HONORS ECONOMICSPREINDUSTRIAL ECONOMIES &

THE MONEY ILLUSION

THE GREAT DIVERGENCE

IRON / STEEL

TRIGONOMETRY / PAPER

PRINTING PRESS / MECHANICAL CLOCK

GUNPOWDER / EYEGLASSES

CALCULUS

THE WEST & THE REST

25¢

23¢

17¢

34¢

14¢

20¢

3¢

23¢

2¢

MING DYNASTY RENAISSANCE / COLUMBUS MUGHAL EMPIREOPIUM WAR INDUSTRIAL REVOLUTION INDIA BRITISH COLONY

CHINESE REVOLUTION WWI, WWII, DEPRESSION GANDHI /INDEPENDENCE

THE ECONOMY HAS LEFT THE BUILDING

PRODUCTION POSSIBILITY FRONTIER

♂

WA S T E D P OT E N T I A L

♀

INDUSTRIOUS vs. INDUSTRIAL REVOLUTION

TWO WAYS TO INCREASE PRODUCTION:1) WORK HARDER (INTENSIVE GROWTH)2) WORK SMARTER (EXTENSIVE GROWTH)

=====

THE REST: (CHINA, INDIA, etc.) NO FRONTIER NO MORE LAND TO USE FARM LAND MORE INTENSELY (RICE CULTIVATION)GROWING POPULATION INCREASED LABOR INPUTSNO CHEAP ENERGY – NO MORE FORESTS

THE WEST: (ENGLAND, FRANCE, etc.)DISCOVERY OF AMERICA PLANTATIONAGRICULTUREBUBONIC PLAGUE INCREASES LAND-LABOR RATIO CAPITAL INPUTS / INNOVATIONCHEAP NEW ENERGY SOURCES (COAL) NEAR WATERWAYS

CARMEL

MAHO

PAC

BREWSTER

OSSIN

ING

PUTN

AM VALLEY

FOX LANE

YORKTO

WN

HEN HU

D

AGRICULTURAL DIVISION OF LABOR

CLERGYNOBILITY

LONG DISTANCE MERCHANTS

P E A N TAS S MONEY EXCHANGES

BARTER EXCHANGES

MONEY CHANGES EVERYTHING

MEDIUM OF EXCHANGE:

MONEY = LOWEST COMMON DENOMINATOR ALLOWS EFFICIENT TRANSACTIONS AMONG

ANONYMOUS INDIVIDUALS WITH DIVERSE PRODUCTSSTORE OF VALUE:

MONEY = PRESERVES VALUE OVER TIMEBORROW FROM THE FUTURE INCOMEWORK NOW, SPEND LATER INTERTEMPORAL SUPPLY & DEMAND IMBALANCES“Pecunia non olet”

UNIT OF ACCOUNT: MONEY = SCORECARD / PRICING THE PRICELESS

BARTER EXCHANGESANDREW

WANTS COWS, SELLS CHICKENS

ALEX

WAN

TS C

HICK

ENS,

SEL

LS G

RAIN

ANTHO

NY

WAN

TS GRAIN, SELLS CO

WS

1 CHICKEN = 4 GRAIN1 COW = 7 GRAIN

EXCHANGES WITH MONEYABIGAIL

WANTS COWS, SELLS CHICKENS

AMAN

DAW

ANTS

CHI

CKEN

S, S

ELLS

GRA

INALYSSA

WAN

TS GRAIN, SELLS CO

WS

1 CHICKEN = 4 GRAIN1 COW = 7 GRAIN

1 GRAIN = $1

$$$

$$$$

$ $$$$

$$

$$$$$$

$$$ $

$$ $

$$

$ $$

$$$ $

$ $ $ $ $$$ $ $ $

$ $$ $

$ $ $ $ $

$

SEX FOR IDEASConventional Economics (“No Free Lunch”) sees

exchange as ZERO-SUM: You Get something, You Give Something

Recently, Some (“Whole > Parts”) see exchange as positive-sum: SEX FOR IDEAS.

CONSUMPTION INVENTION / PRODUCTION (SHOPPING = SOCIALLY

BENEFICIAL)• READING WRITING• LISTENING SPEAKING• “DRESS-UP” GROWING UP

IMPLICATIONS:INVENTION = SOCIAL; ORIGINAL INVENTORS = RANDOM MUTATIONS ≠ IMPORTANTLITERACY, TOOL-MAKING, & INTERACTION = KEY EXCHANGE = INNOVATION (CHINA, TANZANIA)EVOLUTION = COOPERATIVE (NON-ZERO), NOT

COMPETITIVE WOMEN > MEN

THE KULA RING

KULA RING, PART IIPROBLEM:

How to trade diverse products among anonymous individuals?

– How much should you produce?– How much should you charge?– How much should you pay your employees?– How much should you pay for raw materials?– How do you communicate this information to others?– What job should you choose? What training?

