadful Economics. And this time I was … still bored, I’m afraid. And I was still overwhelmed. But the tedium had become more interesting, if that makes sense. And my incomprehension was better informed.
Reading about economics after watching a lot of economic activity is like reading the assembly instructions after the Christmas toy has been put together. Certain significant patterns begin to take shape in the mind—even though the instructions are still gobbledygook and the toy doesn’t work.
I make no claim to understand economics. But I have begun to understand how economics is understood. This is how economics is understood after two semesters at most colleges:
I. There are a lot of graphs.
II. I’d better memorize them.
III. Or get last year’s test.
And this is how economics is understood after three drinks at most bars:
I. There are only so many things in the world, and somebody is taking my share.
II. All payment for work is underpayment.
III. All business is crime.
A. Retailers are thieves.
B. Wholesalers are pimps.
C. Manufacturers are slave drivers.
IV. All wealth is the result of criminal conspiracy among:
A. Jews.
B. The Chinese.
C. Pirates in neckties on Wall Street.
And here is how economics is understood by followers of John Maynard Keynes:
THE KEYNESIAN EQUATION—SHOWING THE RELATIONSHIP BETWEEN AUTONOMOUS EXPENDITURES AND THE EQUILIBRIUM LEVEL OF INCOME
Where equilibrium level of income (Y) equals aggregate autonomous expenditures [Consumption (C) plus Investment (I) plus Government Expenditure (G) plus the total of Exports (X) minus Imports (M)] times 1 divided by the marginal propensity to save (mps) where mps equals 1 minus the marginal propensity to consume (mpc). Thus:
It’s hard to imagine applying the above formula to any ordinary economic question, e.g., should I put my bonus in a certificate of deposit or buy new stereo speakers?
When we look at economics in general terms, all of us feel as though we’re confronting an enormous piece of machinery that we can’t comprehend and don’t know how to operate. In fact, we feel like we’re being run through that machinery. We are wheat, rice, and corn being delivered to the Nabisco factory, and we’re going to come out the other end definitely toasted, possibly shredded, and, maybe, we hope, coated with sugar.
Yet, although this is how we feel, this is not how we behave. When we engage in any specific economic activity—when we buy, sell, mooch, or work—each of us acts as if he knows what he’s doing. Even Fidel Castro does. In July 1997, Forbes magazine estimated Castro’s net worth to be $1.4 billion.
So we do understand economics. We just think we don’t. And sometimes, unfortunately, we’re right.
Economists claim to study production, distribution, and consumption. But production requires actual skills and so can’t be taught by economics professors, because they’d have to know how to do something. And consumption is a very private matter. Consider the consumption of toilet paper, condoms, frozen pizza-for-one eaten straight out of the microwave in the middle of the night, and cigarettes in the carport when your spouse thinks you’ve stopped smoking. Therefore, economics tends to concentrate on distribution.
When economists say “distribution,” however, they mean the distribution of everything, not just the distribution of such finished products as the pizzas and the microwave ovens to thaw them. There is also the distribution of raw materials—the seeds and fertilizer needed to grow the pizza toppings and the petrochemicals necessary to make the wood-grain plastic laminates decorating the ovens. Then there’s the distribution of labor—the effort required to freeze the pizza and round up all the microwaves. And the distribution of capital—the money required to buy plastic laminates and market pizzas that taste like them. There’s distribution of ideas, too. (Whose idea was it to put pineapple chunks on a pizza?) And there’s even distribution of space and time, which is what grocery and appliance stores really sell us. They gather the things we want in a place we can get to on a day we can get there and, voilà, a fattening midnight snack.
All these things that get distributed are called “economic goods.” To an economist, anything is an economic good if it can be defined by the concept of “scarcity.” And the economist’s definition of scarcity is so broad that practically everything can be called scarce. Air is an economic good. If air gets polluted, we have to pay for catalytic converters and unleaded gasoline to make it breathable again. Even if the air is free, we have limited lung capacity. The more so if we’ve been out in the carport huffing Camels. Air is an economic good for each of our bodies, and we hope that body is using the air economically—getting lots of O2 into the bloodstream, or whatever, and not just making farts with it.
From an economist’s point of view, everything is scarce except desires. Random sexual fantasies are not economic goods. But if we try to act on them, they rapidly become economic (or highly uneconomic, as the case may be). Goods are limited; wants are unlimited. This observation leads economists to say that the fundamental purpose of economics is finding the best way to make finite goods meet infinite wants (though it never seems to work with random sexual fantasies).
