General Badassery Episode 28

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Okay, so let's talk about economics some more.

And there was much rejoicing. (Yayyyy)

Specificallly, how money is intellectual property.

Now, as mentioned briefly in the podcast, United States currency is a fiat currency, which is to say that it's not backed by any physical commodity. So let's talk a little more about how money backed by a physical commodity works.

Imagine that you have fifty tonnes of gold and each tonne of it is worth $16 million. (Sixteen ounces times two thousand pounds times five hundred dollars an ounce. I pulled this out of my arse to make the math easy.) That means you have $800 million. Now you can print eight hundred million one-dollar bills and everything is fine.

But now what?

If you want to print more money, you have to get more gold. But there is only so much gold in the world, so sooner or later there simply isn't any more to get.

Now think of an employee who makes $25 an hour. Every day that employee comes to work, she works eight hours and you owe her $200.

But she has not created any more gold by coming to work., She can't. The amount of gold is finite - much more so than your employee's ability to come to work.

This creates what we call a deflationary currency. There's only $800 million. Everyone using that currency has to share that $800 million. When it's gone, it's gone. Which means the price of labour - indeed, of everything - constantly goes down.

If you do the math, a single full-time employee works 2,000 hours annually. At $25 an hour, that's $50,000. A thousand of those are $50 million. And in sixteen years, that's the whole $800 million.

That's a thousand jobs for sixteen years and then there's no more money. What seemed like an astronomical amount of money to start with is now gone. And we have over a hundred million people in the United States workforce - for a total of five trillion dollars annually, at an average $25 an hour.

It should be pretty easy to see that something is very wrong here, and we can't sustain a society on that. There's just not enough money. The GDP of the United States is almost eighteen trillion dollars, at this writing.

That's what we produce. But it's not gold. And if we could only exchange it via certificates for gold, we'd run out of gold.

There are two ways to resolve this. First, you can print more currency, like another $800 million. Now each dollar is worth half as much gold. Nobody likes this, because where your $50,000 used to entitle you to a hundred ounces of gold, it now entitles you to only fifty ounces. The price of gold doubles.

And this is why, on the gold standard, gold was always a safe investment: its price could only go up. Currency could suddenly become less valuable, but gold would only become more valuable.

So we switched from the gold standard to a fiat currency. And the difference is this.

Your dollar is still exchangeable for a dollar's worth of SOME commodity. But it could be anything. It doesn't have to be gold. It could be silver. Or corn. Or pork bellies. Or anything at all.

This opened the way for currency to be backed by renewable resources, so currency itself became renewable. So long as the government continued to generate and retain assets of any sort, it could continue generating and distributing money.

This took us one step farther from the mining-based economy and into the manufacturing economy. Services and refinement started to matter. An ounce of gold could be made into more valuable jewelry, and hence generate money.

It didn't stop there. A pound of steel could be made into gears, a pound of copper into pipes, a block of marble into a statue. And because the commodity was not fixed, all of these could now back currency.

And then we made the next, massive change... which altered everything forever. Digital information. You could already take a book and print it on paper, increasing the value on the paper. But with digital information... thanks to copyright... that book didn't need the paper anymore.

You didn't have to grow and chop and process trees to put a book into someone's hands anymore. You could distribute it as a digital file. And the actual cost of doing so dropped to near-zero.

But the value of the information in the book stayed the same. As did the information in a song, or in a poem, or in a painting. We all became publishers. The internet made this possible.

And with more and more value inherent in the digital realm, free of physical constraints - renewable or otherwise - the economy was unbound. And the owners of copyrights profited outrageously.

The overwhelmingly vast majority of value in the American economy is not in commodities or manufacturing. It now rests almost exclusively with intellectual property - software, media, art.

The implications of this are explored more fully in the $10 SLOT Machines report and accompanying $20 monthly newsletter. You can subscribe here. I recommend you do, even if the sales copy is kind of shit.