Money

There's a passage I like in Stranger in a Strange Land, in which Valentin Michael Smith (I think that's his name) realizes what the concept of 'money' is. I think that our society today doesn't recognize its conceptual beauty; In a perfect world, money would represent an individual's value added to other individuals; the only way a person could earn money is by doing something that improves another's life somehow. Therefore, the highest paid people should be the people who produce most for society.

Of course, this has some issues. First, what will be used as money? This is easy among a small group, as long as they can agree on something. Historically, of course, gold has filled this role. The problem is, since the Industrial Revolution and the end of Mercantilism, economies have been growing faster than the gold supply, causing deflation. With deflation, people can earn wealth by just sticking money under their mattress, which violates the entire purpose of money.

That's where the Federal Reserve comes in. This is almost as bad; money went from being directly transferable to something solid to being completely determined by faith in the government, with the money supply being completely arbitrary, chosen at the whim of the Federal Reserve Chairperson. I think, for money to perform its purpose, there has to be some set value; I wouldn't be opposed to having the money supply fixed to GDP. I also kinda like David Friedman's idea of having the money supply fixed to a commodity bundle - i.e., like being tied to gold, but instead weighted 1/8th to wheat, 1/8th to oil, etc.

The other question is: does our contemporary society distribute money in the way that I described in the first paragraph? Are the richest people the ones who contribute the most to society? In general, yes, I believe that. People criticize our society because baseball players make several times the amount of school teachers. This makes complete sense, though. Of course, education is several times more important to society than baseball, but the utility is gained from the millions of schoolteachers, whereas the utility derived from baseball is from only a thousand or so players. If the average person in America decides that baseball is worth $10 to them, (on average; it will be unevenly distributed), then that's $3 billion distributed to 1000 players, the executives, managers, coaches, etc. If education is worth $1000 a year to the average American, that means the Education industry is a $300 billion industry. This is distributed over a much larger number of educators than baseball players, which is why they make less than a baseball player.

Of course, there ARE people who make money and don't contribute anything to society; this usually is a result of either force or fraud, or a pure misallocation of resources. An ineffective employee at a giant firm may not be producing equal to his salary, and isn't employing either force or fraud. Government is also a massive perpetrator of giving money to people who do nothing for society, which makes sense given the fact that they can employ force to get other people's money, and government bureaucrats are responsible for spending the money of other people. The person who best knows how to allocate an individual's resources to maximize his or her happiness is, of course, that individual. Anyone other than that person who tries to maximize their happiness with the same resources cannot succeed.

History and Economics

In deciding between the study of History and the study of Economics, I should try to define why I am attracted to each of them. Economics is the application of reason and common sense to reality; it is the science of making good decisions, as one of my econ teachers puts it. One would think that this means that Economics may be limited and straightforward, but it is anything except that, largely because determining what will happen in the future, which can affect decision making, is an art. Especially in Econometrics, thinking about your data and how it relates to other phenomena. There's a misconception that Economics has all to do with money; this couldn't be further from the truth. It's just that people care more about rational decision making when money is at stake.

One of my professors and I wrote a paper about Major League Baseball; the purpose of the paper was to determine if players gave 'hometown discounts,' and whether they accepted less money to remain with their previous team. We didn't find that the first one existed; perhaps players figure they will be traveling enough during the 162 game season that they should maximize their salary and just live near home in the offseason. I have a feeling that people with exceptionally high incomes have less of an incentive to stay near home than those with lower incomes; the cost of traveling home is porportionally lower for someone making a million dollars a year, since they could afford airline tickets, etc, more easily. We did find that players accepted less to stay with their previous team; the psychic cost associated with moving houses, and changing employers, would be about the same regardless of income, it would seem. There was much more to the paper, but that's it in a nutshell.

Does this give us any useful information outside of Major League Baseball? I think it does. When looking for a job, each of us has to weigh the cost of leaving home behind in order to get the best job; quantifying this is useful.