Sunday, July 29, 2007

Moral not Technical

Most economic problems are moral problems, not technical ones.

Money is a good example. Many economists treat money as a technical problem that needs a technical solution. They believe that if a system is put in place to prevent the money supply from growing, or from growing to fast, then everything will be okay. Even those who advocate the gold standard can fall into this trap. They imply that choosing the right commodity is the basis for a sound money system.

Money is a moral issue. Problems arise when theft creeps into the money system. The only solution to the problem of money is to dig into system and find out where this theft is occurring. Theft can occur, regardless of the technical solution. With paper money, counterfeiters can print banknotes. With electronic money, hackers can change the digits on the bank’s computers. Even with the gold standard, people can clip gold coins or add cheaper metals to the gold.

Money is a medium of exchange. Holding money is a sign that a person has given up goods and services in exchange for money and has not completed the transaction by purchasing something to replace what they sold. If someone is holding money, but has not given up something in exchange for it, then a potential theft has occurred. As soon as the money is spent, theft occurs, because they have gained goods and services for which they have not entitlement. (I am ignoring charity, because in that case the person giving the money away will have given up goods or services in exchange for the money).

The key to solving the problem of money is to find out where in the system, a person or institution receives money, without giving goods and services in exchange for it. That is the point where the theft has entered the money system. Theft is a moral problem. It is also a crime. The solution is to identify those who are committing the crime and make them pay restitution.

In the modern money system, the theft is well hidden, but is still there. We just have to dig harder to find it.

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