 |
PM |  | |
Quote | | |
Reply | | |
Full Topic | |
| Joined: | Mon Nov 21st, 2005 |
| Location: | California USA |
| Posts: | 6399 |
| Status: |
Offline
|
| Mana: |    |
In order to do that task I am going to fall back onto a chore that was worked out years ago during one of my one-sided discussions on a forum posted to the World at Large - on the net. That work has since been lost, never to be found again, and it was very instructive to me at the time for reasons that may or may not become clear again as I set about rebuilding the illustration.
The idea here, as it was then, is to imagine a remote society somewhere as that society begins to employ gold as money and by this effort the idea is to follow the money, its purpose, what it does, and for whom it does what it does in time and in place, as history writes itself.
The reader can play the part of the miner who discovers the gold, and the reader can then play the part of the farmer, the banker, the tool maker, and any other worker in the society at large as gold flows through it once Henry, the miner, discovers the gold and begins to mine it.
Suppose, if you can, if you will, that the society muddles along without gold as money by exchanging things for things or by some other means that doesn't matter much since the idea is to see the influence of gold as money as it flows through the first time it flows through the remote society.
The history of money as gold, a thought experiment, an illustration of base principles:
Henry mines the gold and Henry begins to use the gold to buy tools from the tool maker, so as to replenish the worn out tools that are worn out in the work of mining. Henry mines more gold than he needs to mine gold so Henry needs a place to store the excess gold. That place is the first gold bank, and it may be a box at the mouth of the gold mine.
The tool maker exchanges his tools for gold because that is all that the gold miner has in exchange for tools.
The tool maker can say: "Don't you have anything else you can give me in exchange for my tools? I need food, I need iron, I need wood or coal or something to fuel my furnace, and I need fuel for my transportation, what good is gold?"
The gold miner can respond: "The jewel maker needs gold, the watch maker needs gold, the electronics parts maker needs gold, gold is in demand, you can get what you need for the gold you have, the only thing left to do is to figure out how much you get for the gold you have to give."
The tool maker may be skeptical so the tool maker speculates on this supposed value of gold. The tool maker is conservative and so the tool maker demands the entire bank of gold for the tools he has for trade.
That is the first day on the path of following the money and on that day the rate of exchange is what it is, it is how ever many hours it took the tool maker to make the tools, how ever many costs were expended to make the tools, all that cost was then exchanged in exchange for how ever many costs were expended to fill the gold bank with gold. That was the first exchange rate, the first measure of gold as money in this illustration of the principle forces involved in gold as money.
In an effort to avoid ambiguity and to set some standardized beginning point of understanding, so as to measure any variation from that standard point of beginning, the estimate of relative cost during that first exchange of gold as gold was exchanged for tools we or only I can round off the exchange as one weeks worth of gold mining plus all the costs involved during that week in exchange for one weeks worth of tool making plus all the costs involved during that week of tool making.
Here there is an important thing to consider in that the tool maker and the miner will meet again, and both will have an intimate understanding concerning the relative value of the tools and the relative value of the gold, and they will have a history of the first exchange rate to compare to the new exchange rate.
The gold maker returns to the gold mine and works as hard as he did the week before and in that new week the tools he bought wear out again; however, just suppose, in that week the gold miner stumbled upon a much greater quality vein of gold and this time his gold bank overflowed with gold, the gold bank had to be made bigger to hold 10 times as much gold made in the previous week. Now the gold bank and the gold supply in this social community grow to a potential 10 times larger than it was a week ago. The gold miner, who is also the new banker, has the gold, and the gold miner has the need for tools, food, and other things.
Meanwhile the tool maker goes to the steel miner seeking steel, to the farmer seeking food, to the transportation fuel supplier seeking fuel, and in each case the tool maker uses up a portion of the gold to get what the tool maker needs by convincing each new customer of the value of gold as money. The tool maker, just suppose, even hired a tool maker and convinced him of the value of gold as money, to make tools for pay while the tool maker makes gold coins, to sell as money.
