The Purpose of Money and Good of Freedom

A while ago I had an interesting conversation with a friend of mine. He was having troubles with wrapping his mind around this whole free trade and capitalism thing. He invited me to lunch so that we could discuss it and wanted to find out my opinion on some of his thoughts and ideas. I told him I would be happy to go with him and discuss what was on his mind.

He started out by saying that he thinks the ideal life of Utopia is attainable and it is through proper education in schools and training in the home.

I said that it was not attainable. Where are you going to find a  school that can keep and hold all of its students and lead them to an honest graduation?

H: it wouldn’t be that hard. We just have to make a system that is fun and easy to learn in. If we can do that every kid would stay in school and learn proper techniques for helping the society in life.

M: it would be difficult. Take for example Detroit, which is possibly one of the most government controlled and socialized cities in the country. They have a high school graduation rate of less than 30%. They tried doing exactly what you are saying and it has failed miserably.

H: we just haven’t found the right system to work in yet. It wouldn’t be hard if we forced everyone to go and stay in school.

M: but as soon as you force someone to do something that they don’t like to do (and how many children like going to school?) there will be a pushback. Children especially do not understand the importance of a good education. And in my opinion a good education is one that teaches individuality and not conformity to social norms.

H: true, I also agree with that and I think people should be individuals and not robots. But we can accomplish this by letting people do what they want for a living. They still have their freedom of choice about what jobs they do or where they live. It would just be that there wouldn’t be any money or any financial restraints. If they wanted a second house down in San Diego they could have one. It would just be shared by others when they are not there.

M: but if everyone shares and it belongs to everyone then who gets to decide when each person can go there and how long they can stay? In your system how will society decide how much travel and leisure time people can have?

H: it would be somebody’s job to record and process all of this stuff. They would just call ahead and put their name down and reserve it. Then when they showed up, if no one else was there, it would be theirs for the week or weekend. If everyone just put in their time and helped everyone else out it could work.

M: but then it wouldn’t be their house and they wouldn’t be able to go whenever they wanted. They would be limited in their travel time and would not be as free as they would be in a free society.

H: but they would! Can’t you see they won’t always go to San Diego. Maybe one time they will want to go to Lake Powell or New York or Florida. If they were able to go anywhere there wouldn’t ever be any conflicts because everyone else would be somewhere else.

M: I think there are too many people that would always want to be on vacation and go everywhere for you to build enough resorts or beach houses to accommodate them all. But, I think we are getting off topic here about your utopian ideas. Who is going to pay to construct all of these houses? Where are you going to get the materials? If everyone pitches in and does their part how are you going to decide who does this job and who gets that job?

H: everyone decides where they go. It is the exact same as the ideas you have about a free society. Carpenters would still be carpenters and lawyers would still be lawyers. Everyone can decide for themselves what profession they want to pursue and where they want to live.

M: that is where your ideas hit another roadblock. And this is a huge one. Who would rather be a stone mason than a movie critic if everyone gets paid the same and benefits the same from all their work?

H: I know plenty of people who would rather be a physical laborer than an actor or a writer. Some people excel at some things much better than others do. Everyone would find their own little niche in society and help out where they could.

M: you know people who would rather do physical labor than writing because of the pay difference between the two. Nobody would choose coal mining or snow removal over cooking competition judge. It will not work because there are too many difficult things that people refuse to do if they are going to be on an equal playing field as a person with a simple, fun and enjoyable job. Nobody will take the risk of losing their own life to support someone they have never met while that person gives them no physical, spiritual, moral or mental support in return. A coal miner is not going to do it unless there is an obvious reward waiting for him.

H: but there is an obvious reward! That is the opportunity to live in a peaceful loving society filled with people who care and love for each other. If everyone helped out with what they have or can do this world would be a much better place.

M: that’s what Lenin said also.

H: who is that?

M: the communist dictator of Russia. The guy who murdered millions in order to build the socialist utopia you’re talking about.

H: and it worked! Under communism in Russia people had better lives they lived in better conditions than they do now and they had more food to eat than they do now. Everything about modern day “free” Russia and communist Russia says that communism was better.

M: ignoring the fact that you don’t care that millions of innocent people died in Russia I can say that everything you just said is false. They may have lived better but that was based on a system that couldn’t support itself. If it was so much better why did it end? Why don’t they go back to it today?

H: they are trying to!

M: not the people who lived through it. The reason they lived better was because they lived off of other peoples money. They had a wildly unsustainable system. When they used all of their own money they stole it from their satellite states and used all of their money. When they ran out of money they got outside financial help, when that money was gone people and countries saw that there was absolutely no way that they were going to pay it back they stopped giving them money. Then what happened? In 1989 they went bankrupt. They could no longer support their life on the system they had and they went under. Just like every other country that has ever tried to practice socialism.

H: just like modern day Greece and Italy then I guess?

M: Exactly.

H: but if we train our children and society correctly we can achieve that success where everyone helps and everyone prospers. It is all in the education and training of our children. It wont happen in our lifetime but it will happen sooner or later and everyone will live in a better world.

M: I agree. But I think that we have to teach them the opposite of what you are saying. I think we have to teach them work ethic and entrepreneurship. Not socialism. If everyone fends for themselves it will benefit everyone in the long run.

H: How can you say something like that? How can you teach you kids to be so selfish as to only care about themselves and not others?

