73. Goods, Services, and Promises

Goods, Services, and Promises
Bob Komives
::

I argue that it is wrong for a government which mints money to recall this money to cover its expenses. It follows from that argument that borrowing to make up for insufficient recall is wrong because it is unnecessary. I have a hunch, however, that you will hesitate before accepting the futility of monetary recall. Also, I think borrowing is an interesting topic. So, I choose to come at the balanced budget question from the borrowing side.

My friends, too,
go where I want to go
to share what I am eager to share.
My enemies, too,
go where I want to go
to get what I am unwilling to give.

Footnote, Draft Three

I argue that in economic terms the standard deficit calculation is fantasy. In financial terms, however, it exists. National government has borrowed a lot of money. Necessary or not, the paper obligations occupy big spaces in our marketplaces.

In our marketplaces people every day distribute and redistribute the world's wealth. They buy goods and services at prices derived from dynamics between traders. Depending on our view of a transaction, we call one trader, buyer, and the other, seller. Each wants to get as much as possible while giving up as little as possible.  They both have an incentive to bargain and reach agreement on price because each is threatened by the consequences of not getting the desired commodity. Microeconomic theory bases itself on this simple but dynamic relationship.

We might expect that in the perfect marketplace trading will continue until everyone is happy with what she has and then stop. This does not happen due to some obvious dynamics. Goods and services get used and must be replaced. Tastes and desires change; what we wanted yesterday we may wish to trade away today. Old traders die; new ones arrive. Also, even as we have world markets for many goods and services, one marketplace cannot contain all the world's goods and services. Even if it could, new goods and services keep arriving while some old ones deteriorate, decompose, or disappear. These dynamics do not bother microeconomics much because researchers can usually design their analyses so that they can safely assume that the marketplace does not change enough to confuse their conclusions. 

When venturing away from microeconomics, however, economists must concern themselves with a less obvious dynamic. Many of the newly arriving products and services have not arrived by camel or airplane from some distant market, but have merely appeared out of thin air. Goods and services are not just shuttling between markets. The goods and services available in the total of all marketplaces really grow. New goods and services regularly intrude in old marketplaces. These intruders from thin air are economic growth as manifested in the marketplace. 

Even less obvious than these intruders is the trading in thin air itself. Traders deal not only in old commodities and new commodities but also in the mere prospect of new commodities. One gullible trader will give away real goods in exchange for the promise from a trustworthy trader that she will return next month with real goods in exchange. Using the resources she bought with a mere promise, the trustworthy one will go out and try to produce and maybe invent enough during the month to go back and pay her promise. The gullible trader who gives away the real goods for a mere promise knows that not only must he stand and wait, but he stands at risk. She may not come back and make the payment. It is reasonable for him to set a price that is above the going price for immediate trade in the marketplace. He adds some penalty for his wait and his risk.

While I describe this transaction as a sale, which it is, it is also a loan. In receiving immediate payment (in goods) and delaying her own payment, the trustworthy promiser has borrowed. The gullible one has lent her the value of his goods. By tacking a penalty to the price of the goods he delivered, the gullible trader has issued a loan which is to be repaid in principal (immediate market value) plus interest (penalty). Whether the exchange is in chickens or coins, it is a loan. Both parties do seem pleased with the promissory note; they entered into it freely.

Wherever buying and selling based on promises became popular, everyone could buy and sell more. They did not have to restrict themselves to the goods and services actually in the marketplace. They could speculate on the ones that would be there a month, a year, a day later. Merely by allowing this speculative activity, the marketplace grew. All the real goods and services were there together with the promised ones. Since both the real and the promised were being traded, the total value of the market was now greater than when only real goods and services were traded. The value grew even more when people not only entered into promissory notes but began to actually buy and sell the notes themselves. The man who sold real goods for a promise suddenly needs a real service. He cannot wait for the loan to be repaid so he buys the service using the promissory note given him earlier in trade for goods. When the trustworthy promiser returns she must pay the new holder of her promissory note. As this practice becomes understood and accepted, traders can deal in promises alone, "I'll give you these three one-month promissory notes for that one-year note you have."

Thus, one simple marketplace
expands into the once simple marketplace
where next to traditional good and old service
come the novel good and new service,
newly invented,
newly imported,
newly produced.
Then come
the promises of more to come,
and finally,
midst them all,
we find the market
for promises of promises,
for the some-day goods
and yet-to-be services,
to be sold
for the price of expectation
--for risk and promise
of what this marketplace may yet become.

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:: Bob Komives, Fort Collins © 2006 :: Plum Local IV :: 73. Goods, Services, and Promises ::
With attribution these words may be freely shared, but permission
is required if quoted in an item for sale or rent

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