Friday, January 10, 2014

What is money - An extract from The Tyrants Handbook of Economics

It takes effort and time to produce something. Not everything that is produced is immediately consumed: houses, food etc.. Therefore it is saved - even if for only short periods although the latter are only cash-flow savings and only as a national aggregate do they amount to savings. But savings, properly so-called, from a few months but mostly from a few years to many years are what we are considering here. These are savings that could be called surplus labour; labour that has produced goods beyond what is immediately required for sustenance, be it personal or business sustenance.
Savings considered as Surplus Production

Savings are therefore surplus labour - of time and production above normal requirements. This can be in houses, cows, bottles of beer, biscuits etc. All these things can be exchanged. They are surplus only in the sense that they exist and are not going to be immediately consumed. Thus I may have to eat my last biscuit now or I may exchange it for a chocolate. While it still exists it is surplus. If it is eaten it ceases to be surplus and clearly cannot be exchanged and it is no longer a saving.

For the present money can, in its simplest form, be described as saved production, in this case Biscuits. (Yes the purist will argue that money can exist before it is saved, which of course it can, but that diverts us from what we are now considering - a simple consideration of what money is).

Savings


If I do not spend all I produce then what is left over is called savings - provided the government does not take it in which case it is called Tax. If I am living in a very primitive society I could keep these extra biscuits under my bed. In that way the tax gatherer will not know about them. In overtaxed societies the intelligent individual tries to find a home for his savings which is unknown to the tax authorities. In S Africa it is estimated that about 30% of savings have been moved out of the country for this reason.

What are savings?


Savings are labour/production that is stored up for use another day. Thus if I cannot produce any Biscuits tomorrow because I am ill, I can live off my savings of Biscuits. Savings are a way of keeping previous hard work for use at another time. Savings are therefore surplus earnings - never mind what the Marxists may call them.

They are surplus because they are not immediately required. But what is surplus? For most people enough is never enough! A great theologian, not widely know for his economic insight. observed that the ear is not satisfied with hearing nor the eye with seeing. They spend all they have - (The poor are notorious for doing this, as are governments and this is probably why governments always claim to have no money); In reality (something economists don't often think about) there is a basic standard of living to which people aspire and once they have achieved this they are able to save.

This varies from society to society and the actual standard is based on socio-psychological and cultural perceptions. A rich man in an Indian village would be considered poor by an American automobile mechanic. Basically, once the basic needs of eating, clothing and shelter have been met a person is able so save if he so chooses. In modern society, known as the Consumer Society, the basic needs are really no longer basic at all and there is an attitude of eat, drink and be merry for tomorrow we die - or inflation will overtake us. Savings in Western society could be substantially higher than they are.

A certain amount of savings is desirable and necessary for old age, illness etc. So we can confidently say that wealth lies in savings (provided they are profitably invested and not hoarded) and that savings are surplus to our immediate requirements. To produce a surplus we have to be able to work efficiently enough to produce more than we immediately require.

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