The Real Anarchists

The Recession: Feeling the Effects of Encouraged Malinvestments
by Mark Anderson

May 8, 2002

If we had a system, which employed real commodity money - instead of fiat "money" - malinvestments would not be inherently encouraged. The recession that we are experiencing today started a long time ago. It started when people began to invest their "money" in dot.coms and all sorts of other worthless junk. We are now reaping what we have sown. One question must be answered. Why all of the malinvestments?

The answer is because malinvestments are encouraged by our very form of "money." Money, in and of itself, is supposed to fulfill somebody's demand. That is the essence of an exchange economy. If I want something from you, then I would make something that you want, and we would trade. With our current form of "money," we don't even have an indirect exchange system. Rather than our "money" fulfilling somebody's demands, it is good ONLY FOR WHAT CAN BE PURCHASED WITH IT. Which may be less than what you could purchase with it when you first got it, thanks to inflation. In Economics in One Lesson, Henry Hazlitt wrote:

"The real purchasing power for goods, however, as we have seen, consists of other goods. It cannot be wondrously increased merely by printing more pieces of paper called dollars. Fundamentally what happens in an exchange economy is that the things that A produces are exchanged for the things that B produces."

In a system in which one person's purchasing power consists of other goods, people are going to be a bit more meticulous with their money. Because in that sort of system, an exchange economy, one person couldn't satisfy their demands unless they were able to satisfy somebody else's demands. But we don't have an exchange economy. We use fiat "money." With fiat money, somebody can attain a command over goods and real wealth without ever having to satisfy a single demand. The reason for this is very simple to understand. Command over goods is attained by creating more "money." "Money" is created, of course, out of thin air. It isn't backed by a single form of real wealth. Therefore, one can attain a command over goods without ever having to produce a single thing. That is a big reason why our monetary system also encourages laziness.

So now I have covered the broad reason of why malinvestments are encouraged by our monetary system. These malinvestments are the primary cause of the business cycle. Our economy was never really good. Making malinvestments, with immediate illusory gains, was just easier at one point. Now we are seeing the effects of bad decisions during the 90's. In order for our economy to have been that great in the 90's, then we would have to have put our "money" into worthy projects. And if we had done that, then we wouldn't be experiencing a recession right now. ***

Photo of the author courtesy of staff files