August 21, 2007

Worthless Money

When I hear politicians and politicos defending statist ideas, I always find myself ranting about whether or not these people have ever in their lives opened a history book or a book on basic economics. If not, how do they presume to know anything about how these things work?

Diana has directed readers to an article by the Armstrongs that talks about the conservatives' vapid notion of "choice" and the ridiculous way they confuse choosing between types of tyranny with freedom.

The article quotes a conservative at one point and sends me up to my soapbox:

Food stamps give the poor something else -- buying power. It doesn't change the production or distribution of food.

It's rare to spot so obvious a contradiction in the wild. I'm tempted to sit here quietly lest it become frightened and scamper off into the underbrush of political doublespeak that too often passes for English.

Food stamps aren't redeemable for money.

You can't deposit your food stamps in the bank and accrue interest for your college fund.

Food stamps can't be used to buy a car or a house. They're really only good for buying food at discount rates.

Given all this, an influx of food stamps in the market will result in increased demand for what?

I'll give you a minute to think about it.

tick tock tick tock tick tock tick tock tick tock...

Times up.

Food stamps affect the market demand for FOOD. Surprise!

Further, food stamps are designed to increase the demand for food from the low income segment of the market, which is the same as saying it helps distribute the supply of food over more of the population.

But I thought he said it doesn't affect distribution. How can this be? How? We stayed up all night coming up with this plan! It just has to work!

Well, I will let you in on a little secret: without the "concrete" wealth of goods and services (accounting for the concrete value of whatever money is made of as well) money isn't worth anything. Money, you may be surprised to find out, is actually just the medium of exchange we use.

With money, you can effectively trade goods for goods, goods for services, services for goods, and even services for services.

But without goods and services, money isn't good for anything. (If I were one for going on tangents, I would segue here into a discussion of the ills of abandoning objective monetary valuation standards eg., the gold standard, and I would point to our current inflation as an example.) If there weren't any goods or services to exchange or if money weren't accepted in exchange for goods and services, you couldn't just walk up to someone with a pile of money and expect them to do anything for you. You couldn't even put your pile of money in a bank and draw interest on it.

Money without concrete wealth "behind" it isn't anything. You may, in the interest of mental short-hand, think of money as goods and services. In real world, if you hand someone a pile of money, you are effectively handing them a pile of goods and services. The beauty of money is that it isn't specific to any particular goods and services. The possession of money or some other proxy (food stamps) is the definition of buying power.

Food stamps are effectively money, but they carry with them a limitation: they can only be exchanged for food. Food stamps, therefore, may be considered to be food. Giving out food stamps is the redistribution of wealth in the form of food.

The problem with food stamps is just this: it's a redistribution of wealth. Conservatives generally like to rail against this hallmark of socialism, but they don't seem to be able to spot it when it's in front of them.

The effects of interfering with supply and demand are well-documented and never beneficial in any meaningful sense of the word. Smaller businesses are bankrupted or prevented from even starting. Prices are driven higher which makes it even harder for the low-income consumers to acquire more wealth and get to a point where welfare programs like food stamps aren't necessary. Larger businesses cannot afford to employ as many people as they might like. The list goes on and on.

And yet people never seem to learn.

Posted by Flibbertigibbet at August 21, 2007 01:39 PM | TrackBack
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