The Food Standard

I’ve been doing a little bit of study on monetary policy the last couple of days. It’s interesting to see the different viewpoints on how money works. Most of these views fall short of a true and full understanding. As a result, the policies proposed by politicians, economists, and analysts have certainly fallen far short of able to accurately manipulate currencies to produce the desired results.

Politicians, having almost no concept of wealth and money, find it personally advantageous to increase the monetary supply, thus giving themselves “free” funds to buy power and support with. The Federal Reserve has mistakenly dedicated itself to attempting to control interests rates rather than the money supply. Interest rates cannot be accurately controlled, nor should they be manipulated. The money supply, on the other hand is fully in their power, and they’ve done a terrible job with it.

Money used to be real. For centuries they used precious metals as trading mediums. These metals had real value to those people, and thus the value of the traded item was esteemed equivalent to the value of the metal. America, during the 17th century, used tobacco as their trading medium. Again, a certain value of tobacco was traded for an equivalent value of goods. Eventually America went back to gold for their trade medium. Each Federal Reserve note (dollar) represented an amount of gold stored by the Fed. Theoretically, you could have returned the note and received the gold you owned.

Decades ago, however, our politicians got tired of being tied to a physical commodity for their currency. It allowed for no currency manipulation, thus preventing them from exploiting the contemporary economic theories to their advantage. So they got rid of the requirement. Now a dollar theoretically still represents a value, but it is just a representation. The value it holds is imaginary, it is not contracted to anything of real value. Thus it only successfully serves as a currency if the people who possess them agree upon their value. This is a very risky and unstable system.

First, it allows for, and even encourages monetary manipulation. The mere possibility itself promotes skepticism, but when currency is manipulated, trust in its value naturally and correctly diminishes. Second, it creates an imaginary market, a market of value. Value does not itself have a value. It is not a product to be traded. It is an idea, an opinion. Thus the currency market is false and unstable, having no real foundation. And third, establishing an economy on imaginary currency provides no safety net to fall to. There is no physical resource behind the paper to use in a crisis. If the currency loses its value, you are left with nothing but empty promises.

Because of these issues, many have called for a return to the gold standard. Thus there would be a valuable resource behind every dollar bill, and actual resources in the bank if and when we run into hard times. But is gold really what we want to be turning to in a crisis? What value does gold really have? It is a great value when economies are good, because it is relatively rare and nice to look at. But if we need to use it to get the economy moving again, of what use would it be? Would foreign nations give us their resources in exchange for gold if they needed those resources as well? What good does gold do for them? The high value that we have put on gold is the same as the value we’ve given to the dollar. There is no real value except what we imagine it to be.

To illustrate the point, if everyone considered gold to be unpleasant to look at, would it still be valuable? If the answer is no, then its entire value is based on an opinion. It is imaginary. And if economies fail, the imaginary value of gold will suddenly disappear.

Instead, money should be based on something of real value, something useful. What, if there was no money, would be of such value that he who had a lot would be considered rich, and he who didn’t was poor? What would people trade their products and services in order to obtain? This is a stable resource, the resource on which we should base our currency.

The answer that came to my mind was food.

Consider that as a scenario. Our monetary system is based on non-perishable food and seeds. Fort Knox is a huge storehouse of food. The Federal Reserve is a reserve of food. All banks are food banks. Supermarkets would still exists, but we could pick up basic canned food items from the bank if we wished. Each can deposited to the bank returned a market dollar value in currency. The currency is then used as it is today. But if ever needed, the money could be returned for cans of food. That currency note is actually tied to food, so when you pay for something in cash, you are trading food for that item.

At first I wondered if this would not lead to inflation. All of sudden money really could grow on trees after all. Farm production would certainly increase. This is what happened in the 17th century with tobacco. The number of tobacco farmers grew quickly, and the tobacco production grew to huge surplus levels, and thus the value of the tobacco dropped significantly. This was one of the earliest known problems with inflation. Would having a food based currency not lead to the same issue? Well, not really. If the supply surplus is huge, than the value of food could certainly drop, just like anything else. But of all things, food is the one thing that can never collapse in value. Its demand will never diminish.

Inflation would not actually happen until the surplus covered the world, since food is of great value to all nations. Selling food to foreign nations for their resources would be easy. Thus our surplus would serve, not only to provide a safety net in case of collapse, but also as barter items for foreign trade. So food would not begin to lose value until the entire world was covered with food. An interesting solution to the world’s starvation problems. At this point, if the production of food was to continue to increase, and inflation began to happen, the free market would naturally balance the production. New food producers would stop popping up as they become less profitable, and service industries would grow instead. Food, and thus money, would find its natural and optimal balance, and thus promote the optimal conditions for economic growth.

I see only a couple of issues with using a food standard for currency. First is determining a system of what foods to buy, and what the value of each item is. Quality and taste determine the value of food. This could be resolved with market values, as the food market would never cease to exist. But I could foresee issues with food companies fighting over determined market values. Of course, these issues would be resolved with markets as well. Banks will try to get the most food for the buck. So will consumers. Competing food producers will fight for the most buck for the food. Competition between banks and consumers will give producers fair prices. Competition between producers will give banks and consumers fair value.

The other issue that I foresee is that of the perishability of food. A system would have to be worked out that food is not stored away for too long and is cycled properly. The system would likely be somewhat complex, and would require government to administer it (you all know how I feel about adding to government responsibilities). But it is certainly something that could be worked out.

Once we replace our trade from exchanging items of value for currency of imagined value to exchanging things of value for a currency of real and unimagined value, the economy no longer will be held in submission to the whims of politicians, but be freed to grow at a rate never before imagined. If we were to use food, the only universal and irreplaceable staple of life, we would accomplish the most stable and perfect base for trade that’s ever been tried. And we would find it easier to sleep, knowing that we all have more than a year’s supply of food stored up all across the nation.