My adult son recently gifted me with a pocket knife.
I hadn't carried one since I was a boy, and it took me back to my first knife, and the very first thing I learned to carve: a simple whistle.
You start with a small branch, cut off a section, notch it, slide off part of the bark, carve out a hollow and a flat spot for your breath to go through, replace the bark, and if all goes well it makes a very pleasing sound.
Of course, you have to know what you are doing, and you have to actually do it.
That's the difference between a whistle and a piece of a branch.
But if you expend the effort, and do it right, you have something more valuable than a piece of branch.
I was thinking about this the other day when a friend suggested that we ought to return to the gold standard.
His point, as near as I could understand it, was that our economic problems stem in part from the fact that our money has no inherent value. A dollar is worth whatever it is worth at any given time simply because that is what people think it is worth—the value that they are prepared to give it.
My friend thinks this is risky business, and that it leaves us vulnerable to the whims of investors.
He may be right.
But I question his solution.
There are, as near as I can tell, just three possible sources of economic value:
- Scarcity. This is the least important kind, because it is rarely reliable.
If you have the only willow branch farm, you can count on getting a good price for your willow branches, but only until someone down the road realizes that they can plant willows as well.
If you happen to own all of the sources of, say, diamonds in the world you might be able to restrict access to them and so drive the price up—but few commodities lend themselves to such a strategy. - Natural value.
The willow branch has a certain value in itself, and I would argue that a willow branch is actually more valuable than a diamond or a chunk of gold.
There are very few things that you can actually do with gold or diamonds, very few uses for them. Aside from decorative value—which we can always do without if we please—and a certains value in some manufacturing settings—which have very little to do with the historic value attributed to these substances—they aren't of much use.
A bag of carrots, or a wheelbarrow full of fertilizer have much more natural value than gold or diamonds. - The value of human work.
This, if you think about it, is what human civilization is really built upon.
The thing that turned that willow branch into a whistle, the thing which turns an empty field into a source of food, the thing which turns a mineral deposit into the engine in your car, is work: an old-fashioned value, perhaps, but in economic terms the source of almost all the value in our world.
How valuable is that iron deposit if it is left in the ground?
How valuable is the soil if it isn't farmed, that bunch of grapes if it isn't picked, that cowhide if it isn't cured and made into a shoe?
The ultimate source of most of the economic value in our lives is the work of our fellow human beings.
So, if we were really going to base our currency on something of real value, the obvious candidate is that good old conservative value: work.
But how to do it?
Well, how did we base our currency on gold?
We said it was worth a certain amount of gold.
Of course, you can turn that around, and it amounts to the same thing: the gold was worth a certain amount of money.
We set the value of our currency by setting the price of gold.
And by doing that we guaranteed the value of the dollar.
Could we do the same thing with work?
Could we set the value of an hour's work to some specific figure?
Probably not.
Work, while a more real measure of value, is also a more complicated commodity.
But we already have set its value to some extent.
We have a graduated income tax—which is a way of putting an upper limit on the value of work. When someone starts earning upwards of a quarter million a year, they get to keep less of it, and so there's a sort of soft ceiling to the value of work—a bit of a limit on the inflation of the dollar.
And we have a minumum wage, which puts a more solid limit on how low the floor can be.
Between the two, we have effectively tied our currency to the good old conservative value of work, and that's a good thing.
The problem is that the floor is concrete and the ceiling is nerf, which means that as inflation continues the poorest get stuck at the bottom.
So it would be a very good idea to do one of two things: either get rid of the tax loopholes at the top and increase the rates severely, to stop the inflation in its tracks, or index the minimum wage to inflation, to keep the poorest among us from paying the price.
It might be a good idea to do both.
At least, that's what I think today.
