The pound in your pocket.
Feb 19, 2014Posted by on
We all have a notional idea of what money is, ideas that may not extend beyond its existence as the pound in our pocket. We certainly understand the purchasing power of any monies we may have. It would seem that any notion of money only becomes complicated when we talk to economists; who are clearly divided in their views of what money is and what form it should take. An economist would want to us to be more precise about our idea of what money is.
At which point I think most of us would say: “Look, money is money! What I want: is for the cost of things that I pay for to stop increasing faster than my income rises!” Depending on which school of economic thought our economist subscribed to, we could be offered a number of views intended to overcome our naivety on this matter. And, having obfuscated any ideas that we may have held, the now smug economist leaves us to muse over the pound in our pocket; with, perhaps, the remembered voice of Harold Wilson coming to mind.
An elected government is simply the custodian of a nation’s wealth with responsibility to maintain the purchasing value of a nation’s money, both nationally and internationally. Nevertheless, once elected, a government effectively has an unfettered monopoly over the purchasing value of a nation’s money, exercised through its fiscal policies of taxation, borrowing and the issuance of ‘new’ money.
In terms of a nation’s wealth, government acquisitions and disposals are invariably made for short term political gain and not the longer term national interests. These acquisitions and disposals, particularly in the UK, have resulted in significant reductions in the nations sources and stores of wealth and have led to an increased burden on the taxpayer.
So where does all of this leave you and me? Certainly no wiser regarding the schools of economic thought on hard (sound) money or soft (stable) money. The nature of money would seem to engender passion in the few and indifference in the many. The world seems to be content with fiat (soft) money, which some economists contend puts the people in thrall to the government.
If such thraldom exists, it certainly isn’t an invisible hand. The purchasing value of that money available for spending and saving, after income tax deductions (disposable income) and that available after all personal debts, including the mortgage, have been paid (residual income) is always apparent. Having purchased what we consider to be all our ‘necessities’, we may be left still musing over that pound in our pocket (discretionary income).