When I was in my final semester of high school in 1963 I took a required course in American government. The teacher was a young man who had recently graduated from Harvard with a degree in economics. He was much too smart, and much too liberal, to be teaching in a high school in the suburbs of Denver in which all the brightest kids were Young Republicans, and the more ordinary students were obsessed with winning state championships in football, basketball and track. Most students found him an unbearable nerd. I loved his ability to shake up my limited world view.
One of the biggest grenades this teacher (whose name I am ashamed to have forgotten) lobbed into my Weltanshaaung (a word he taught me) was his insistence that money is not backed up by anything but faith in, well, money itself. A dollar is worth a dollar only because people keep thinking it is worth a dollar. A dollar is a fiction that liberates people from having to trade a bushel of apples for a garden hoe in some bartering transaction. If someone has a bushel of apples, he can sell it to me for a handful of dollars, and then he can buy something he really wants from someone else; he doesn't have to settle for the garden hoe I happen to want to get rid of. But what makes the entire system work is just faith in the system.
This no doubt oversimplified explanation of how money works drove me crazy. I hated the idea that anything could depend on something as fickle and friable as faith. Faith was for religious fanatics who believed in all kinds of spooky realms and unlikely fantasies about the dead being resurrected and everyone's sin being atoned for by the death of one man on a cross two millennia ago. I wanted economics to be built on a more solid foundation. I wanted something tangible, like gold, or at least granite, to be backing up the American dollar. Somehow or other, however, I got used to the idea that money is essentially a fiction that has value only as long as people continue to believe that it does. I never liked this economic reality very much. I just got used to it.
Events of the past few months have reminded me of what I learned about money in my senior year in high school. Not being an economist, I understand nothing about money in sophisticated terms. I see all financial things through the eyes of a child. So what the current economic situation looks like to me is that a bunch of greedy financial people thought they could get very rich indeed by making loans to people who were not likely to be able to pay the loans back. As people around the world began to see how much money was being lent in ways that even faith could not support, faith crumbled. As a result no one has as much money as they used to think they had. And the money they do have will not be nearly as effective in helping them acquire the goods and services they believe they want, because of two things. First, money loses purchasing power as people lose faith in it. And second, when money loses purchasing power, people stop producing the goods and services that they used to provide. So even if people still have money, there won't be as many products to buy with it. For one person to be able to go on a cruise, he has to find a few thousand other people who want, and can afford, the same luxury. When there is no longer a critical mass of people seeking luxury cruises, cruise liners will stop running. All the money one has saved up cannot buy a product or service that has ceased to exist.
There is in all this something that I cannot help thinking is going to end up making the world a much better place. Commodities, even the so-called green products, tend to create conditions that degrade the environment. An ordinary automobile that meets American fuel efficiency standards carrying two passengers consumes about one gallons for every 55 passenger mile. In contrast, an intercity bus uses about one gallon for every 330 passenger miles; a train consumes about one gallon for every 328 passenger-miles; a hybrid automobile carrying three passengers uses about one gallon of fuel per 165 passenger-miles; a commercial jet airplane uses one gallon for every 20 passenger-miles; a cruise ship uses one gallon for every 17 passenger miles. So as the economy tanks, and more people walk or bicycle or take buses or trains, the total amount of fuels consumed will decline dramatically, leading to a reduction in greenhouse gases, and that can only be good for the environment.
Another positive outcome of a failing economy is likely to be a dramatic decline in the production of highly toxic products such as computers, mobile telephones, televisions and other electronic products that no one really needs. Their increasing availability has created terrible waste disposal problems around the world, especially in the poorest countries. As economic factors force people to wean themselves from these instruments, the environment is likely to improve.
Perhaps the best outcome of all of an economy in which faith-based financial instruments have lost their value is that people will one again discover the satisfaction of working for each other instead of for money. Communities based on real human values are likely to re-emerge. An economy in which a person's wealth is measured in terms of how much he can lend a hand to help others and provide their needs could well replace an economy in which wealth is measured in terms of how much one can hoard. An economy based on genuine needs rather than artificially created desires would be a welcome change.
Life is so complex that the only thing one can be sure of is that not much that happens will have been expected and accurately predicted. Perhaps none of the changes that I would welcome will take place. Still, it is no more inherently risky to hope for the best than to have faith in the value of fictitious money.
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