Stardate 20021123.1609

(On Screen): At its most basic, money is a mechanism for facilitating barter. Before money was invented, people would trade what they had to others for what they needed. That's highly inefficient; if there are goods from twenty people I need, I have to make a deal with all of them. And if some of them don't want what I have, then I need to make secondary deals. When the shoemaker doesn't want my wheat, but does want squash, I need to find a squash farmer, trade some of my wheat for his squash, then take the squash to the shoemaker to get shoes. It can't scale beyond a certain point; everyone ends up spending the majority of their time hauling goods around and making deals.

Money solves that problem. I sell my wheat for money, then take the money and use it to buy what I want. Once it's all done, it amounts to the same thing: I sell what I have and buy what I want (if I can afford it), but the entire process is simplified, and it does scale quite nicely. Barter was probably not possible at a scale much larger than a big village or a very small city-state.

You do get strange price fluctuations, of course, but in general what happens is that goods and money in circulation balance. I work in a factory, and I help produce goods worth a certain amount. I'm also paid that amount, and if that's true for everyone then goods and income balance, and everything comes out straight.

As a society, we find it worthwhile to divert some of our collective productivity to collective ends through government, including through creating and supporting a strong military. We citizens "buy" that by paying taxes.

But the civilian economy also builds itself. A lot of money is spent on producing better factories and buying more and better measurement instruments and better tools, all of which helps to make workers produce more, and that means there's more goods in circulation and the average wealth increases.

There is a value in having a military, but the production which goes into it is parasitic on the manufacturing economy. The workers in defense industries produce a great deal of goods, but it doesn't get put into the civilian economy for purchase; it's diverted, and we all pay for it through taxation.

As defense spending increases, the rate at which the economy grows goes down. Spend too much on defense (or any other kind of government) and you get stagnation; go beyond that and the economy can actually start to shrink. And if a lot of people are producing goods which are taken out of the economy, then they have money to buy products, but not enough products to buy.

In a capitalist economy the result is inflation. In a centrally-controlled socialist economy such as the Soviet Union had, where prices are controlled, what you get is empty store shelves; people with money and nothing to buy with it. There are economic limits on how strong a nation can actually be militarily, and it's gated by the size and strength of its civilian economy.

For brief periods you can go well beyond this level; it takes a while before it really begins to cause problems, and for a few years you can manage it. During World War II, for instance, the US put its economy onto a war footing and applied itself to producing mountains of products to support the war.

That level of defense spending was well beyond the red-line limit; it couldn't be sustained for more than four or five years. But it was enough, as history shows. The problem was that during the war a very high proportion of our manufacturing capacity, over half, was applied to producing goods which were shipped overseas and were not available for purchase by the workers. Some kinds of products ceased to be available entirely; others were closely rationed. But you had all those people working in those factories, and they were all getting paid, and something had to be done about that money.

That's why the US government sold war bonds. It needed to create something it could put into the economy for sale, something which could be produced with negligible application of resources, something expensive which could soak up huge amounts of money. The money gotten from war bonds was indeed used as part of the debt financing for the war, but it was not a very big piece of the deficit financing. (Most of the money came from the usual suspects: banks, big investors.) The purpose of war bonds was to delay people spending all that excess money so that they didn't cause inflation. The war bonds would all mature later, presumably after the war was over, when the economy had returned to production of civilian goods and there would actually be things to buy.

None of the advertising at the time talked about why war bonds really mattered; they all emphasized that they were support for the war. Which was true, but not primary. If people had refused to buy war bonds in sufficient numbers, the government would have been forced to raise taxes to take by force the excess money which people wouldn't voluntarily give up buying bonds.

But though you can use extraordinary mechanisms like this for a short while, in the long run if you want your country to be militarily strong, then it has to be economically strong.

Which was much of the reason why I chose, when I got out of college, to not do defense work. There were certainly jobs available and much demand throughout my career for software people, but I felt it was important to apply my talents to making the fundamental economy of this nation stron