Commentary: Government is an outgrowth of trader needs …

We engage to mitigate fear …

Government is the result of a need held by traders. People have no reason to engage each other but for the purpose of exchanging valuable information, data, knowledge, and energy. The greater the distance of trade, the greater the fear that uncertainty will erode the value of the information, data. knowledge, and energy is exchanged.

To mitigate the erosion of value in trade conducted over distance, traders created two instruments: the contract and government. Contracts, the derivatives to which crops, yields, and other residual producing assets are tethered, were designed to ensure that agreed upon prices, terms, and conditions were locked in and understood by seller and buyer. Understanding each others expectations and knowing that unmet expectations would only aggravate uncertainty helps to mitigate erosion of value.

Government was created to provide an infrastructure that facilitated the orderly exchange of information, data, knowledge, and energy. Government and its multiple agencies enforce a trader’s spot, forward, and futures contracts; protect the commodities and property undergirding contracts; assess damages on traders committing civil wrongs; and removes from society individuals and groups that threaten a trading community’s security.

In addition, government also spreads the cost of trade over most taxpayers, reducing a trader’s costs for moving product and accessing government rights-of-way.

But government has been hacked …

Government has expanded beyond its original duties of ensuring smooth trade. The expansion is a result of government systems, institutions, rules, and codes being “hacked” by taxpayer-citizen expectations. These expectations are generated by the efforts of government officials to curry favor with the electorate where political packages are offered in exchange for votes and taxes.

In addition to electorate expectations meeting political favors, another hack of government occurs when contracts, the derivatives we described earlier, are allowed to sell in secondary markets. It is a hack because traders buying these derivatives are providing secondary markets with liquidity and where trader expectations on price, terms, or conditions are not met, traders in the secondary markets will seek redress from government.

As more claims are filed, government continues to expand, creating consumer protection agencies with limited quasi-judicial power. I ay consumer because traders consumer the financial and brokerage services necessary to make a trade. The courts themselves may have to increase their levels of expertise in order to address increased demands for consumer protection.

Passing on money supply management to government …

Another role traders expected the mechanism of government to take on was distributor of coin and currency. In order for money to compound, it has to be spent and this meant that the “economic pump” had to be primed. Traders knew this long before John Maynard Keynes. Coin needed to get into the hands of the population so that transactions took place.

Money supply had to be increased to meet the growing transactional demands of an expanding population. As more money found itself exchanged or sold in money markets, government was called on to manage the distribution of money via chartered banks and to regulate the interbank markets within which money is traded.

Increasing money supply has a price: inflation

All instruments fail at some point. Government is no exception and one manifestation of its failure is where government’s monetary policy results in inflation. Inflation erodes a trader’s wealth. While she may see an increase in the value of the assets she holds in her portfolio, it will be difficult to earn income from those assets if consumer incomes are not keeping up with rising price levels in the economy.

Traders should be more active in monetary policy

To stem the effects of inflation, traders may first want to take a step back and consider their historical relationship with government. Government is not a separate entity that came before human to human engagement. It came after, as a result of the need to facilitate trade. Traders should not be hesitant or timid in influencing monetary policy for this reason.

Alton Drew

10 September 2022

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