Changing the nature of money is dangerous

I’ve long been fascinated by money. What is it, exactly? It’s clearly not just little pieces of paper. Now that we’ve dropped the gold standard, it’s no longer tied to any specific thing of any specific value. You can use money to buy property, food, risk (stocks etc), avoidance of risk (insurance policies), communications (internet fees etc), transportation, all sorts of things. You can even try to buy happiness with it (booze for adults or toys for children – whatever). But again, what exactly is money itself?

You could argue that money is simply a tool to measure scarcity. The more scarce something is, the more money is required to buy it. Our complex economy would crash tomorrow if we didn’t have a means of accurately measuring real time scarcity of absolutely everything in the world. This is why price-fixing is universally catastrophic. When you intentionally sabotage money’s job of measuring scarcity, then money instantly loses its value, and people have to find other ways to barter, like black markets and such.

My secretary was in a good mood yesterday. She got an email saying that the Biden Administration had forgiven her student loans. She’s 42 years old. She had been paying $3 a month for twenty years, and still owed around $1,500, until yesterday when the federal government paid off her balance.

Which means that money is now being used to measure not how scarce something is, but rather how politically connected someone is. This is obviously an important phenomenon for our political system, but I would argue that it is perhaps even more important for our economy. When we use money to measure things other than scarcity, then money becomes less useful, and our economy becomes less stable.

I know that this is not a new concept. Every government uses money to control elections in one way or another. Using subsidies and wealth transfers to buy votes is not unique to America, and it will not go away tomorrow.

Still, I think that one reason that countries with strong centralized power systems tend to have unstable economies is that their governments use money for political purposes so much that their money becomes useless for measuring scarcity.

Inevitably (and quickly), chaos ensues. Long-term investors don’t like chaos. And with no long-term investments, then the only source of wealth is government. And before you know it, the wealthiest counties in America are the suburbs of Washington D.C.

Forty two year old secretaries start getting emails saying that they just earned $1,500 by doing nothing. Then, before you know it, entire industries are created or destroyed based not on the production of their workers, but by the political connections of their lobbyists. John Galt would argue that such an economy cannot survive for long. Chaos turns to revolution.

Using money for political purposes is much more destructive that it may appear, for many and varied reasons.

The only flaw I can see in my thought process here is that I have no idea what I’m talking about. Although if my President doesn’t feel constrained by such concerns, then neither will I. If you disagree with such reasoning, you're a dog-faced pony soldier.

But I am hoping that those who have a better understanding of money, economics, and finance will chime in the comments – does my argument make any sense?

What do you think?