Monday, August 5, 2013

The Emperor's Wallet

I'd be the first to admit it, I don't understand economics.  The numbers are too big for a start.  I can't get my head around a million, far less a billion . . . and can you grasp the concept of a trillion?
It's way beyond me.

But, as a total ignoramus, there's one thing I find particularly baffling:  when a government declares that it's borrowing vast sums of money every day, vast sums on which it's paying equally vast amounts of interest, who is it, or what is it, that's lending this money?

And does any money actually come into the equation, or is this all just a question of exchanging IOUs?

Presumably, pieces of paper (or emails, or text-messages) are exchanged, attesting to the loan of these large amounts on which, in theory, a heavy rate of interest has been agreed.   But, in effect, has anything actually taken place other than an exchange of promises?
Where is the money . . . what is money . . . ?

But let's move from national loans to personal loans, a level that even I can understand.  What of self-serving money lenders?  What of the people who remove your financial anxieties in the present only to give you, in exchange, a prolonged period of crippling debt.
What are they lending . . . ?  What are you owing . . . ?

Or what of the familiar High Street banks?  You may have a savings account, an account that promises a degree of security in times of need.  But, should you visit your local bank and ask to see your personal deposit, should you request that a container marked with your name and packed with notes and coins to the value of your savings be placed on the counter . . . will it be there?
Such is the invisibility of money that this is highly unlikely.

I'm reminded of the story of the Emperor's new clothes.  
Persuaded by an unscrupulous tailor that he has purchased and donned an eye-catching new outfit,  the Emperor proudly parades his nakedness for the benefit of his courtiers and bystanders.  Each of whom believes that he, and he alone, is the only one unable to see the splendid new attire.

Far better, they feel, to go with the tide of opinion, far better to admire the Emperor's invisible garments than to admit to impaired vision.

Are we being equally blind when it comes to money?  After all, what is it?  Be it paper or metal (or represented by a plastic card), it is totally valueless in its own right.  Someone else has to believe in its value for any value to exist.
Are we just feeding each other's delusions?

And the extraordinary and dangerous thing about money is that this nebulous, man-made creation now dominates the thinking of western society.  Where our distant forebears looked to the gods to protect them, we look to our bank balance.

True, money can be translated into goods and property, but even here the value only carries weight if others are willing to go along with the illusion.

I can't demand three pounds for a punnet of strawberries unless someone else is willing to accept the value I specify.
Even if they do, are three small pieces of grubby metal really equivalent in value to the delicious fruit itself?  That's a matter of opinion, not fact.

Surely then, money is a fiction agreed upon . . . and the moment someone declares that the Emperor has an empty wallet, the currency-driven economy of the western world could collapse.

Would that be so terrible . . . ?  Might not that very collapse lead us towards something better and wiser and more beneficial to all of humanity . . . ?

But, as I said at the start, I don't understand economics.  Better, perhaps, to keep all these fanciful notions to myself!