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A useful reminder of where money comes from, what money is

Summary:
The Guardian, of all newspapers, treats us to an excellent overview of what money is, where it comes from. Looking at the prison economy at Angola - no, the prison in Louisiana, not the country - tells us that:Trades in both economies work because of the most basic law of prison economics – that a prison is a place defined by unsatisfied needs, tastes and demands. Both economies are self-built, organic and highly innovative. Both show that a currency, the provision of which can seem like the ultimate role of the state in an economy, can be established completely informally. Prisons show that the human urge to trade and exchange is impossible to repress, and that solutions to future challenges are as likely to come from informal markets as formal ones.It’s worth noting that this entirely

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The Guardian, of all newspapers, treats us to an excellent overview of what money is, where it comes from. Looking at the prison economy at Angola - no, the prison in Louisiana, not the country - tells us that:

Trades in both economies work because of the most basic law of prison economics – that a prison is a place defined by unsatisfied needs, tastes and demands. Both economies are self-built, organic and highly innovative. Both show that a currency, the provision of which can seem like the ultimate role of the state in an economy, can be established completely informally. Prisons show that the human urge to trade and exchange is impossible to repress, and that solutions to future challenges are as likely to come from informal markets as formal ones.

It’s worth noting that this entirely disproves a current contention, that fiat money gains its value from the insistence by government that one must pay taxes in it. We’re entirely happy to agree that this aids in creating the value of the pieces of paper. But non-governmental monies do exist and do retain value thus taxation isn’t the be all and end all, is it?

It’s also true that we’ve known this since the 1945 paper on the value of cigarettes as money in a WW II prison camp:

One aspect of social organization is to be found in economic activity and this,

along with other manifestations of a group existence, is to be found in any P.O.W.

camp. True, a prisoner is not dependent on his exertions for the provision of the

necessaries, or even the luxuries of life, but through his economic activity, the

exchange of goods and services, his standard of material comfort is considerably

enhanced. And this is a serious matter to the prisoner: he is not "playing at shops"

even though the small scale of the transactions and the simple expression of comfort

and wants in terms of cigarettes and jam, razor blades and writing paper, make the

urgency of those needs difficult to appreciate, even by an ex-prisoner of some three

months' standing.

Or as we might put it, that propensity to truck and barter is innate, with money being the method of tracking who owes what, who has a claim on resources.

Or even, as we might put it and as we would put it, the existence of a market economy is simply an innate part of there being a group of humans. Which is a useful lesson to have really, isn’t it? Attempts to have non-market economies aren’t going to work with humans.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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