2.05.2009

My Alchemical Romance

I think I've understood something. Something essential about why conservatives and liberals can't agree on economics. It has to do with the question of where & how value is created.

Something clicked in my head last night as I was watching an episode of Terry Jones' 2004 series, Medieval Lives. In the episode about the alchemist, Jones made it clear that, for many of the alchemists, the effort to create gold by transmuting "base metals" was not driven by greed. The fact is, gold is essentially indestructible and does not degrade over time -- it is a physical manifestation of perfection, and that is what obsessed the medieval experimenters. I'll come back to this fact in a moment.

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A few years ago I slacked off at what I was really supposed to be doing to give myself a pretty rigorous amateur education in classical and modern economics. Much of what I learned convinced me that the reforms of 1913 that led to the creation of the Federal Reserve Bank (and the end of America's gold standard) were a bad move. Shifting to "fiat money" that was not backed up by an actual "good" was risky because it created a system of value that was held together by nothing but confidence.

But as I continued reading, and especially as I talked to other liberal arts graduate students (experts all), I became convinced that a gold standard was not a solution because it simply backed the risky confidence up one step: gold-standard doubters convinced me having confidence in gold was just as arbitrary as having confidence in dollars printed at the mint.

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But of course it's not, if Terry Jones is to be believed. There is a relatively-essential* reason for valuing gold. If you doubt all of this, check it out yourself (watch the first few minutes, especially from 3:15-4:45):


If the embedded video doesn't work, click here.

And here's what I finally understood about the division between liberals and conservatives: both groups don't understand why they believe what they believe (which makes it an especially rigid impasse), but this is what they believe:

Conservatives believe that value cannot be created out of nothing... they believe that value is something that arises in mutually agreeable transactions where both sides take a certain kind of "profit." For example, the person who has $5.00 and the person who has a fresh bottle of Acai Berry juice. At the moment of exchange, conservatives assume, both parties are satisfied because the person with the Acai Berry juice values $5.00 more than they value the bottle, and the person with $5.00 values Acai Berry juice more than he values $5.00. "Value" is created in the profits: probably 50 cents or so for the seller and a fully belly for the buyer.

Liberals believe that value can be created out of nothing, and this is why they have no attachment to the Gold Standard: if the Fed prints money, it's valuable... and that's that.

I would say neither group has a lockdown on "correctness." The truth is, confidence can be attached to arbitrary signs and "fiat" symbols. The truth also is, confidence naturally attaches to beauty, truth, and goodness, and gold seems to be a physical manifestation of all of Plato's ideal forms.

Does that make sense? Interesting, ey?

* Somebody should write a paper on this term. I may have just invented a word for an important concept.

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