I’ve been reading a lot about the nature of money lately, and with some of the geopolitical stuff that’s coming down, I think it’s becoming a subject that a lot of people are getting concerned about for the first time in ~70 years or so. A lot of times, writing about an idea helps me to understand it better than just reading an idea, so here goes.

What is money?

Let’s say I have a sack of potatoes, and you have a pair of shoes. I need shoes, and you need potatoes. We each value what the other person has more than what we already have, so we trade them. If I value my potatoes more than I value your shoes, I wouldn’t trade for them. And vice versa in regard to you and your shoes. So we each conclude the transaction believing that we’ve gotten the best end of the deal at that point in time. If I had waited a week, it might have turned out that my food supply was running low, and I might value my potatoes more and would not have made the trade. So the value of something changes based on the conditions of the moment, and we take on some measure of risk whenever we engage in a transaction.

Anyway, having to find a specific somebody with shoes who also happens to want potatoes can be complicated and time-consuming. So enter money. Money is an abstraction that represents something of value in order to streamline the process of trade. If there are a lot of people who want potatoes, then it’s easier for me to trade my potatoes for money, and then use that money to negotiate with anybody who happens to be selling shoes. Money is a medium of exchange. Money is a tool. But it only works if people think it’s worth something.

So let’s back up again. How do you know what a sack of potatoes is worth? That’s easy. A sack of potatoes is worth whatever someone is willing to give you for it. I may feel that it’s worth $10, but if nobody will give me more than $5 for it, then it’s only worth $5. If I still value those potatoes more than what someone is willing to give me for them, then it’s in my interest to keep them and eat them myself. On the other hand, if those potatoes are going to rot before I get around to eating them, then it’s in my interest to settle for the $5.

So given the above, we know that something only has value as long as someone values it. This is tough to wrap your head around at first, because in real life we assume that the price tag on items at the grocery store represent a solid commodity price. A gallon of milk is $3 because if they charged more, people would buy less of it, and if they charged less, people would buy more of it. Since the total quantity at a given time is limited and known, the milk producers can maximize what they earn from it by selling it at an optimum price while it’s fresh. That price is the one at which milk producers value dollars more than their milk, and where milk buyers value the milk more than the dollars in their pockets.

Therefore, the value of something is determined by what someone is willing trade for it.

Which brings me to the next layer of confusion: the statement above applies not only to products and services we spend money on, but to the money itself. In our financial system, the dollars that represent value don’t have a fixed value themselves. They’re subject to the same effects of supply and demand as any other commodity. But I’m gonna split that to another post. Coming soon…

I’m reading John Adams, by David McCullough right now. I’ve seen this quote from Adams before, but it struck me tonight as I was reading it…

I must study politics and war that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture in order to give their children a right to study paintings, poetry, music, architecture, statuary, tapestry and porcelain.

What struck me was the forward-thinking of it. This guy believed that if he were able to accept his lot and discipline himself to his duty in life, that things would be better for his children. And if they, in turn, hardened themselves to their duty, things would be better for theirs. It’s a very American idea to believe that each generation should pass to the next a better country than they themselves inherited, but it seems to be an overlooked factor that we can only do that by being the best kind of people we can be in our own lives every day.

Are we as a country making things better for the next generation? I have my doubts about that. But are we as individuals setting the right example for our own kids to follow? That’s something we can directly influence. All I know is that there’s always room for improvement…

Minimum wage laws are idiotic. The idea of the minimum wage appeals to the charitable side of human nature. The idea of protecting or providing for the "working poor" among us appeals to our sense of justice and fairness. Nobody wants to see other people starving, or who are unable to house or feed themselves. And the expedient way, it seems, to make sure that everybody who works can afford their basic needs is for the government to tell employers how much they should pay their workers.