ANSWER: MONEY. (Gift-exchange) Necklaces (counter-clockwise) Bracelets (clockwise)

No profit. Gift = total value of goods

SAY’S LAWSUPPLY WILL CREATE ITS OWN DEMAND

HUMAN ACTIVITY IS EITHER WORK or LEISURE

Leisure = production for personal consumption Work = for sale to others

===Increasing SUPPLY of goods increase DEMAND for goods

===Zero-sum no free lunch

If you consume more, i must consume less ARTIFICIALLY stimulating demand = bad idea

The market is always rightUnemployment = vacation

PAST, PRESENT & FUTURE

PAST PRESENT FUTURE

CONSUMERS PRODUCERS

RENTS

SAVINGS

CREDIT

INVESTMENTS?? +/- ??

EXPORTS IMPORTS

SAVINGS

DEBT

COMMODITIES & ASSETSCOMMODITIES – OBJECTIVE, DEFINED CHARACTERISTICS &

HOMOGENOUS QUALITY – QUANTITY KEY

ASSETS – SUBJECTIVE OR INTANGIBLE DIMENSIONS & HETEROGENOUS QUALITY – QUALITY KEY

MARKETS = GOOD AT COMMODITIES / BAD AT ASSETSPREMODERN ECONOMY= BARTER = COMMODITIES

MODERN ECONOMY = EXCHANGE = ASSETSINT’L MERCHANDISE TRADE IN GOODS & SERVICES: $13 - $16 TRILLIONUS GDP: $14 TRILLIONGLOBAL GDP: $60 TRILLION GLOBAL FINANCIAL ASSETS: $140 TRILLION

• BUSHEL OF APPLES• GALLON OF GASOLINE• OUNCE OF GOLD• SHEET OF PAPER

• HIGH SCHOOL DIPLOMA• MEGAWATT OF ELECTRICITY• HEALTH INSURANCE

• METRIC TON OF CO2 • VOTE FOR PRESIDENT• MILLIGRAM OF PARACETAMOL

• PUBLICLY TRADED STOCKS • REAL ESTATE• SERVICE SECTOR JOBS• HEALTH

• TECHNOLOGY / PATENT • FASHION • CURRENCY • “BRAND NAME” MERCH’

• WORKS OF ART• CLEAN ENVIRONMENT• RELIGIOUS SALVATION• ADVICE

HUMAN BODY (AS AN ASSET) = $47 MILLIONBone Marrow: $23.0 MillionDNA: $ 9.7 MillionAntibodies: $ 7.3 MillionLung: $ 116,400Kidney: $ 91,400Heart: $ 57,000

HUMAN BODY (AS A COMMODITY) = $4.50

“FICTITIOUS” COMMODITIESMONEY IS STERILE : MONEY IS A VEILBUYING / SELLING MONEY = BUYING / SELLING AN INCH

• SIN OF USURY: CANNOT LEND MONEY AT INTEREST• RELIGIONS FORBADE FINANCIAL INSTITUTIONS (TEMPLARS)• FILTHY LUCRE: WALL STREET vs. MAIN STREET

TRAGEDY OF THE COMMONSLAND = NATURE; NOT PRODUCED FOR MARKET

• STRANGE IDEA: MANHATTAN FOR $24• NATIONAL BORDERS INVISIBLE FROM THE “BIRD’S EYE” VIEW• EMINENT DOMAIN: GOD KING LORD VASSAL SERF• PEOPLE BELONG TO THE LAND, LAND BELONGED TO THE PEOPLE• TRAGEDY OF THE COMMONS / ENCLOSURE MOVEMENT

SELLING ONESELFLABOR = HUMAN ACTIVITY; NOT PRODUCED FOR MARKET

• CANNOT SELL YOUR TIME WITHOUT RELIABLE CLOCKS (c. 1700)• PROSTITUTION & ORGAN SALE ILLEGAL• STADTLUFT MACHT FREI – WORKERS BELONGED TO THE LAND & LORD

C M C or M C M* Medium of exchange: Money mediates between commodities

CMCMoney = NEUTRAL: Money is a VEIL, a placeholder for the underlying

commodity exchange.Money = LIQUIDITY lubricating economic exchanges Loose Money &

SMALL CHANGE

Store of Value / Unit of Account: Money is a HOARD of value, commodities as CAPITAL = medium to transfer money.

MCM*Make $$$$ with $$$$. Money ≠ Medium: It can be purchased.

Commodities ASSETS / Fictitious Commodities: Nature = PropertyHumans = LaborMoney = Capital

Money = COMMODITY. FINANCIAL Institutions = MONOPOLISTS of money Sound Money

Since WWII, the US = the world’s BANK:We “BORROW” low (selling public/private debt abroad) & “LEND” high (buying EQUITY/ownership in foreign businesses) & pocketing the difference.

WHY?From 1914 to 1945, the world fought an expensive & destructive war

nearly 80% ($26 of $33 Billion) of the world’s GOLD = US: We had all the bracelets & necklaces.

US = CMC MCM Economy

• Rebuilt Japan• Marshall Plan• Bretton Woods System Redistribute the World’s Necklaces / Bracelets• Foreign Military Bases• American Consumerism & Debt

FINANCIALIZATION & DEINDUSTRIALIZATION of US domestic economy

GOV’T SPENDING

DEVALUATION

AUSTERITYDEVALUATIO

N

GOV’T SPENDING

AUSTERITY

APPR

ECIA

TIO

N

APPR

ECIA

TIO

N