Monday, October 25, 2010

Let's trade crap!

You know what sucks? Advancements in technology. Paper money is totally evil, and we should probably do away with it because, as far as I'm aware, there was no such thing as evil before currency reared its ugly head right around 2000 BC.

Luckily for me, some folks in Durham, NC (shoutout!) are throwing a helpful event where I can just bring my junk, drop it off, and pick up someone else's junk. What a relief, as I usually have to rely on the dump for that sort of service.

Is "Free Market" a play on the fact that they're all hippies?

Sadly, I expect the organizers will just end up with a bunch of trash at the end of the day. (Helen, if you're reading this, I'm sorry I stole it off your Tumblr and am now totally ripping on it.)

In truth, it does sound like a fun enough event. Going back to a barter economy is something like participating in a Renaissance fair without dressing up like an idiot; you get to spend some time really understanding why we don't live that way anymore.

In fact, if I've got my economic history right, marketplaces like this - but with less worthless crap - were the way modern banks were sort of born in Venice. (Aside from pretty much all of China, Venice was the evolutionary capital of financial systems around the 14th century.) Instead of lugging around their giant sacks of gold and whatsuch, uber-rich Venicians would make a stop by the bench (in Old Italian, banca - hence "bank") where exchange counters hung out, drop off their gold for a deposit slip, and pay sellers with what was essentially a check on their account. Awesome, no?

In any case, people found it much easier to carry little slips of paper instead of, say, a bunch of goats or something. Funny how that idea caught on.

Wednesday, October 20, 2010

Planet Money is totally reading my blog...

Actually, that's probably not true. But they did have a quick discussion about the nature of the value of gold (see recent post, What's money worth?).

From The Friday Podcast: Gold!

"The guy who sells it to us says he doesn't know why it's worth anything at all. And a fund manager with millions of dollars invested in gold told tells us it's a mistake to try to make sense of it."

Sunday, October 17, 2010

What's money worth?

Last week I listened to an interesting podcast from NPR's Planet Money in which four economists from Brazil saved the country from a horrible inflation problem. It was pretty fantastic, and I definitely recommend giving it a listen.

As you may already be aware, inflation is an increase in prices not because products get better, but because currency isn't worth as much anymore. It's common, but it can be terrible in big doses. Hyperinflation means the value of your money starts to drop off, making you poorer even if you still have the same amount stashed under your mattress.

Bad inflation can happen (and did in the case of Brazil and post-WWI Germany) when governments print too much money to pay off their debts. Essentially, since there's more money out there, it's worth less than it was before. So prices go up, and you're stuck with what's in your wallet.

In Brazil's case, prices were going up like crazy: 80 percent inflation per month. To cite PM's example, a $1 carton of eggs would cost about 2 bucks next month, and after a year, they'd be $1000. Check out the story for other interesting tidbits, but here's the spoiler: they fixed the currency by replacing it.

The interesting part is that it was all a trick; they replaced the old currency with a new one, and the pure fact that people were more confident in their currency meant it was worth more.

Enter crazies to inform us that it's for this specific reason that we need to be back on the gold standard, that our money is worthless, that it only has value because we say it has value. In the old days, you could actually trade your dollar bills in for gold and silver from the US Mint. But no longer. Well, joke's on you, crazies: gold is only worth what someone will give you for it. So is silver. So are diamonds. So is shiny, compacted moon dust. And so are dollar bills.

(Note: some non-crazies have debatably less empty arguments for why we should be on the gold standard, such as limiting the Fed's ability to manipulate interest rates. But we can get into that another time.)