While trying to make finite goods meet infinite wants, economists spend a lot of time mulling over something they call “efficiency.” Economists explain efficiency as being the situation where an economy cannot produce more of one good without producing less of another good. If you have two jobs, you’ve probably reached labor efficiency. You can’t put in more overtime on job A without putting in less overtime on job B or the child-welfare authorities will come to your house. You’re efficient, although neither of your bosses may think so.
The example of efficiency that economists usually give is guns and butter. A society can produce both guns and butter, they say, but if the society wants to produce more guns, it will have to—because of allocation of resources, capital, and labor—produce less butter. Using this example you’ll notice that at the far reaches of gun-producing efficiency, howitzers are being manufactured by cows. And this is just one of the reasons we can’t take economists too seriously.
In fact, efficiency is a condition that’s never been achieved, as you’ve seen from watching your job A and job B coworkers. Economists don’t really know much about efficiency, and neither does anyone else. Doubtless the citizens of eighteenth-century England thought they were producing as many lumps of coal and wads of knitting as they possibly could. One more coal miner would mean one less stocking knitter. Then, James Watt invents the steam engine. Pretty soon, coal carts are hauling themselves, and knitting mills are clicking away automatically, and everybody has more socks and more fires to put wet, smelly stocking feet up in front of. Efficiency is constantly changing, and economists can’t keep up with this because they have to grade papers and figure out what Y equals.
One thing that economists do know is that the study of economics is divided into two fields, “microeconomics” and “macroeconomics.” Micro is the study of individual economic behavior, and macro is the study of how economies behave as a whole. That is, microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things economists are wrong about generally. Or to be more technical, microeconomics is about money you don’t have, and macroeconomics is about money the government is out of. These two concerns seem hopelessly meshed in real life, and therefore I’ve tangled them together in this book.
Economists also make a distinction—for no good reason I can figure—between “inputs” and “outputs.” Inputs are the jobs, resources, and money we use in order to make the outputs we want, such as money, resources, and jobs. All outputs, even shit, heartbreak, and enormous illegal profits, turn out to be inputs: manure, movie plots, and capital investment in video-poker machines in Tirana.
Two additional unimportant economic terms are “supply” and “demand.” Scarcity has already explained these. There’s lots of demand and not much supply.
Economists measure supply and demand with curves on graphs. When the supply curve goes up, the demand curve goes down. But how true is this? Do I get less hungry because I know I have a freezer full of pizza? My experience with the microwave at 2 a.m. argues otherwise. And can we really know how much people want something? The kid “really, really, really” wants a snowboard. Does he really want it? Or after three times falling on his butt at Mount Barntop, is he going to leave the thing propped in the carport for the next twenty years? As for the supply curve, the concept of efficiency shows us that we don’t know how many snowboards can be produced, or how cheaply, and if we wait until next winter, they may be giving them out free with Burrito Supremes.
So far, from an examination of the basic principles of economics, we’ve learned that things are scarce. We knew that. Fortunately the less-basic principles of economics are more interesting.
HOW TO READ A GRAPH
Where: pu = number of pages of econ text devoted to graphic analysis and du’h = number of econ students asleep in lecture hall
Ten Less-Basic Principles of Economics
1. The Market Is Never Wrong.
A thing is worth what people will give for it, and it isn’t worth anything else. If you have some shares of Apple Computer and you go into the NASDAQ market offering those shares for $1,000 apiece, you may be brilliant. Apple stock may be worth $1,000, easy. And all the NASDAQ customers may be idiots for buying Apple at a mere thirty dollars. A Macintosh is a much better computer than an IBM PC. But, smart as you are and dumb as everybody else is, the market says your shares didn’t sell. And the market is right.
Also, a thing may be “priceless.” You’d rather die than trade your Macintosh for an IBM. But that’s still a price, albeit a very high one.
2. So You Die. Things Still Cost What They Cost.
It’s no use trying to fix prices. To do so, you must have a product that can’t be replaced, and you must have complete agreement among all the people who control that product. They’re greedy or they wouldn’t have gotten into the agreement, and they’re greedy so they sneak out of it. This is what was wrong with Paul Samuelson’s idea about crop restrictions, and this is why the members of OPEC are still wandering around in their bathrobes, pestering camels.
