Wednesday, April 24, 2013

Numbers on a screen

Wealth is created when something ill-suited for human use, like raw earth material, is transformed into a valuable, usable product. The medium of that transformation is human work. As John Locke wrote (hat tip Mark Levin): “He removes out of the state that Nature hath provided and left it in, he hath mixed his labor with, and joined to it something that is his own, and thereby makes it his property.” Money doesn’t grow on trees; it grows on the calluses on your hands.

“Money doesn’t grow on trees.” What an outmoded saying in the modern era. One may as well say “money doesn’t grow on computer keys.” But these days it does.

At least, we pretend it does. There is actually zero value in the billions of dollars the Federal Reserve “prints” to buy up illiquid Treasury debt. They are no more than numbers on a screen, but they look the same as the balance in your checking account or savings account, real money with real value that you created with your work. The effect on your money is like when you add water to acid: It becomes diluted. Its buying power, relative to a static market of goods, falls. This is called inflation.

In 5 years, U.S. government debt has increased $6 trillion. Forget for a moment that this is a catastrophic forsaking of the future. That’s $6 trillion that didn’t exist in 2008. If that money were moving through the economy with velocity, prices would be shooting through the roof.

Unless, of course, the money sticks. Obstructions to market knowledge in the form of unpredictable government interventions have ground voluntary transactions to a snail’s pace. Uncertainty has turned us from a country of wealth creators into a country of wealth hoarders.

Retreat is a natural response to danger, but mass flight from the marketplace is a moral ill. It deprives people of otherwise added value to their economic lives. In the parable of the talents, Jesus rebukes the man who hoards the sum of gold He gave him: “You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed” (Matthew 25:26).

Our gifts—whether they be our resources, knowledge, or raw talent—are meant to be put to work to better the lives of others. Under these conditions, however, that is less and less likely.

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