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“Justice
does exist in the world, whether people choose to practice it or not.
The men In light of current market conditions, it is becoming more obvious to many that there is indeed an important difference between real wealth and debt money. Debt money is what too many hedge funds have on their books at unrealistic valuations; real wealth is the money needed to bail out these said funds when they prove to be illiquid. Debt money is extracted home equity resulting from temporarily high home prices; real wealth is the money that must be eventually paid back to the bank. In this regard, Ayn Rand’s discussion of money (and how money is misunderstood) in her 1974 essay “Egalitarianism and Inflation” still rings very true today. Civilization was built upon agriculture and there were two required conditions: (1) a crop surplus sufficient to last until the next harvest, and (2) the seed stock with which to replant in the next season. These two conditions were regarded as real wealth, i.e. savings, and were the building blocks of further development. It was understood that without these two conditions, the system would fail and come to an end. When the division of labor came about, and the concept of money followed soon after, some efficiency was gained but in regards to the two conditions, the system remained philosophically the same. Rand therefore states, “wealth represents goods that have been produced but not yet consumed.” So as for wealth/money/savings, its purchasing power equals existing goods available for consumption. However, when new debt is issued it is an entirely different phenomenon. New debt is essentially a claim on goods that have not yet been produced, since it is an expansion of existing purchasing power, which itself represents all produced goods. In other words, new debt pulls demand from the future into the present. This is by definition unsustainable—akin to consuming one’s seed stock, one of the two conditions for civilization which must never be broken. This is simply because when future goods are consumed in the present there will be less goods available in the future! Of course, economic growth has always been our answer to this—it is why our way of life cannot exist without economic growth—but if economic growth were to no longer be possible, then the old rules would once again apply. Two significant challenges that we face, our debt burden and energy supplies that are becoming increasingly expensive and difficult to obtain, suggest that economic growth may continue to slow. If growth slows enough or stops, it is at that point that the previously theoretical diminished future consumption will become a present reality. Part of what has brought us to this point is a serious misunderstanding of production and consumption. Keynesian economics takes it for granted that goods will always be available for consumption, but according to Rand, “consumers…are irrelevant to economics.” That is, the title of consumer must be earned, and it must be earned by being a producer. Issuing debt to pay for consumption does not reverse cause and effect, nor transform “consumption into a source of production.” Consumption is the dead end result of production, not the other way around. So what we have today as a result of this cart-before-the-horse model of economic thought is, according to Rand, “a growing dead end imposed on a shrinking production.” This is the result of inflation, and inflation itself has occurred because of these “broken conceptual links.” Our disregard for what money actually is has led us to focus on consumption rather than on production for our economic growth, all the while failing to realize that this growth has been made possible by consuming our very productive capacity! Every conceivable Fed bailout will therefore only exacerbate the problem. The only solution that will fix the US economy is to completely re-think what money is and to once again focus on production. To do so in an environment of diminishing available energy will prove all the more challenging, but it is the only choice we have.
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