Now suppose that the week goes buy and the tool maker turned money maker returns to the gold miner seeking another exchange. The tool maker has no gold left, he spent all his gold, spent it on many things, and the tool maker turned money maker now has a gold coin business, a money supply business, with no current supply of the raw material. In a weeks time the tool maker's money business generated many exchanges for gold as money in exchange for a variety of things of various quantities, all of which amount to a new average exchange rate to compare to the first exchange rate at that first use of gold as money one week ago when one weeks supply of gold was traded for one weeks supply of gold mining tools.
The tool maker and the miner turned banker meet again. The bank made by the gold miner turned banker is full of the raw material; the money maker has no more raw materials for his money making business. The previous exchange rate was one week worth of tools for one week worth of gold.
What is the new exchange rate? Who has the most leverage? What will the two traders agree to do in the banking and the money making business?
Will the tool maker turned money maker let the gold miner turned banker know that gold is in very high demand in town due to the tool makers efforts to turn gold into money, to a point where one weeks worth of effort and cost by the miner has paid for food for the tool maker, labor for making tools for the tool maker, fuel for transportation for the tool maker, tools for turning gold into coins, labor for turning gold into coins, and an insurance policy in the form of a few big guys to accompany the tool maker to the weekly exchange of gold for tools at the tool mine; and much more?
Suppose that the miner doesn't need honesty from the tool maker and suppose that the miner figured out through back channels of accurate communications that the demand for gold is much more than the old rate of exchange one week ago.
One week ago the old rate of mining profit was one week of mining effort and cost spent producing 10 times less than the new rate of profit in the gold mining business where now the rate of profit is 10 times more for the same cost of mining due to a much easier to mine source of gold, a much richer vein of gold in the mine.
The old rate of exchange was a poor trade for the miner turned banker, obviously, and now the miner turned banker is even richer.
The miner is now in a much more powerful position to leverage the tool maker during the new trade, which is one week after the first trade, when gold was first used as money. The gold miner turned banker, with a large and full bank of new gold, can see how much richer the tool maker is, as the tool maker turned money maker drives up in three new black SUVs, the money maker and his employees get out of their SUVs, gold watches, gold rings, bling shining, and everyone is decked out in new suits. The gold miner turned banker has more than a clue as to the new value of gold - as money - out with the old rate of exchange, in with the new rate of exchange.
The tool maker turned money maker is now set to make a deal with the gold miner turned banker, the second deal in gold as money history between banker and money maker. Both traders are fully informed as to the relative value of gold, or so they think, at that point in time, on that place, at the gold mine turned bank, where the supply of gold as money is now 10 times more than it was one week ago.
Gold miner turned banker: "I ran out of gold in my mine, unfortunately." (A lie of course)
Tool maker turned money maker: "Not to worry, I have a plan."
Gold miner turned banker: "Do tell."
Tool maker turned money maker: "Your last profit from the gold mine produced enough new money to set the society on its ear; you should see all the activity going on in town. My plan is to begin accumulating the gold back into a bank by trading less valuable stuff for the gold until most of the gold is back in my control. Then I will loan out the gold with a cost charged to the borrower based upon the demand for the gold, and this plan will work as you can see there is a great demand for gold as money. I will call the charge for gold, based upon the demand for gold, as INTEREST."
Gold miner turned banker: "That is a very interesting plan, where do I fit in?"
Tool maker turned money maker: "I'll give you a piece of the action if you make sure that you don't mine any more gold. My employees and I will make sure that no one else makes any more gold."
Gold miner turned banker: "You will pay me not to mine gold?"
Tool maker turned money maker: "Precisely."
Now, to the reader, my effort here didn't turn out the way it did the first time I went through the process, and my reasoning for not following the same path as before is a function of the way my brain works, I think freely. I have learned to access creativity despite my having experienced the indoctrination routines of public schools, in part because a few of my teachers were willing and able to impart to me the desire for a creative mind.
If the above diatribe is insufficient to spark an interest in following the money, which leads right to the worst legal criminals ever to disgrace the history of human kind, then I can try harder to light that spark in the future, some feedback is demanded.