Saturday, November 25, 2006

Divine Economy Theory And Balance of Payments.

It is rather simple to understand balance of payments as long as good economics is used. Bad economics sees effects over only a short period of time and bad economics sees only the effects on some, not all.

To explain balance of payments, think of an individual. In the long run an individual can only exchange with others as it accords with the value of his or her resources. No one will exchange willingly with someone if the exchange has no hope of meeting the mutually agreed upon terms.

At the same time not everything exchanged for comes from one source. Not everyone has a perfect balance of payments with each person since rarely is a person's needs the perfect mirror image of anothers'. The sum total across all trade partners in the long run is balanced, that is, all obligations are met and there is harmony between everyone involved.

Compare this understanding with the economic ignorance in the rhetoric out there. Concern about a trade imbalance with another country is bad economics. All trade with all partners is the only relevant and useful information. Now if there is a widespread and systematic problem which cannot be overcome in the long run then there is a balance of payments problem. And this is only possible if there is intervention.

Just like with the individual the only way there can be a long run imbalance is if there is theft. Someone is extracting resources from someone else without the ability to pay in the long run. This can only happen in a world that uses currencies if the currency used for exchange is overvalued. If by the deliberate act of intervention the currency loses its purchasing power it is known as inflation. Inflation is caused by increasing the money supply without an increase in its base value.

There is a systematic disorder and corruption in the world economy and there are some of these signs that show up in the examination of balance of payments. The cause is intervention. Intervention corrupts the divine economy and hampers human prosperity.

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