The main issue we raised in yesterday’s posting was where are people supposed to get the money (also known as “moolah,” “filthy lucre,” “long green,” “the ready,” “dosh,” “dough,” “bread,” “funds,” and a bunch of other terms we’re too lazy to list just to make a point) with which to purchase the advancing capital that is displacing them from production at an accelerating rate.
|If you don't think technology replaces labor, count the people in this picture. . .|
As we may have noted once or twice on this blog, throughout the nineteenth century (and continuing at an accelerating pace today), advancing technology has been replacing both land and labor as the predominant factor of production. Where once ownership of labor or land alone was once upon a time sufficient to ensure an adequate and secure income, ownership of technology is now essential in order to become a direct producer of marketable goods and services instead of just a supplier of labor or a recipient of welfare.
The problem is how to make every child, woman, and man an owner of productive capital, but without taking anything from anyone else. We find the solution in a new understanding of money itself. This is found in a restoration of Say’s Law of Markets, an economic “law” based on the rather common sense observation that (as Adam Smith pointed out) “Consumption is the sole end and purpose of all production.”
|. . . and then the number of people in this picture. . . .|
Why produce? We produce in order to consume. It necessarily follows — all other things being equal — we cannot consume unless we produce. We must either produce for our own consumption, or to exchange the products of our labor, land, and other capital for what others have produced with their labor, land, and other capital.
The “medium” by means of which we exchange our productions for those of others is called “money” — you know, the stuff you buy stuff with — regardless of the actual form it takes. That is why money is called “the medium of exchange.”
To put it in legal terms, money is anything that can be accepted in settlement of a debt; “all things transferred in commerce.” Thus, all money is a contract and, in a sense, all contracts — bargains and promises involving something of value — are money. Something is money when it consists of offer, acceptance, and consideration, for these are the “elements” of all contracts. (“Consideration” is the “inducement to enter into a contract,” that is, the thing of value being exchanged.)
|Society runs on contracts.|
Given this understanding of money, it is obvious that anybody who is competent to enter into a contract can participate in money creation. No one can create money acting alone, of course. Given the natural right of free association (liberty/contract), no one, as a rule, can be forced to enter into a contract, that is, make or accept an offer against his or her will — everything else being equal, of course.
To be able to enter into a contract, however, we must have something to induce others to accept the consideration we offer. That means we must be able to produce marketable goods and services, whether with our labor, land, or other capital.
Obviously we’re ignoring for the sake of the argument obtaining marketable goods or services by gift or inheritance. These are equally valid, of course, but the rule is that in order to have something, you must produce it or the thing you exchanged for it.
This is “Say’s Law of Markets,” from Jean-Baptiste Say (1767-1832). Say did not develop this “law,” but gave it its clearest expression. If you must know, it was in his Letters to Mister Malthus on Several Subjects of Political Economy. London: Sherwood, Neely, and Jones, 1821, pages 2-3.
Summarizing the argument, Say’s Law can therefore be stated somewhat simplistically as “Production equals income, therefore, supply (production) generates its own demand (income), and demand, its own supply.”
That sounds like common sense. So what’s wrong with it? We’ll take a look at that tomorrow.