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In Finance: Building an Economy Chapter 5

Tue, 04 Nov 2008 09:05:48 GMT

Oh spring is such a wonderful time. The annual rebirth of nature brings such warmth to everything. Spring is welcomed in our little village with a gathering of everyone in the town square. They work for a few days to get the common areas ready. Cleaning, repairing, planting, improving, and having a wonderful time together. The time together helps renew their friendships and consider what's in store for the village in the coming year.

They talked about how little work there was during the winter. The introduction of the dollar helped them see it as never before. James talked about how used the extra time to finished the house he was building. Now all he needed was someone to buy it from him. Mary made some improvements in the server software which increased the speed for everyone's internet connections. Patricia worked a bit on maintenance on her equipment, but mostly relaxed and read books. John spent a lot of time on the internet.

Once everyone was happy with the improvements the had their traditional spring party. As was typical, quite a bit of the party was spent talking about the projects everyone had for their personal and business lives. While this seemed a very informal social party, our folks didn't realize that the friendly discussions were the kick-off to each person's big business season. Each project discussed had impact on the others. If someone purchased James' house then Partricia might have an opportunity to get the job moving people in. Mary would get a new customer, and people always needed a lot of little things from John when they moved in.

Mary's plan to replace an old cable to the next village meant Mary would be getting a large wire shipment in. John would need to make some connectors and junction boxes, James might have a chance build a small shed for the server equipment.

The village is a small place, just about everyone's project means opportunity for the others. During the party people didn't think they were selling things to each other, but they were unconsciously making mental notes about the upcoming work opportunities.

John was worried. Most of the projects he heard about wouldn't start for a month or so. Most likely his pile of dollars would be exhausted before the jobs were ready. Before the party John asked Mary if she had any work for him in the next few weeks, perhaps he could get a jump-start on some of the items she'd need for the new cable installation. She said she wasn't ready to start putting things together, but he suggested that he could provide them sooner for a bit of a discount on the price. She considered the option and, after a bit of sales work on John's part, agreed.

The party also represented an informal meeting of the community where the talked about what improvements and changes might be needed in the village. If another person moved into John's house there were a few things in the village that might be needing upgrades. There was a discussion about how to interest someone from the next village to move in, and how it would impact their little community. Everyone was awash with ideas for an expanded community... as well a bit fearful of what changes would result.

And so the season started... with big plans, happy people, and a bright future. No one was aware that on that day their village experience a fundamental change in their basic economic model. The change wasn't necessarily good or bad, but it was a very, very large shift... and happened with barely a thought, without a vote... the changed passed silently without note.

In Life: Uniting People

Sun, 02 Nov 2008 13:03:47 GMT

Human beings find it far easier to generate emotional energy by being against something rather then being for something. Populist leaders find it far easiest to manufacture a common enemy as a basis for uniting people towards achieving the desired goal (which is most often to gain position/power). Once the common enemy is defeated (or having served their purpose, conveniently forgotten) the bases for the new-found unity ceases to exist.

We must always be aware of what is to remain as a basis of leadership once the common enemy is no longer in play.

In Finance: Building an Economy Chapter 4

Sat, 01 Nov 2008 13:49:41 GMT

As we head into winter our villagers settle in for the brief period of cold weather. As it typical for this time a year not much really happens. The group doesn't build many buildings,have many things made, or move them very far. Internet, phone, and TV use is up, as can be expected, but two month ago Mary moved to a flat-rate monthly fee so her income is stable and the expense more predictable for the others.

Even with the slow-down things break and get fixed, folks need to move things, and little things here and there do need to be made. Overall, however, people are not working as much as usual.

Mary made $640 during the winter, spent about $300, and ended up with about $5,000 in her pile.

Patricia earned $400 during the winter and spent $400 so her pile ended up at $2,500. She went without a few things she wanted in order to help keep the pile at a good "safe" $2,500.

James did well. During the winter he only made $400 and spent $500, but ended up with just over $2,000, largely because the funds from building John's workshop last fall. D

John had a lean winter. He did make $300, but spent about $540 from his pile. He ended the winter with only $500 left in the corner. He was feeling a little worried. He never worried before, but the pile seemed so much smaller than when he started.

Everyone was pretty happy though, the village is a pleasant enough place to live with much stress. The dollar thing was working out, even if people were a little more fixated on what they had than they had before the dollars came around.

So the total winter income for all the village was $1,740 (Mary's 640 + Patricia's 400 + John's 400 + plus John's 300). Total spending in the village was $1,740. Those number are equal because no one borrowed any money and there is no trading with other villages.

Even though the spending and earning numbers were the same we can see that the amounts were different for everyone. Some came out ahead, others a little behind while Patricia, as always, came out the same.

