Saturday, February 10, 2007

GOODS AND SERVICES

A popular saying in economics goes something like this, “You can only trade for goods and services with goods and services.” So if you’re able to look pass the dollar signs, you’ll see that everything comes back to barter trading. But if it simply comes down to barter trading, then why do we need money at all?

If you make wheelbarrows for a living, it’s likely that you would only want to trade that product as a whole. If you only made wheelbarrows just to break it down to trade its parts, then you probably wouldn’t be in the business of making wheelbarrows to begin with. However, not everyone needs a wheelbarrow, and not everything you need is worth trading an entire wheelbarrow for. A loaf of bread for a wheelbarrow? Better start breaking that wheelbarrow down.

Wheelbarrows are not easy to break down, nor doing so would reward your hard work building it. Moreover, its parts are not of equal value. Meaning you’re not likely to get for its handles what you’ll get for its wheel or for its bolts or for its screws. The problem with the wheelbarrow, or any product for that matter, in the world of barter trading is that it’s not easily divisible into equal parts of equal value to trade for what you want and need.

There is a good that solves these problems: precious medals (silver and gold). Valued for their decorative purposes, one can also easily divide it into equal parts of equal value. A quarter of silver will always equal a quarter. These efficiencies, along with the fact that they’re very durable, make trading for gold and silver a near necessity.

The only downside to metal is that it’s heavy to carry around. Nonetheless, businesses formed to “serve” that problem. These businesses would secure your metal deposits and issue you redeemable notes. No need to mention that these businesses are called “banks” and the notes called “money”.

That’s our monetary system in a nutshell, and I hope that draws further discussion from others like MajaC, especially concerning the formation of the Federal Reserves and government monetary policy. But I like to draw some very significant conclusions from the fact that money facilitates trade, making “barter trading” more efficient.

Wealth is made. Wealth is not some pie in the sky where dog-eats-dog to get the biggest share. If you want more wealth, produce goods and services people want to trade their goods and services for.

Wealth is the property of those who produce it. Tax cuts are not giveaways; tax cuts are about letting people keep more of what they produce.

If you want to create more wealth, you let people keep more of what they produce (very low taxes) and get out of the way of their production (low regulation and bureaucracy).

The ASG, especially the Fono, likes to think they’re entitled to what we produce by virtue of whichever self-serving laws they pass. Raising their allowances by 100%, going on trips around the world and to Honolulu , and then proposing to increase Governor Togiola and Lt. Governor Sunia’s pay to $100,000 and $95,000 respectively. And what value in goods and services do we receive in return?

Nothing.

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