Talking to My Daughter About the Economy summary

Easter Sunday. Your family sits around the table eating moussaka and telling jokes. The sun is warm, the food is good, and everyone is laughing. Truly, these are the good things in life. But, are they goods like the goods you would buy from Amazon?

No, not at all. Goods like your grandmother’s moussaka are made to be shared. Their value is rooted in use. The goods you buy off Amazon, like a clock or an iPad, are different. They are commodities – that is, goods sold on a market. Their value is their price, sometimes called exchange value.

Let’s say you’re a serf, freshly booted off your lord’s land. To survive in this new market society, you’ve got to make money. Now, you could go and sell your labor at the freshy opened coal mines, or you could go into business producing wool. Obviously, the latter is preferable. But, there’s a price.

First, you need to cover the startup costs. You need money to rent some land, buy some sheep, and pay some laborers. Luckily, the local loan shark can help you out – if you pay him back with interest. You take the deal. 

Imagine you take out a million-dollar business loan from a bank. Where does that cash come from? A vault somewhere in the back? No, not really. As a matter of fact, the bank just adds a few zeros to your account balance, and poof! A million dollars is created out of thin air.

This money now exists with the expectation you will pay it back in the future. If you don’t, you’ll suffer major consequences. For the privilege of getting a loan, you pay the bank in fees and interest. The more loans a bank makes, the more money it collects. So, banks make as many loans as possible.

Wasily, a trained economist, is having difficulty finding a job. Meanwhile, Andreas is having trouble selling his lovely summer home on the island of Patmos. Both men are trying to sell something but are having no luck finding buyers. Could it be that they set their prices too high?

Well, yes and no. If Andreas dropped the price of his beach house to, say, ten dollars, he wouldn’t have any problems finding a buyer. After all, everyone appreciates a cheap island getaway. But what about Wasily? If he lowered the price of his labor to ten dollars, would someone buy it? 

Picture this: It’s the early 1800s, and you work in a cotton mill making fabric. One day, you receive bad news – the boss bought a fancy steam-powered loom. This new machine can produce fabric faster than even dozens of human workers. You’re fired. Now what?

Well, you might gather some friends and smash that new loom into smithereens. That’s what the Luddites did in the nineteenth century. This group of angry mill workers in England led one of the first major movements against automation by destroying the machines that were replacing their labor.

Gold, shells, paper notes. All sorts of items have been used as currency throughout history. In the POW camps of World War II, the common currency was cigarettes, which were donated monthly by the Red Cross. Cigarettes were ideal stand-ins for cash because they are small, easy to store, and, in a camp full of soldiers, desired by nearly everyone.

In the camps, the value of cigarettes fluctuated with the supply. When the Red Cross sent a lot, a single smoke could buy one chocolate. When tobacco was in short supply, that same cigarette could fetch ten chocolates.

Picture a thriving pine forest on the slopes of the Peloponnese mountains. Now, ask yourself: What makes this forest valuable? Is it the shade it provides, its fresh scent of sap in the air, and the birds chirping in its trees? Or, is it the wood you could chop down and sell as lumber?

Unfortunately, in our market society, the price of that lumber – the forest’s exchange value – is all that matters. In fact, almost all of the natural world is simply treated as a reserve of potential commodities for the market.