The Fantasy Machine
Sam Aurelius Milam III
There
are "laws" (observations, actually) that describe the way things behave
in the physical world. The First and Second Laws of Thermodynamics
deal with the facts that we can't get more energy out of a process than
we put into it and that, in practice, we can't get that much.
A
car is an example. We put energy into it in the form of fuel and
get energy out of it in the form of speed. When we compare, in equivalent
units, the energy inherent in the speed and the energy inherent in the
fuel, we find that there is less energy in the speed than in the fuel.
We can attribute the "loss" of energy to such things as mechanical friction
and air turbulence. Part of the energy of our fuel is consumed by
those things. We accept those losses because the smaller amount of
energy inherent in the speed of the car is actually more useful to us than
the larger amount of energy inherent in the fuel.
These
laws also explain why a perpetual motion machine cannot work. For
example, if we use a motor to turn a generator, then we can't expect the
generator, by itself, to produce enough energy to run the motor.
The best that we can ideally hope for is to break even. If we consider
friction losses and inefficiencies inherent in the system, then we will
come out behind. To get out as much energy as we originally put in,
additional energy must be added from some other source.
I
propose that there are also "laws" (observations again) that describe the
way things behave in the economic world. The First and Second Laws
of Economics (as I shall call them) deal with the facts that we can't get
more value out of a transaction than we put into it and that, in practice,
we can't get that much.
A
purchase at the grocery store is an example. We put value into the
transaction in the form of money and get value out of it in the form of
groceries. If we could compare, in equivalent units, the value inherent
in the groceries and the value inherent in the money, we would find that
there is less value in the groceries than in the money. We can attribute
the "loss" of value to such things as the costs of lights in the store
and salaries of the people who work there. Part of the value of our
money is consumed by those things. We accept those losses because
the smaller amount of value inherent in the groceries is actually more
useful to us than the larger amount of value inherent in the money.
These
laws also explain why interest-bearing investments cannot work. For
example, if we add value to an account in the form of money, then we can't
expect the account, by itself, to produce more value in money than we put
into it. The best that we can ideally hope for is to break even.
If we consider paying the costs of lights in the bank and the salaries
of the people who work there, then we will come out behind. To get
out as much value as we originally put in, additional value must be added
from some other source.
These
principles are obviously immutable in the world of physics. Over
the long term, and on average, they're also immutable in the world of economics,
but it isn't so obvious. The reason is that in physics, the amount
of energy per unit of measure is constant from time to time and place to
place. A joule is always the same amount of energy. In economics,
the amount of value per unit of measure isn't constant. The value
of a dollar keeps changing. We invest some dollars into an account
and get a greater number of dollars back. We think we have received
more value. We haven't, because the value of the dollars decreased.
In the long run, we can't get more value from interest bearing transactions
than we put into them. When we try to do so, we're trying to run
an economic perpetual motion machine, a fantasy machine. The only
way to get more value is to work, and create real value.
| Frontiersman@ida.net | Frontiersman,
479 E. 700 N., Firth, Idaho 83236
Also see The Pharos Connection at http://www.ida.net/users/pharos/ |
February 1999
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