Financial Collapse is Survivable...and Not Inevitable...

…if we remember what money is…and affirm our Judeo-Christian heritage and faith.

“We” in this case refers to the individual-by-individual, neighborhood-by-neighborhood, community-by-community identity that ultimately builds itself into the nation-state called the United States of America.

And what must be remembered about money?

It is a measure of our trust in our fellow man, based largely on what we believe man is. And what Americans believe man is, is derived from our Judeo-Christian heritage and faith. If we don’t lose this trust and faith, there won’t be any financial calamity from which we can’t recover.

We’ll expand on all that in a moment. But first, some basics about money, as applied to all the fear and angst over what is being widely predicted as the imminent financial collapse in America and the world.

In order for human society to advance beyond the simple barter of physical goods—e.g., two coonskin caps for four moccasin shoes—there had to be a medium by which to facilitate the exchange of goods and services. Otherwise, the person who needed coonskin caps but didn’t make moccasin shoes had no way to get them. And so the medium of exchange had to be something that was as solid and stable in value as that offered in a barter exchange—it had to be worth four moccasin shoes.

“Precious” metals, such as gold, were and are one potential medium; so is paper money. But to state the obvious, no medium of exchange is an actual physical substitute for the ‘purchased’ good. Paper money is not a shoe; gold will not keep your head or your feet warm.

The uselessness of the medium of exchange vs. that which it ‘buys’ is true across the board, regardless of the form of the medium. There is only one way the medium of exchange actually has value, and that is if a community of people agree that it has value and therefore trust that within their community that agreement and that trust will remain steady and reliable. If a community of people changed their view of gold, and saw it as just another element of earth, it wouldn’t matter if you were given the keys to Ft. Knox—you would have no more food, clothing or shelter than the next guy, and your ability to gain food, clothing and shelter from your stockpiles of gold would depend entirely on your ability to convince someone else that they could use the gold they get from you to gain other things that they need.

These are basic, common sense, ‘Economics 101’ concepts, but they mask a more important process that is going on in the use of a medium of exchange within a community. It’s the acting out of a shared view of what is valuable and what is worthy of trust. And to plunge a little deeper, the stability and reliability of any medium of exchange is actually a measure of the community’s trust in the enduring rightness of the community’s ideals and the capacity of the community members to live up to those ideals.

An orange golf ball could be a reliable medium of exchange within a community if everyone agreed that it was, and if everyone trusted that the maker of the orange golf balls would make the right number of them in the same way and out of the same stuff all the time. In other words, an orange golf ball would be a reliable medium of exchange if everyone trusted the honesty and integrity and ability of the orange golf ball maker, and everyone trusted that everyone else had the same trust.

It’s no wonder the US dollar has generally been declining in value; after all, what backs it as a medium of exchange? The US government. If the US government acts lawlessly to takeover General Motors, deny creditor legal rights and hand control to unions; if it enacts laws without reading them and without being truthful about what costs are associated with those laws; if it borrows money it cannot repay without confiscating the property of its citizens (read: outrageous unpayable taxes) against their will; if it acts without any legal authority whatsoever to confiscate $20B from private enterprise to dole out to others—what happens to the worldwide and national level of trust in the honesty and integrity and ability of what is backing up the medium of exchange called the US dollar?

To ask the question is to answer it: the US dollar declines in value. And so long as the evidence continues to pile up of dishonesty, corruption, extortion and general lawlessness in the US government—there is potentially no end to the decline in value of the dollar, down to and including a worldwide rejection of it as worthless, a/k/a, a financial collapse.

But the good news is that what backs the US dollar is only nominally the US government. It’s really the American people, and their shared view of the rightness of their country’s ideals and their confidence in their countrymen’s ability to live up to those ideals.

We’ve noted recently that America is not a 50/50 nation; it’s much closer to a 70/30 nation, where the 70% are united, perhaps as strongly as ever, in a reawakened and shared view of the rightness of America’s founding ideals. They know they are dealing with an administration that does not share or live up to those ideals, but they haven’t forsaken those ideals or their general confidence in their countrymen. They still trust the ideals and their fellow Americans.

This trust ultimately springs from what we think of man (and woman) in general. And what we think of man in general is itself dependent on what we think is man’s creator. Do we think man is the product of randomness—a big bang of matter—without steady or reliable instincts for goodness or honesty or fairness? Or is he the creation of a loving God—and endowed with inalienable rights to life, liberty and the pursuit of wisdom and virtue? (When Thomas Jefferson penned the Declaration of Independence and used the words ‘pursuit of happiness’, he was drawing on similar expressions from the Scottish Enlightenment, which understood happiness to be based upon the practice of wisdom and virtue).

Americans by huge margins reject a big bang origin of themselves and their fellow man. They still believe in one Creator and in self-evident truths not given or defined by man, but by God. They still believe man and woman are created equally, in the image and likeness of a good and loving God. These shared ideals and values mean a trusted medium of exchange inevitably will be restored or newly established among Americans. This doesn’t mean ‘losses’ will not occur in the process of restoring or newly establishing a medium of exchange; but it does mean the foundation of money hasn’t changed and can’t truly collapse. It may suffer temporary setbacks or upheaval, but collapse? Never.

As a result, a financial or monetary collapse, if it happens, will not be permanent and need not be devastating to societal cohesion or individual well-being. The remedy of trust and faith will be right at hand, just as it always has been. We just have to claim it.

Paul Gable

June 20, 2010