The Judgment of Value

The central banks, the printers of money, the governments, the treasuries, the powers that be have no say in the value of a dollar. That judgment of value is reserved for the recipient of those freshly printed dollars.

Even those of us that hold dollars, that hoard them in our mattresses or bank accounts, have no say in the value of those dollars. The people that we offer those dollars to have the power to judge their worth, and to decide how much time, labor or real goods they are willing to part with for a piece of paper.

Think about the fact that Ben Bernanke said that he can control the value of the dollar with the printing press (or today's electronic equivalent). Can he? Does he have that control? So far he seems to be printing with reckless abandon yet we, the people, still receive those dollars and judge them to be worth the same as before. Have you insisted on a raise at work? Have you told your boss that you will not come back to work unless you receive more dollars for each hour of your valuable time? Of course not.

So by what mechanism will the recipients of dollars finally tell Ben that he cannot have as much "stuff" for his magic paper? Ben truly does not have control of this. Everyone EXCEPT Ben does.

The problem is that most of us don't have a choice. The only thing we have to part with in exchange for paper dollars is our time. And at that, we are living right at the margin. In other words, we trade time today for what we need tomorrow. And paper dollars are the medium of this exchange. So we don't have the luxury or the power to pass judgment.

Those that DO have the luxury and power of passing judgment on the value of the dollar are the people that have great surpluses of wealth and real goods. Those that control the industries of the world and those that control the stockpiles of real wealth and the stuff we all want and need.

The mechanism by which they pass this judgment is an enormously complex and recondite concept. Our government tells us this concept is called "inflation" (or "deflation"). They tell us that these people of great control either "inflate" prices or "deflate" them. But in reality, these people are simply trying to balance the goods they can receive in the future against what they are willing to part with in the present. To do this, they weigh what they have in stock against what they need and want. And they pay close attention to the cost of those other things as well as the availability and time horizon for acquiring them.

Of these people of great surplus, there are actually two groups. One group controls the distribution of wants, and the other the distribution of needs. In the simplest terms, think about the people to whom you offer your paper dollars. There is your grocer who exchanges food for your dollars in the latter group, and there is the electronics dealer who exchanges televisions and iPods in the former. Together, these two groups bid for your dollars with the amount of goods they offer in exchange. And in this way, they judge the value of the dollar. The central banker has no say in the matter.

The wants and needs groups can be differentiated by saying that wants are subjective and needs are objective. In other words, EVERYONE has certain needs, but WANTS are subjective to the individual and to current circumstances. Needs require very little marketing. They do not have to convince you that you need something like food. But wants require a great deal of marketing. Those people that control the "wants stockpile" must convince you that THEIR want is actually a need, especially during hard times.

So it follows that one group has greater control of the judgment of a dollar's value than the other. One group will always have people lining up to offer their dollars for judgment, while the other group must actually line up FOR your dollars. Do you see the difference?

When it comes to needs, people are in a long line with money in outstretched hands waiting for that money to be judged. When it comes to wants, SUPPLIERS are in a long line with "wants" in outstretched hands waiting for their WANTS to be judged by you and your dollars. So in a way, they no longer have control of the judgment of the value of currency. They have LOST that power during hard economic times.

Ben Bernanke says he is worried about "deflation", or his definition of deflation which is these suppliers LOWERING their prices. So in order to fight against this, he is attempting to double and triple the amount of currency in circulation. The idea being that with more dollars out there, these suppliers won't want to part with their goods for the same amount as before. They will want more.

The problem is that Ben (and the deflationists) are looking at the suppliers that NO LONGER HAVE CONTROL OF THE JUDGMENT! Ben is reacting to the actions of people who are only reacting to the bad economy. These people are not lowering their prices because they judged the dollar to be more valuable. They are at the mercy of collapsing bubbles and a bad economy. So Ben is printing in vain based on his theory and his objective.

But on the other hand, there is a sinister undercurrent to this situation. That group of suppliers that still DOES have control of the judgment of the value of dollars is still out there. It has not lowered its prices and it is watching these developments. It is watching Ben's frantic and reckless printing and it is wondering, "as I part with these life necessities in exchange for your dollars, will I be able to later recoup a commensurate amount of stuff?"

This group is watching this very closely. It is weighing its own stockpile of "needs" against what IT wants and needs, and it is paying close attention to cost, availability and time horizon for acquiring stuff.

This group is being completely ignored by Ben Bernanke and the other deflationists. But the fact of the matter is that this relatively small group of people is like the Supreme Court of Judgment for the value of the dollar. Once this group decides that the dollar will no longer work as a medium to transfer to them a commensurate amount of stuff with what they are parting with in the present, watch out!

This group which is being ignored is a little jumpy right now. They know they are being ignored and they know what is going on. They know that they are sitting on stuff that everyone needs, including themselves. And they are paying close attention to the size of their stockpiles. They are worried about the resupply lines. They are worried about getting "caught with their pants down". They are worried about waking up one day and finding themselves with empty shelves and a bag full of worthless paper.

So far they have not acted on this worry. They are still playing along. But make no mistake, they alone have the judgment power that makes ALL the difference. Be nice to them, because THEY will ultimately judge the value of your dollars. And if this makes you nervous, then why not exchange a few of your dollars for something they will judge well once they have sent the dollar to the stockade? Then, when empty shelves are everywhere, you will still have something they will want in exchange for what little they have left, hidden in the back.