Any good drug dealer can tell you that to ensure a monopoly, you need force. To ensure a large monopoly, you need the kind of force only a government usually has. And it still doesn’t work.
The government of Cuba, with force aplenty at its disposal, decided that beef cost too much. The price of beef was fixed at a very low level, and all the beef disappeared from the government ration stores. The people of Cuba had to hassle tourists to get dollars to buy beef on the black market, where the price of beef turned out to be what beef costs.
When the price of something is fixed below market level, that something disappears from the legal market. And when the price of something is fixed above market level, the opposite occurs. Say the customers at suburban Wheat Depot won’t pay enough for wheat. The U.S. government may decide to buy that wheat at higher prices. Suddenly there’s wheat everywhere. It turns out that people have bushels of it in the attic. The government is up to its dull, gaping mouth in wheat. The wheat has to be given away. The recipients of free wheat in the Inner City Wheatfare Program hawk the wheat at traffic lights, and what they get for it is exactly what people are willing to give.
3. You Can’t Get Something for Nothing.
Everybody remembers this except politicians. Lately, it has been the fashion for American politicians to promise that government revenue—taxes—can be cut while government benefits—expenditures—remain intact. Benefits might even get larger. This will be done through efficiency, as if politicians are all going to invent the steam engine. Though, to the extent that steam is hot air, predictable jokes are invited.
Politicians have trouble giving up the idea of something for nothing; it’s such a vote catcher. A government can give most people something for nothing by taxing the few people with money. There are never enough of those people. And the people with money are the people with accountants, tax lawyers, and bank accounts in Luxembourg, so they end up not paying their taxes. Or, even if they do pay their taxes, the people with money are also the people who know how to manipulate the system. Therefore, instead of the situation that Samuelson posited in Economics where “modern democracies take loaves from the wealthy and pass them out to the poor,” we get a situation where loaves are taken from the wealthy and tickets to subsidized opera performances at the Kennedy Center are passed out to the rich.
A government can give all people something for nothing by simply printing more money. This doesn’t work, because it makes all the money worth less, as it did in Weimar Germany, Carter America, and Yeltsin Russia. Inflation is a tax on the prudent, who watch the value of their conservative bank account and savings bond investments disappear. It’s a subsidy for the Wall Street scam artists who can borrow money for harebrained speculatory schemes and pay it back later with money that no longer has any value. And it’s a punishment to the old and the poor, who live on fixed incomes and who can’t expect to get a big cost-of-living adjustment retrieving soda cans from trash baskets.
Finally, a government can give us something for nothing by running a deficit, by borrowing money from everybody and then giving everybody his money back, plus interest. This is obviously stupid and exactly what we’ve been doing for decades in the United States. Deficits are less immediately painful than high inflation or huge taxes, although eventually they lead to one or the other, or both. In the meantime, we’re not getting anywhere. If all our investment money is tied up in loans to the government, that money is going to be spent on government things, such as financing the Inner City Wheatfare Program. Our investment money can’t be spent on research and development to create a genetically engineered wheat-eating squid to turn that worthless wheat into valuable calamari.
If you use your resources to obtain a thing, you can’t use those same resources to obtain something else. That’s called fraud (or having a credit card). In economics it’s called “opportunity cost.” When you employ your money, brains, and time in one way, it costs you the opportunity to employ them in another. Opportunity costs fool people because they’re unseen. When we observe money being spent, we’re impressed. We gasp with awe at the huge new Federal Wheat Council headquarters in Washington, D.C. We don’t admire the vast schools of squid feeding in our nation’s wheat fields—because they aren’t there. The main cost of government expenditure is not taxes, inflation, or interest on the national debt. The main cost is opportunity.
5. Break It and You Bought It.
Being fooled by hidden costs is the source of a lot of economic confusion. War is often spoken of as an economic stimulant. World War II “pulled America out of the Depression.” Germany and Japan experienced “economic miracles” after the war. Somebody is not counting the cost of getting killed and wounded. Besides, if destruction were the key to greater economic productivity, every investor on Wall Street would be learning Albanian.
6. Good Is Not as Good as Better.
Almost as bad as costs that go unnoticed are benefits that get too much attention. It’s great if everybody has a job. Computers are taking jobs away. We could guarantee full employment if we removed computers—and electricity, too—from the communication industry and hired people to run all over town and fly around the world, telling our friends and business associates what we want to say.