In Politics: What is Government

Sat, 01 Nov 2008 09:37:36 GMT

A government always reflects the people it governs -- an odd combination of their ethos and their apathy.

Laws are simply a complex way to codify the culture's collective moral values.

In Life: Motives

Thu, 30 Oct 2008 22:20:14 GMT

Humans seem to have an unlimited ability to deceive themselves. Am I supporting my decisions with logical reason and deduction or are all my supporting arguments simply delusional rationalization of what I simply want. It is often very difficult to tell.

If I can master the art of determining my real motives, and identifying when I am simply rationalizing, I'll be way ahead. I don't have to negate my decision just because I find I'm rationalizing, but knowing the truth behind my decisions give me more power over myself and puts me ahead in the game.

In Life: A Few helpful Definitions and Laws

Thu, 30 Oct 2008 22:08:39 GMT

Paul's Definitions:

A discussion (debate) is an attempt to determine the truth. Discussions have facts and citations.

An argument is attempt to prove who is right. Arguments have personal attacks, inuendo, and substitute resume's for citations.

Beware the arguments trying to be passed off as debate (particularly political and theological arguments).

A moderators is someone who facilitates and guides discussions while discouraging and defusing argument and diversions. A good moderator will help guide discussions. Discussions should be encouraged with positive public comments. Arguments should be defused with humor and friendly private reminders to anyone starting turning things into arguments.

Paul's Laws:

Paul's first law states that the safety of an activity is determined by how forgiving of mistakes the activity is.

Paul's second law states that the difference between an adventurer and an explorer is whether the doing or the learning comes first.

In Finance: Building an Economy Chapter 3

Thu, 30 Oct 2008 11:16:45 GMT

So our little village has been humming right along on the new "dollar" currency. Everyone is finding it easy to keep track of everything. If they have a dollar they can get an hours worth of work done and if they work an hour they get a dollar.

Mary, however, is in a bit of an different situation. She spent years and a lot of work building the communications network for TV, internet, phone and all the wonderful things people wanted. No one paid her while she was building the network and she lived a fairly simple life. Now people pay her for using the network. While she needs to fix things here and there, installs a new line in barn now and then, she doesn't really spend much time working on the network. Before they paid in hours of work, today they pay her in these new "dollars".

Having had a simple life while she built the network, Mary came to like it that way. Her life and living conditions are nice, but not particularly upscale or expensive. Under the new system, however, it is becoming apparent that she isn't using all the dollars she is paid. Her little pile of dollars is slowly getting larger. After six months it is now around $3,400. What she charges haven't really changed, but the dollars seem to be providing a more accurate accounting.

Another interesting problems starts to develop. Before people always just kept track of hours that are owed. If Mary didn't need any work from John, but he wanted internet access, she just remembers it for when she needed something in the future. Now with the dollars, people are noticing more how much the amount ebbs and flows. Mary's pile is a little bigger. John's pile is pretty small because he recently had James build him a new workshop. James' pile is a bit bigger as a result of John's payment.

Patricia, meanwhile, is very, very careful to maintain her pile at $2,500. In fact the others are getting worried about her as she seems to worry it all the time. Once she even asked Mary to disconnect her internet for a few weeks so she could pay James to build and install a new door. While she had the dollars to give him for the work she didn't want the pile to get too small.

The dollars have made thing easier, but some rather odd things are coming to light. These things were always there but now that people could easily count the dollars they are noticing them for the first time.

All in all, though, the village people are happy with the new system. It certain is fun to watch the money move around between the four of them.

In Finance: Building an Economy Chapter 1 & 2 Review

Wed, 29 Oct 2008 19:52:52 GMT

It looks like our village economy will be changing a bit with this new idea of John's. There are a number of things we can learn from just the little bit we know of the village.

It is interesting to note that the dollars in the village didn't mean anything to anyone -- until everyone agreed that it would REPRESENT something. In this case everyone agreed it represented (was worth) an hour of work.

As they go forward they'll find that dollars are an easy way to represent a value of the work done so that folks didn't need to barter directly with people who have what they want. The builder could take a dollar he earned from a transportation company and use it to buy access from the communications company who can it to pay for transportation -- all without all the juggling who did what for who.

Even in our huge country, with such a complex economy, money really just represents either the ability to pay for other people's work or the earning from our own work. In fact, the easiest way to measure the economy is to see how many hours people work for various standard things such as rent, a car, or food. One of the leading economic indicator of purchasing power is the "Big Mac Index" -- that is long someone has to work to purchase a Big Mac.

So, a dollar is worth what the folks involved agree that it is worth. The only reason it has value is because we believe it does.