The federal minimum wage in the United States was first proposed and created as (you guessed it) a New Deal program by President Franklin Roosevelt. Roosevelt’s justification was that, "no business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By living wages I mean more than a bare subsistence level. I mean the wages of a decent living." Never mind that the workers also depended on the business for their existence. From the very start, it was an open attack on business, on the free market, and a socialist intrusion into the marketplace by a set of "experts" who believed they could manage the economy better than the workers and owners who made up the business itself. To the left, exploitation of workers must be avoided, unless of course it’s the left that’s doing the exploitation, as we’ll see later.

The minimum wage is perpetuated by continually appealing to the "compassion" of citizens. Not compassion for the business owner who is providing a valuable service, not compassion for his customer who wants to purchase the service at the best price, but for the unskilled, inexperienced, worker. The political infatuation with the minimum wage is based on the idea that every single job should provide a wage that goes beyond "subsistence level."  Every job, they argue, should provide a "decent living."  Apparently, that wage in the United States is currently $7.25 an hour. It’s absolutely silly to think that making $7.25 an hour in New York or San Francisco is going to provide a decent living. Wouldn’t it be more compassionate to raise that to $10 an hour? $20 an hour? $50 an hour? If the motive is compassion, why would we limit ourselves to $7.25 an hour? Since we set the minimum wage at a level that is basically a pittance, compassion must not necessarily be the goal of the policy-setters.

The truth is that we all know that raising the minimum wage will either affect the price of the goods we consume, or cause entry-level, unskilled workers to lose their jobs.  We’re willing to be “compassionate” with other people’s money, but not compassionate to the point that it actually affects our own wallets. And we don’t want to be compassionate to the point where the people we want to help get fired from their jobs because their salaries become unaffordable. We just want to be passionate with money of businesses, but only to the point that the only people inconvenienced are the owners of the business, greedy pigs that they are. So the whole idea of Americans wanting to provide a "living wage" to unskilled laborers is silly, class-envy pandering for Marxist political candidates. Most Americans really believe that people should earn their own money and keep their own money, and if people want to earn more money, they should improve their skills and marketability to employers. But for some reason we’re also afraid someone might think we’re “greedy” or “mean” for not wanting to “help the poor,” so we’re suckers for an appeal to our compassionate sides. But that’s an illogical response to a stupid accusation.

Who actually earns minimum wage in this country? According to the Employment Policies Institute, "The average family income for employees who will ‘benefit’ from the recently enacted $2.10 minimum wage hike is $46,889."  That’s more than double the federal poverty line for a family of four. How can that possibly be?

Six out of seven of these employees either live with their parents or relatives, have a working spouse, or are single and don’t have children.

The vast majority of minimum wage workers are people who live with someone with a well-paying job. They are teenagers or spouses who work part-time. The number of minimum-wage heads-of-household is staggeringly low.

Virtually all minimum wage employees will see their incomes rise as they increase their value to employers by gaining skills through experience. Analysis of US Census Bureau data shows the median raise these employees receive is six times higher than that of employees earning above the minimum wage.

People who start at minimum wage tend to get huge raises early on as their skills and experience increase.  Work experience counts for a lot to employers.

This traditional growth out of entry-level employment explains why less than 1% of employees above the age of 25 are working at the minimum wage.

By the time people exit their college years, 99% of people are making more than minimum wage. The liberal myth that people sit in minimum-wage jobs for decades or while trying to raise their families is simply not true.  It’s a lie.  It’s intended to tug at your heartstrings and get you to beat your chest and demand that somebody “do something” about it. And plenty of heartstrings must get tugged, because it sure isn’t brainstrings that keep this ridiculousness alive.