M: first of all that is not how things work. When one person sets out to make a fortune for himself he can only do it by making others wealthier too. Unless he robs a bank or steals money from others he will almost always benefit others.

H: if you work for yourself and try to get money for yourself  it does not benefit others. You can take advantage of people and rob them blind with their consent and it will be right in front of their eyes and they will never know it. It is a cruel and evil system that lets a man rob from others to benefit themselves!

M: I agree with only that last statement. Which is why I wholeheartedly disagree with what you are saying about socialism.

H: how can you say that? How can you say that when you set out to help yourself you can only do that if you benefit others? That is a complete lie. I agree it will work every now and then but it will not work most of the time. It is a selfish idea and I can’t understand it.

M: well let me give you an example. Lets say that there is a man who knows how to make bricks. He makes them for everyone to use but asks a little money in return to feed his family. So he is a entrepreneur and he helps society by making his bricks and they help him by giving him money. One day a couple comes to him and says that they want to build a house to raise their family. They will need 5,000 bricks to build the house they want; but neither have the skills nor the time to do it themselves. He says he can accomplish the job, but it will take him several weeks to make that many bricks, so in exchange for his service in making the bricks he asks for some money from them to feed his own family in the meantime. They agree.

Several weeks go by and the couple comes to claim their bricks and pay the man for his labor. The man delivers the bricks and the couple build their house. Both parties go away happy and satisfied at the results of the transaction. Is that fair? Did both parties benefit? Did the man rob from the couple?

H: that is fair and the man did not rob from the couple. But why do we have to involve money in the equation? Why can’t they just both agree to do it for free in exchange for a happy and friendly society? If money were not in the process both parties would still benefit from the transaction. Both the couple and the brick maker would have been better off.

M: how would the brick maker been better off? He just spent several weeks making bricks for the couple and they gave nothing in return.

H: well that depends on what they did for society. No matter what they did it would somehow come back and benefit the brick maker somehow. Or, if they were not directly benefiting him it would still benefit society as a whole because they would provide service to someone else who could provide a service to him. In the end it would all work out. We don’t need money in society to run effectively.

M: but we do. How else are we going to know if someone has helped out as much as another?

H: what do you mean?

M: the vast majority of times that people have money it is because they did gave some good or service to another member of society.

H: so what is the role of money in your opinion?

                It is important to note that my friend was not being contentious at any point in the conversation. The whole time he was asking sincere questions and even though he did agree with me on many of the points  I made he was still acting as the provocateur in order to find a deeper or more understandable answer. He was very respectful of my ideas and I was of his as well.

M: money tells society that another member of society has helped out. Because, you do not receive any money unless you perform some service or provide a certain good so someone else. There are some dishonest cases in which money is transferred from one hand to the other, and it is sad that this is reality. But, the huge, overwhelming majority of times that money is exchanged it is done so on a voluntary basis.

H: like going to the store and buying things?

M: exactly! Or having someone make you bricks for your house.

H: but I’m still uncertain of one thing. Why can’t you take money out of the equation and have society work? Why do we have to rely on some arbitrary paper to determine our livelihood?

M: because if you don’t have money how are you going to determine if someone has entered their fair share of services into society? It would become a free-rider state. If people could get all the wanted without showing proof of giving it would collapse very quickly. Just like the USSR did. People would live better for a short time but then they would collapse from lack of goods and services.

H: give me an example of why money has to be used? Why cant we use some other form of verification such as a voucher or certificate saying you helped out?

M: because then you are just giving money a new name and appearance while leaving the substance essentially the same.

H: Ok, that makes sense. But do you have an example for me to understand this?

M: sure. Take the brick maker again. If he wasn’t using money to calculate how well he was doing he could very well make a much inferior product. He would not be able to tell which process of brick making he was using is the most efficient. He wouldn’t be able to tell if his inventory sits a long time for nothing (thus wasting the time of the miners who dig the minerals and not benefiting society in the least). How would he be able to tell if he was using the best materials? Is he wasting too much lime in the process or using more than his share? If you think about answers to all of these it is not so simple as you might think. There has to be something there to tell him if what he is doing is correct or not, beneficial or not, wasteful or not, worthwhile or not. And that is what role money plays not only in his brick making shop but also in the overall economy.

If it costs more to make the bricks than it does to buy them he will never know. And because money was not there to tell him if this were the case or not he may very well become a burden to society by not producing in the most efficient manner. But neither society nor the brick maker will ever know. And when this happens in such a simple company how much easier it is in a complex company such as oil drilling or food manufacturing? And when these larger companies begin to be a burden on society it is only a matter of time before everyone in society is in poverty and in the direct opposite circumstance that you have envisioned for them.

H: let me think about that and maybe I can come up with some ways to work around these problems. It would only take a matter of time before you came up with a way of measuring the success and failures of a system like that.

M: well you have a huge head start. Go read all of the economic writings of Eastern Europe and the USSR from the 1900’s and you will see that they got almost nowhere in their quest to do what you are thinking about. Something that you will find as you read their philosophies is that they all wanted to go back to a free market and let people make money and choices and failures and all the economic criteria of a free society.

H: I’ll start reading it and see if I can find a way. This is important to me, I think this world deserves better than it has right now.

M: I agree with you. People deserve better than they have right now. If we let socialism and governments get out of the way we could find that Utopia that you are seeking. It will be a better place. Where everyone pitches in and everyone gets rewarded according to their abilities and achievements.