When James Watt invented that steam engine, thousands of ten-year-old boys who had been hauling coal carts were put out of work. However, this left them free to do other things, such as live to be eleven.
7. The Past Is Past.
Another thing that gets too much attention is money that’s already been spent. In economics this is called “sunk costs.” It doesn’t matter that you blew everything you made selling Apple at $1,000 a share on a scheme to genetically engineer squid. What matters is whether you can make any money off those squid now or convince people that the squid will make money in the future, so that those people will buy the fool company. This is called “marginal thinking,” and on Wall Street it means almost the exact opposite of what we usually mean when we call someone a marginal thinker.
8. Build It and They Will Come.
Ralph Waldo Emerson was referring to better mousetraps, and the idea that the world would beat a path to your door for one tells us something about housing conditions in the nineteenth century. The underlying notion is stated formally in economics as Say’s Law (after French economist Jean Baptiste Say, 1767–1832): “Supply creates its own demand.” More is better. Any increase in productivity in a society causes that society to get enough richer to buy the things that are produced.
This works even in an economy as screwed up as Cuba’s. The Cuban authorities allowed limited free-market sales of food, and this increased food production. Despite the extreme poverty of Cubans, that food did not sit around unsold.
9. Everybody Gets Paid.
People want to get something for what they do, although what they want to get may not be money—it may be sex or salvation or an opportunity to apply Marxist theory to rock and roll. Everything is a business.
This is the “public choice” theory of economics. One of its founders, James M. Buchanan, won the 1986 Nobel Prize in economics for his work on understanding politics as an economic activity. Politicians don’t measure profits in cash. The gain that they want is an increase in power. Thus the socialists of Cuba are just as greedy as the pirates of Albania.
In order to increase their “power income,” politicians have to pass more legislation, expand bureaucracies, and broaden the scope of government power. A politician who claims he’s going to cut the size of government is saying he’s going to creep up on himself and steal his own wallet.
10. Everybody’s an Expert.
Of all the principles of economics, the one that’s most important to making us richer (or more powerful or whatever) is specialization, or as Adam Smith, who discovered the principle, called it, “division of labor.”
Milton Friedman uses a pencil as an example. A pencil is a simple object, but there’s not a single person in the world who can make one. That person would need to be a miner to get the graphite, a chemical engineer to turn graphite into pencil lead, a lumberjack to cut the cedar trees, and a carpenter to shape the pencil casing. He’d need to know how to make yellow paint, how to spray it on, and how to make a paint sprayer. He’d have to go back to the mines to get the ore to make the metal for the thingy that holds the eraser, then build a smelter, a rolling plant, and a machine-tool factory to produce equipment to crimp the thingy in place. And, for the eraser itself, he’d have to grow a rubber tree in his backyard. All this would take a lot of money. Yet a pencil sells for nine cents.
The implications of division of labor are surprising, but only if we don’t think about them. If we do think about them, they are, like most economic principles, a matter of common sense. There are, however, a few things about economics that don’t seem to make sense at all. Todd G. Buchholz, in his book New Ideas from Dead Economists, says, “An insolent natural scientist once asked a famous economist to name one economic rule that isn’t either obvious or unimportant.” The reply was “Ricardo’s Law of Comparative Advantage.”
The English economist David Ricardo (1772–1823) postulated this: If you can do X better than you can do Z, and there’s a second person who can do Z better than he can do X, but can also do both X and Z better than you can, then an economy should not encourage that second person to do both things. You and he (and society as a whole) will profit more if you each do what you do best.
Let us decide, for the sake of an example, that one legal thriller is equal to one pop song as a Benefit to Society. (One thriller or one song = 1 unit of BS.) John Grisham is a better writer than Courtney Love. John Grisham is also (assuming he plays the comb and wax paper or something) a better musician than Courtney Love. Say John Grisham is 100 times the writer Courtney Love is, and say he’s 10 times the musician. Then say that John Grisham can either write 100 legal thrillers in a year (I’ll bet he can) or compose 50 songs. This would mean that Courtney Love could write either 1 thriller or compose 5 songs in the same period.
If John Grisham spends 50 percent of his time scribbling predictable plots and 50 percent of his time blowing into a kazoo, the result will be 50 thrillers and 25 songs for a total of 75 BS units. If Courtney Love spends 50 percent of her time annoying a word processor and 50 percent of her time making noise in a recording studio, the result will be 1 half-completed thriller and 2.5 songs for a total of 3 BS. The grand total Benefit to Society will be 78 units.
