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On Finance: Building an Economy Chapter 1 & 2 Review
It looks like our village economy will be changing a bit with this new idea of John’s. There are a number of things we can learn from just the little bit we know of the village.
It is interesting to note that the dollars in the village didn’t mean anything to anyone — until everyone agreed that it would REPRESENT something. In this case everyone agreed it represented (was worth) an hour of work.
As they go forward they’ll find that dollars are an easy way to represent a value of the work done so that folks didn’t need to barter directly with people who have what they want. The builder could take a dollar he earned from a transportation company and use it to buy access from the communications company who can it to pay for transportation — all without all the juggling who did what for who.
Even in our huge country, with such a complex economy, money really just represents either the ability to pay for other people’s work or the earning from our own work. In fact, the easiest way to measure the economy is to see how many hours people work for various standard things such as rent, a car, or food. One of the leading economic indicator of purchasing power is the “Big Mac Index” — that is long someone has to work to purchase a Big Mac.
So, a dollar is worth what the folks involved agree that it is worth. The only reason it has value is because we believe it does.
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Posted by Paul Gernhardt on Wednesday, October 29, 2008