A business will hire a person if they believe that the value they gain from that employee will be worth more than the salary and expenses associated with them. A business can choose to hire skilled workers for a lot of money, or unskilled workers for less. It may be more cost-effective to hire one very skilled worker to do a job, or it could be more cost-effective to hire several unskilled workers to do the job. It’s all based on the risk the company is willing to take, and the prevailing wages that the market has determined for different levels of skilled labor. But when an outside factor comes in (a.k.a., government) and artificially sets wages for unskilled labor that are higher than than the market suggests they should be, it’s more likely to tip the scale towards businesses choosing to fill their positions with skilled laborers. (Or alternatively, the minimum wage may be a floor that determines what you must get paid. Either way, it weakens an individual’s ability to negotiate for what both parties think is a fair wage.)

The natural outcome of all this means that the market for unskilled labor shrinks.  It’s tougher for young people to get meaningful entry-level work in which to build their business and professional skills.  It’s tougher to get part-time work, because it makes more sense to have a few higher-skilled workers work more hours and reduce the amount of unskilled workers needed. And it has destroyed the idea of apprenticeships, where a young person is able to sacrifice wages in exchange for the opportunity to learn valuable, marketable skills.

So if there isn’t a real benefit for the people who would actually want to work at entry-level jobs, why is there an obsession among lefty politicians with raising the minimum wage? Well, that’s obvious: labor unions! The stalwart defenders of the American working man (and major contributors to political campaigns, not that that has anything to do with it.  Right?).

The bottom line is that union leadership really only care about workers who are members of the labor union. And labor unions tend to represent skilled workers. Union dues are usually a percentage of salary, so the higher-paid union members are going to produce higher revenue for the unions. So the more the balance of labor can be skewed toward skilled labor and away from unskilled labor, the more labor unions stand to gain. Don’t misunderstand me. Labor unions will accept any kind of membership they can, skilled or unskilled. But their goal is to maximize their skim from the highest earners in their organization. And that is done by making it more profitable for businesses to screw the unskilled, inexperienced, entry-level worker out of the labor market in order to benefit the skilled, labor-union member.

The minimum wage restricts the market for young, unskilled laborers to find work and gain experience. It punishes business, particularly small business, by restricting their ability to negotiate salaries with employees. It doesn’t provide anything near a “living wage,” was never meant to, and never will.  Instead, it favors organized labor by artificially skewing the market in favor of skilled labor union membership which drives up union revenue. It’s just another example of socialist, non-market-based price-fixing that always, always fails to do what it intends.

But it plays well around election time, so don’t expect it to ever go away.

Glenn Beck’s Common Sense: The Case Against an Out-of-Control Government, Inspired by Thomas Paine

The latest media nugget from author, TV, radio and stage star Glenn Beck is easy to recommend, but with a caveat or two. First of all, if you listen to his radio program or watch his Fox News show, you’ve probably already got an idea of his shtick. He’s an extremely likeable, self-deprecating goofball who has no pretentions to ivory-tower intellectualism. Behind his overtly entertaining persona, however, is a guy who might be one of the biggest doom-and-gloomers when it comes to his vision of the short- and long-term futures of the country.

This book is apparently intended to claim for Beck the mantle of Thomas Paine for what he sees as a coming second American Revolution. It seems a little melodramatic, to me, but whatever. It’s a fine attention-grabber, sure to move units. But aside from that, it serves as a great high-level introduction to some of the biggest problems we face as a country right now: a skyrocketing budget deficit, unsustainable social programs, a power-hungry government, and a two-party system that, in Beck’s estimation, doesn’t offer Americans a choice.

Without wanting to sound like an apologist for the status quo, I think the two-party system is a perfectly workable institution that has served the country well, most of the time. My biggest beef with it is that I wish the two parties were the Republican and Libertarian parties, but I’ll leave that for another discussion. The problem we have today is that the Democrat party leadership is so far left, and the Republican party is divided over how to deal with it. If we had a Republican party that could settle on a strategy of fundamental defense of the Constitution and founding principles, we really would have a choice. And that isn’t a stretch to imagine if (and here I do come around to agree with Glenn again) we ignore the R’s and D’s next to the names of our representatives, and instead support people who represent our values instead of expecting parties to lead us.