If John Grisham spends 100 percent of his time inventing dumb adventures for two-dimensional characters and Courtney Love spends 100 percent of her time calling cats, the result will be 100 thrillers and 5 songs for a total Benefit to Society of 105 BS.
(Just to make things more confusing, note that Courtney Love loses 40 percent of her productivity by splitting her time between art and music, while John Grisham loses only 25 percent of his productivity. She has the “comparative advantage” in making music because her opportunity costs will be higher if she doesn’t stick to what she does best.)
David Ricardo applied the Law of Comparative Advantage to questions of foreign trade. The Japanese make better CD players than we do, and they may be able to make better pop music, but we both profit by buying our CDs from Sony and letting Courtney Love tour Japan. And if she stays there, America has a definite advantage.
Comparative advantage is a rare example of the counterintuitive in economics. It’s also unusual because it requires a little arithmetic to understand. We think of economics as strangled in math because of the formulas and graphs filling most economics textbooks. But you can (and I did) search the entire founding volume on economics, Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, without encountering a mathematical formula. In New Ideas, Buchholz quotes Alfred Marshall, the preeminent economist of the late nineteenth century (and a mathematician).
1. Use mathematics as a shorthand language, rather than as an engine of inquiry.
2. Keep to them until you have done.
3. Translate into English.
4. Then illustrate by examples that are important in real life.
5. Burn the mathematics.
We don’t need to know math to understand economics, because economics isn’t about abstract principles, it’s about microwave ovens, cow howitzers, steam engines, wet knitting, snowboards, mousetraps, and Courtney Love on permanent tour in Japan. And this brings us to one more economic exception to common sense and a thing that requires all sorts of mathematics from us every day: money.
Why is this soiled, crumpled, overdecorated piece of paper bearing a picture of a rather second-rate president worth fifty dollars, while this clean, soft, white, and cleverly folded piece of paper is worth so little that I just wiped my nose on it? And what exactly is a “dollar”? If it’s a thing that I want, why do I prefer to have fifty grimy old dollars instead of one nice new one? This isn’t true of other things—puppies, for instance.
But money is not a puppy; it’s not a specific thing. Money is a symbol of things in general, a symbol of how much you want things, and a symbol of how many things you’re going to get. Money is a mathematical shorthand for value (and per Alfred Marshall, we seem to burn the stuff).
But what is value? The brief answer is “complicated.” Value varies according to time, place, circumstance, and whether the puppy ruined the rug. Plus, there are some things upon which it is difficult to place a value. This is why we don’t use money to measure all of our exchanges. Kids get food, clothing, and shelter from parents, and in return, parents get … kids. Important emotional, philosophical, and legal distinctions are made between sex and paying for sex, even if the socially approved sex costs dinner and a movie.
We need economic goods all the time, but we don’t always need money for them, and it’s a good thing, since for most of human existence, there wasn’t any. Money didn’t exist, or, rather, everything that existed was money. If I sold you a cow for six goats, you were charging it on your Goat Card.
Anything that’s used to measure value, if it has value itself, is “commodity money.” Societies that didn’t have fifty-dollar bills picked one or two commodities as proto-simoleons. The Aztecs used cocoa beans for money, North Africans used salt (hence “salary”), medieval Norwegians used butter and dried cod, and their ATM machines were a mess.
Some commodities are better as money than others. Movie stars would make bad money. Carrying a couple around would be a bother, and you’d have to hack a leg off to make change. Precious metals, however, make good money and have been used that way for more than five thousand years.
Metal commodity money is portioned out by weight. A coin is just a hunk of metal stamped to indicate its heft. From weighing money to making coins is a simple step, but a couple thousand years passed before the step was taken. Nobody trusted anybody else to do the stamping.
When coins were invented, the distrust proved to be well founded. The first Western coins were minted by the kingdom of Lydia, in what is now Turkey, and were made of a gold-silver alloy called electrum. It’s hard for anyone but a chemist (and there weren’t any) to tell how much gold is in a piece of electrum versus how much silver. The king of Lydia, Croesus, became proverbial for his wealth.
In China, the weight of bronze “cash” was supposed to be guaranteed by death penalties. A lot of people must have gone to the electric (if they’d had electricity) chair. A horse cost 4,500 “1-cash” coins during the Han dynasty (206 BC to AD 220) and 25,000 cash during the Tang dynasty (AD 618–907).