COMMENTS on articles can be sent to "Comments [at] PaulOnlife.com".

In Finance: Building an Economy Chapter 2

Wed, 29 Oct 2008 16:11:58 GMT

So know we have a happy little village with Mary, Patricia, James, and John. Each has $2,500 in dollars sitting in the corner making them feel good about themselves. Let's take a moment and get introduced to the village people...

Mary spent a few years building a communications network in the village including all the goodies... video, internet, phone, games, etc. She calls her business "Mary's Communications". She enjoys gardening and raising her own food -- as do all the other villagers as there is no supermarket. She has a bit of extra time in her life as she just has to maintain the systems she spent so long building. The upfront investment is paying off in extra spare time today so she's thinking about going into another business.

John just likes to make things. Pens, paper, knifes, computers, you name it. An ultimate tinkerer and inventor. He never knew what to call his company so he just call's it "John's Industries". He likes to travel to other villages once in a while, but mostly just chats with them through "Mary's Communications".

Patricia had John make her a truck, a fork lift, and a number of other vehicles and calls her little business "Patricia's Transportation". As does everyone, she gathers together in the village square for a few hours every week to help keep the common areas nice.

James builds things... houses, factories, barns, tables.. just about anything for "James' Construction" (yeah, they're not the most creative people when it comes to names). If it was built in the village it was build by James and lasts a long time. He has a number of hobbies but doesn't have a lot of time as he is building a house in hopes that someone else will move to the village soon (hopefully a lovely lady as neither Patricia or Mary seems to have taken a shine to him.)

The economy is pretty much run on a you-help-me-I-help-you basis. The form of currency is work -- If Mary spends an hour moving stuff for James then he'll spend an hour building something for her. John makes stuff for everyone, in fact he just made a great new set of knives for Mary's kitchen in return for using her communications network. It all works pretty well... most of the time.

You see Patricia had an argument with John about how many hours they owed each other. It seems John's memory isn't always great and he doesn't write things down. He thought he was paid up while Patricia thought he still owed her a few hours of work. In addition, Patricia owed James an hours of work and wanted John to take an hour he owed her and help her pay off her work debt to James. John wanted James to take an hour he owed and use it to help Mary to help settle his own telecom debt -- unfortunately Mary got confused and credited that work to James and still wanted an hour from John. As you can see, it all got very confusing, very quickly.

As they were sitting around the village square arguing over all this they decided they had to find a better way -- or perhaps have someone keep track of it all for everyone. Suddenly John remembered the pile of "dollars" he had stuffed in the corner and had a brilliant idea. Why don't we just use those dollar things. Every time I spend an hour making something for someone they can just give me one of those dollars. That way I'll know how many hours work I've done by the number of dollars I have. If I want an hour's work from someone else I'll just give them a dollar. A dollar means an hour of work that you can get from anyone. If we all agree then we don't have to keep track of everything. As everyone seems to have the same number of dollars we'll start fresh with everyone.

Everyone thought that was a wonderful idea, and so the dollars got put to work.... Now those piles really meant a lot as each person had 2,500 hours of work they could buy from others. A perfect system. Yep, an absolutely perfect system... perfectly perfect in almost every way....

In Finance: Building an Economy Chapter 1

Wed, 29 Oct 2008 06:55:35 GMT

In order to help understand the economy it is helpful to have built one from scratch. This will help disprove some conceptions people have about the economy as well as prove others.

The first step in building our brand new economy is to start with people. In this case we'll use a small village of 4 people. In this case their names are Mary, Patricia, James, and John -- the two most common name for each gender.

The second step is to introduce a form of money into our little village. We'll call our money the dollar and use the symbol "$" in front of the number as a short hand. Hopefully this won't confuse anyone. Mostly we'll do this so that I'm less likely to make a mistake since I am already pretty used to these conventions. Let us be clear, however, that this is not the US dollar we're talking about as these four people had the sense to leave the country long before the recent political campaigns started. As a result they can enjoy watching TV without getting aggravated every 15 minutes. At any rate, let's start the community off with $10,000. This is enough money to play with while keeping the numbers small enough that my simple math skills can keep mistakes to a minimum.

The third step is to distribute the money to the individuals in the community. To be absolutely fair we'll distribute it in equal shares to each individuals. That means each will receive $2,500. They received this strange stack of "dollars" in the mail from someone who said they were there to help... hmmm.

So, Mary, Patricia, James, and John each have $2,500 sitting in the corner of whatever it is each person is living in. They haven't used any of the new-found money. Their lives are no different than before, although for some reason each feels a little better at having "socked away" some cash. The odd thing is they have no idea why they feel better as there isn't anything to use it for yet -- that is in Chapter 2.