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Accounting:  Introduction

An economy is at heart a simple social activity. Rationalists believe humans are intrinsically capable of economic behaviour. It has been said we are economic animals.  It is generally recognized we are socialable. People totally isolated from their fellows do not do well. We as a species need to engage in economic activity. Poverty is not just a lack of money or things a human being needs it is a moral travesty, a moral outrage. Poverty is a negation of what it means to be human. Poverty hinders human development and the expression of our humanity

Accounting:  Keeping Records

The basic social unit is three people. Two is a relationship. To have a basic economy we need at least three people and more of course is better. At the heart of an economy is people helping one another. The motivation is that we are all better off if we help one another equitably. But if one person does nothing and the other two has to support him the benefits plummet. This is why rationality requires some way of keeping accounts.

We are all able to do this spontaneously. We know when someone is cheating us and this knoweldge demotivates us.

We have a phrase for this. we refer to such people as someone who is not pulling their weight. So there is an innate sense of right and wrong based on our sense of economics. But without a proper system of accounting it is hard to keep records of anything but the simplest of transactions. When friends help friends then know who helped them and who they have helped but this is a very informal and inaccurate way of keeping accounts. To have a developed economy we need to have a formal system of accounting. This is the money system.

Accounting:  Money And Currency

Money is the quantification of value. We may think of value in terms of times helped or hours helped. This generally sufficies for the simple transactions of an informal economy. Tribes generally use informal accounting. A good hunter distributes his kill according to the probability of being helped and the help he has received in the past.

It was a huge leap in accuracy when currency was created. It allowed money to be represented physically. A string of shells or a gold coin represented a unit of money that reprented a certain amount of meat, or arrow heads or whatever else was being traded.

But the economy was held in thrall by those who created the money. If gold was not discovered or discovered in huge amounts it impacted the economy and all prices in it.

When the industrial world move to a paper currency the impact was the same but the potential abuse and the degree of control was increased by a large order of magnitude. It is far easier to print paper dollars and create electronic money than it is to find gold.

Accounting:  Free Market

When three people trade goods and services and track this in an informal way they have an informal free market. The addition of a currency gives the economy formality because currency is an objective representation of the money that has changed hands.

We need to focus on the economy as a formal system of exchange using a currency that directly represents money. Unfortunately money and currency are treated as synonyms but we need to distinquish between the actuality of value and its quantification into numerical units that are multiples of one another and the thing we use to represent this.

If we can do this then we can see that your values are not my values are not your values. If I am the person in charge of the money supply I may not give you money to purchase a sports care because I do not see these things being worth what they cost. I may also not give you the money to produce a sports car and this will shut off the creation of an entire economic sector.

As adults we would resent still have to go to our parents for an allowance and permission to purchase a DVD but allowing governments and banks to produce and limit our money supply is the same category of organization.

When we want a candy bar we go to a store that sells candy bars and we pick out the one we want. This is a preset option provided by the store owner or perhaps the franchiser or perhaps even a distributor.

The store's and distributor's idea of which candy bars should be available to you are not the free markets range of options. The free market is what you want in a candy bar modified by the price you are willing to pay. But this means you have to have the money and you have to be able to define what you want to others. This is done through the free markets allocation of money but if the free markets does not have any money except that provided by some human agent the free market can only work under the aegis of the human agent.

Accounting:  Entrepreneurs

The free market cannot function without entrepreneurs and entrepreneurs do not exist without a free market. This idea will developed more elsewhere but it is important we realize that an entrepreneur only exists to the degree the market rewards him or her for his or her activity. Total rejection by the market means that the entrepreneur remains unknown and her work unrecognized.

If the market is controlled by monopolies then entrepreneurialism exists only to the degree that the market acts as a free market. Monopolies never act as responsively or as responsibly as a free market so there is always a loss of efficiency as a free market is hindered in its allocation of resources. This was apparent in Communism as Russia fell rapidly behind the American model simply because American Capitalism reflects the free market better than Russian Communism could.

If the free market is not responding to entrepreneurs monetary needs then entrepreneurs cannot create the private property that is the key to prosperity and indeed key to the existence of the free market. There has to be private property for the free market to exist as a system of allocation.

Entrepreneurs are in many ways the accounting system of the free market. If entrepreneurs cannot help one another to be entrepreneurs then no private wealth is created and there is nothing to account for. Rational Exchange promotes entrepreneurialism by promoting radical ways of funding entrepreneurialism because only entrepreneurialism that creates private property.

April 24, 2013