Kings, emperors, and even lowly congressional representatives have expenses. It is to a government’s advantage to pay for those expenses with funny money. One reason that money violates common sense is that governments commonly do crazy things with it.
Another reason that money violates common sense is that we don’t have to use real commodities as money. We can use pieces of paper promising to deliver those real commodities. This is “fiduciary money,” from the Latin word fiducia, trust.
In Europe, paper money was developed privately, in the thirteenth century, from bills of exchange traded among Italian merchants and from receipts given by goldsmiths to whom hard money had been entrusted for safekeeping. We still use such private money when we cash a traveler’s check.
Public fiduciary money was first printed in Sweden. Swedish commodity money came in the form of copper plates. Thus, in Sweden, a large fortune was a large fortune. In 1656 the Stockholm Banco began issuing more convenient paper notes. The bank issued too many notes, and the Swedish government went broke.
In 1716, Scotsman John Law helped the French government establish the Banque Royale, issuing notes backed by the value of France’s land holdings west of the Mississippi. Banque Royale issued too many notes, and the French government went broke. But the most extensive Western experiment with paper money took place right here. In 1775 the Second Continental Congress not only created paper money but passed a law against refusing to accept it. The Continental Congress issued too many notes and … A subtle pattern begins to emerge.
All fiduciary money is backed by a commodity, even if the backers are lying about the amount of that commodity. Historically the commodity most often chosen has been gold. By the nineteenth century, the major currencies of the world were based on gold, led by the most major currency, the British pound. This was a period of monetary stability and, not coincidentally, economic growth. There are people who think we should go back on the gold standard, and not all of them have skinny sideburns, large belt buckles, and live on armed compounds in Idaho. Money ought to be worth something, and gold seems as good as whatever.
But there’s that endlessly perplexing relationship between money and value. The high value of gold is a social convention, a habit left over from the days when all bright, unblemished things (people included) were rare. Gold may go out of fashion. A generation may come along that, to the surprise of its parents, regards gold as gross or immoral, the way current twenty-year-olds regard milk-fed veal. And gold is a product. Different ways to get huge new amounts of it may be discovered. This happened to the Spanish. When they conquered the New World, they obtained tons of gold, melted it down, and sent it to the mint. It never occurred to them that they were just creating more money, not more things to spend it on. Between 1500 and 1600, prices in Spain went up 400 percent.
Presented with the enormous wealth of America’s oceans, fields, and forests, Spain took the gold. It was as if someone robbed a bank and stole nothing but deposit slips.
Gold is an irrational basis for currency, but the real problem with fiduciary money—from a government standpoint—is that it’s inconvenient. A currency that can be converted into a commodity limits the amount of currency that can be printed. A government has to have at least some of the commodity or the world makes a laughingstock out of its banknotes—“Not worth a Continental.”
So if a government can lie about the amount of a commodity that is backing its currency—as the Stockholm Banco, Banque Royale, and Continental Congress did—why can’t a government lie about everything? Instead of passing a law saying one dollar equals X amount of gold, why not pass a law saying one dollar equals one dollar? This is “fiat money” (from the Latin for being forced to drive a cheap, unreliable car), and it’s almost the only kind of national currency left in the world.
Fiat money is backed by nothing but faith that a government won’t keep printing money until we’re using it in place of something more important, such as Kleenex. Concerning this faith, the experiences of Weimar Germany, Carter America, and Yeltsin Russia make agnostics of us all. The only thing that protects us from completely worthless money is our ability to buy and sell. We can move our stock of wealth from the imaginary value of dollars to the fictitious value of yen to the mythical value of stock shares to the illusory value of real estate, and so forth. Our freedom to not use a particular kind of money keeps the issuers of that money—honest wouldn’t be the word—moderate in their dishonesty.
I subjected myself to a large dose of economic theory because I’d finally realized that money was as important as love or death. I thought I would learn all about money. But money turns out to be strange, insubstantial, and practically impossible to define. Then I began to understand that economic theory was really about value. But value is something that’s personal and relative, and changes all the time. Money can’t be valued. And value can’t be priced. I should never have worried that I didn’t know what I was talking about. Economics is an entire scientific discipline devoted to not knowing what you’re talking about.
Trying to observe economic practice showed me that I needed to learn some economic principles, and trying to examine economic principles showed me that I’d better look at the practice again.