Tuesday, April 7, 2015

Money and resource allocation

Have spent a lot of time talking about money, and I think for many there is the idea that money has its greatest benefit in helping societies allocate resources. After all, it lets us put a monetary amount on the value of something, but I have already spent some time talking about limited social trust and how people tend to use money for things they value LESS, which is not something only I noticed.

When searching on the web I came across a Wikipedia article on the paradox of value, which brings up water, which is great, as water is an important resource.

Not surprisingly in my country water is SO important, most people pay very little for it, though others pay more by buying bottled water.

In fact, water is so important that I suggest to you that the only reason people pay any money for it at all in the United States, is to limit overuse.

However, there has been corporate interest in the area, where water rights can be bought up in some communities, where conceivably people could be unable to pay the corporation for water down the line, so what would happen then? Well the government would step in of course and simply take the water rights back--without regard to money.

People can't live without water. And in fact if you take water from a person for only a day, he will be in distress. If you keep it away from him for over a week, he will die.

Even if he's a billionaire, what good is his money if no one will give him water? Like if he were kidnapped?

Yet water is one of the most important resources where money clearly is NOT good at allocating, and in fact, I think most resources in society are actually allocated on community needs.

More than most may realize I'm saying societies allocate most resources, especially important ones, by other means than money, and then may simply slap a monetary value on something after the fact, which can be entirely arbitrary. For instance, how much is a nuclear weapon actually worth? Or any medical cure? Or a college education?

Why? Because money is NOT a system for resource allocation as water demonstrates, but is a way of enumerating the value of a favor. It has limited utility, as it requires limited social trust. And in fact, when things get VERY important, people act without any regard whatsoever for money, as it is then irrelevant.

After all, paper money is just scraps of paper with stuff written on them. It is, in and of itself, utterly worthless. But it is a symbol of a favor which can have value. But very limited value in carefully socially circumscribed areas!

Resource allocations in society actually follow different rules, like how do you pay firefighters?

You can't pay them per fire put out, right? You can't give incentives for setting fires so that firefighters can get paid by putting them out.

If you ponder how a community figures out how it should pay people like firefighters, police officers, and political officeholders, it doesn't take long to realize that mainly you want to give them enough to live, support a family, and have a certain amount of social stature within the community.

Which means, of course, that people who want to get rich don't take such positions, though in corrupt societies, unfortunately, they may take such roles which is a CLEAR sign of corruption. So, someone becoming a police officer to get rich, may do it to take bribes from drug dealers. And a politician may get elected in order to parlay political favors for wealth from wealthy people or corporations.

People who are more community oriented, who treasure family, friends, and human beings working together for the good of all, are NOT going to be money motivated.

While people who are money motivated are unlikely to be any of those things, as their focus is on gathering favors from others.

For instance, it is cliche to talk about a man pursuing his fortune utterly ignoring wife, family, friends, community needs, etc. in his relentless pursuit of it. His focus is NOT on community.

Can a society operate without money? And the simple answer is, not if it's a big one, as money provides the important mechanism of limited social trust. It limits how much we need to trust people. And in so doing allows business as we know it in the modern world which has given so many in our world so much. Reality is that trust is a BIG DEAL. Being able to limit it, is the foundation of the modern monetary system.

Your community has to trust that firefighter. So you do as well, and if your house is on fire, you do not have the right to question his orders, as he tries to save your life and property. Which he may do at great risk to his own life and personal safety!

But that guy just out to make a buck? Need to trust him? Thankfully, not nearly as much.


James Harris

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