The book is short. It’s only about a hundred pages of actual content, with another 50 pages or so dedicated to reprinting the original Common Sense by Thomas Paine. It’s an easy read, it’s a good introduction to Beck’s view of the world, and while not necessarily revolutionary in itself, it does contain one of the classic historical writings of the American Revolution. And it’s cheap! So it’s a good value if you have a wishy-washy friend or family member who might need a little push back into political wakefulness.

The framers of the Constitution sought to provide a framework in which the natural rights of the people–those rights which are granted to us by our Creator–would be respected and defended by the government.  But there was profound concern among the writers and even pre-revolutionary thinkers about whether or not people were sufficiently moral to effectively govern themselves.

The founders felt that a free country that respected individual rights could only survive and thrive if its citizens strived to live moral lives and accept their individual responsibilities.  Thomas Paine spoke out in favor of revolution because he believed that Americans had a moral advantage over Europeans, and were therefore ready for self-government.  Many years after the war, John Adams said, "Our Constitution was made only for a moral and religious people.  It is wholly inadequate to the government of any other."  George Washington believed that anybody who would subvert "the great pillars of human happiness", religion and morality, had no claim to patriotism.

So from the very birth of the country, the religious and moral strength of Americans was understood to be central to its success.  Or more specifically, that strength was central the success of the Constitutional Republic that they designed.  They didn’t necessarily say that people must be moral or religious.  They just suggested that if we wanted freedom, we couldn’t be a bunch of degenerate materialists who went around undermining faith and morality and spouting psychobabble nonsense in an attempt to excuse whatever questionable behavior people chose to engage in.  A country like that would descend into some kind of chaotic, fractured mob that empowers corrupt, populist masters to arbitrarily enforce whatever anthropocentric "values" are popular at the time.  Which is cool, if that’s your thing.

But it wasn’t the founders’ thing, and it wasn’t the country’s thing for the first 140 years or so.  The belief was that the best way to maintain a virtuous people was to select virtuous leaders who believed in natural rights and who would hold each other accountable for failings.  Leaders who didn’t seek public office out of personal ambition or personal gain.  Jefferson believed that the best Americans would form a "natural aristocracy" and that the best among us would consider it a duty to seek public office.  These people would believe in our fundamental founding principles and strive to uphold a shared moral code.  The founders also believed in the idea of schools teaching religion and morality as a means to producing good citizens.

The progressives have sought to change that.  They’ve introduced ideas and programs that assume for the government responsibilities that should lie with individuals.  Psychology has weakened the idea of personal responsibility and objective morality.  Morality has become a personal choice.  Whatever feels good is right.  If everybody has a moral code all their own, then there really aren’t any moral standards or expectations to hold people to.  If your behavior and beliefs are not your responsibility, and are instead a genetic condition or a function of you family life or your place in the socio-economic strata, how can anybody claim anything you do is wrong? 

And if there is no right and wrong, how can anybody define what our individual responsibilities as Americans ought to be?  For that matter, what does it mean to be an American?

The founders put a lot of faith in American people to control our own destiny by following their lead.  It is every individual in every generation’s responsibility to read what the founders wrote and understand what they were trying to achieve.  They themselves stood on the shoulders of the Greeks and Roman Republicans, who were the first to experiment with representative governments.  They studied the ancient philosophers, they understood the perils of living under an oppressive oligarchy, they didn’t just make it up as they went along.  They knew they were making history, they knew that it was risky, but they believed that the character and morality of the American people would allow us to continue to accept the responsibility which we have inherited.  We’re expected to, in turn, stand on their shoulders to continue their great experiment.

America is unique among all nations in this.  The people have rights, and are solely responsible for defending those rights.  The American idea is under attack from all directions.  We have to constantly defend it. The responsibility is yours.  Educate yourself.  Understand our purpose.  And stand up to the progressives and shout NO!