The international trading became the most profitable of all enterprises, and great land-"owners" with clear-cut king's "deeds" to their land went often to international gold moneylenders. The great land barons underwrote the building of enterprisers' ships with their cattle or other real wealth, the regenerative products of their lands, turned over to the lender as cccollateral.

If the ship did come back, both the enterpriser and the bankers realized a great gain. The successful ship venturer paid the banker back, and the banker who had been holding the cattle as collateral returned them to their original proprietor. But during the voyage (usually two years to the Orient and back to Europe) the pledged cattle had calves, "kind" (German for "child"), and this is where the concept of interest originated, which was payable "in kind"—the cattle that were born while the collateral was held by the banker were to belong to the banker.

When the Phoenicians shifted their trading strategy from carrying cattle to carrying metal money, the metal money didn't have little money "kind"—but the idea of earned interest persisted. This meant that the interest was deducted from the original money value, and this of course depreciated the capital equity of the borrower. Thus, metallic equity banking became a different kind of game from the original concept.

A science-based example of a positive externality is vaccinations. Vaccinations work based on the number of people in the population who are vaccinated. Once a certain threshold is reached, the disease can't spread effectively and is essentially eliminated. As long as enough people are vaccinated, others who choose not to be still get to enjoy that positive externality at no cost. These are what economists call freeloaders. Economists like the golden rule: Do unto others as you would have them do unto you. They don't like externalities because they represent inefficiencies in the marketplace that skew the real value of transactions and so are implicitly unfair. By reducing choice, they reduce freedom. Those who suffer by exposure to external costs do so involuntarily. while those who enjoy external benefits do so at no cost. Friedman thought that overcoming neighborhood effects "widely regarded as sufficiently important to justify government intervention" was one of the key roles of government.^

In every economic transaction there is a willing buyer and a willing seller. and they agree on a price that benefits both. But there are spillover effects in many economic transactions—costs and/or benefits that are transferred to third parties. Friedman called these spillovers "neighborhood effects." Today, most economists call them "externalities.

At their most basic, externalities don't have to involve buying and selling. If you smoke in a restaurant instead of stepping outside it's easier for you, but it's worse for everybody else. That's an externality. If you throw your McDonald's bag out the car window it makes life easier for you, but it's worse for everybody else. That's an externality, too. If a pretty girl walks by in a low-cut top she's probably a little colder, but the added happiness of the boys in the neighborhood is a positive externality. For some reason, economists seem to love that example.

Now let's add in money If your power company sells you coal-fired electricity at three cents per kilowatt-hour, that's a good deal. But if it does it by burning cheap, dirty coal and doesn't have a smoke scrubber. the soot that's dumped on the neighboring town is a negative externality. The people in that town are subsidizing your cheap power by paying the cost in terms of property damage, extra cleaning, poor health, aggravation. And the next generation is also subsidizing your price break if the utility isn't removing the carbon dioxide from its emissions. In terms of freedom, you are forcing a tyranny on the commons because the third party (in this case, everyone else) is deprived of having a choice about whether or not to partake in the transaction that gives you cheap power. It's not fair or equal freedom.

There have been trillions of dollars of wealth created in recent decades, but most of it went to a relatively small share of the population. In fact, economist Ed Wolff found that over 100% of all the wealth increase in America between 1983 and 2009 accrued to the top 20% of households. The other four-fifths of the population saw a net decrease in wealth over nearly 30 years. In turn, the top 5% accounted for over 80% of the net increase in wealth and the top 1% for over 40%. With almost a fractal-like quality, each successively finer slice at the top of the distribution accounted for a disproportionately large share of the total wealth gains. We have certainly not increased our GDP in the way that Franklin D. Roosevelt hoped for when he said during his second inaugural address in 1937, “The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

The Solar System is much vaster than the Earth, but the speeds of our spacecraft are, of course, much greater than the speeds of the sailing ships of the fifteenth and sixteenth centuries. The spacecraft trip from the Earth to the Moon is faster than was the galleon trip from Spain to the Canary Islands. The voyage from Earth to Mars will take as long as did the sailing time from England to North America; the journey from Earth to the moons of Jupiter will require about the same time as did the voyage from France to Siam in the eighteenth century. Moreover, the fraction of the gross national product of the United States or the Soviet Union that is being expended even in the more costly manned space programs is just comparable to the fraction of the gross national product spent by England and France in the sixteenth and seventeenth centuries on their exploratory ventures by sailing ships. In economic terms and in human terms, we have performed such voyages before!

While conceding that human behavior is indeed determined by the laws of nature, it also seems reasonable to conclude that the outcome is determined in such a complicated way and with so many variables as to make it impossible in practice to predict. For that one would need a knowledge of the initial state of each of the thousand trillion trillion molecules in the human body and to solve something like that number of equations. That would take a few billion years, which would be a bit late to duck when the person opposite aimed a blow.

because it is so impractical to use the underlying physical laws to predict human behavior, we adopt what is called an effective theory. In physics, an effective theory is a framework created to model certain observed phenomena without describing in detail all of the underlying processes. For example, we cannot solve exactly the equations governing the gravitational interactions of every atom in a person's body with every atom in the earth. But for all practical purposes the gravitational force between a person and the earth can be described in terms of just a few numbers, such as the person's total mass. Similarly, we cannot solve the equations governing the behavior of complex atoms and molecules, but we have developed an effective theory called chemistry that provides an adequate explanation of how atoms and molecules behave in chemical reactions without accounting tor every detail of the interactions. In the case of people, since we cannot solve the equations that determine our behavior, we use the effective theory that people have free will. The study of our will, and of the behavior that arises from it, is the science of psychology. Economics is also an effective theory, based on the notion of free will plus the assumption that people evaluate their possible alternative courses of action and choose the best. That effective theory is only moderately successful in predicting behavior because, as we all mow, decisions are often not rational or are based on a defective analysis of the consequences of the choice. That is why the world is in such a mess.

Profit-motivated designer viruses, many of which are completely legal and aboveboard today, have their shady origins in the crooked Ponzi scheme.* Charles Ponzi was an Italian immigrant who opened a business in Boston in 1919 called the Securities Exchange Company. He offered to repay people's investments in 90 days with 50 percent interest: an investment of $10 would bring $15 in three months.

His story was that he bought international postal reply coupons in Europe and, due to currency fluctuations, redeemed them in the United States at a profit. People started to get suspicious when a newspaper discovered that, with $15 million invested in Ponzi's firm in eight months, only $360 in postal reply coupons had been sold-in the entire world!

Ponzi's scheme was simple: as long as his base of investors kept growing, he could pay off early investors with the cash pumped in by later ones. When the newspaper story broke and people stopped investing, Ponzi was found to owe $ 7 million and have only $4 million in assets. The later investors were out of luck.

Ira Glass: For money, afterall, long ago, we used to use gold, and if you wanted to buy something, you had to carry around these heavy, shiny pieces of metal. Then we decided, no, let's just leave the gold in a bank. Instead of the gold, we're going to carry around these pieces of paper, and the paper on them says, "Yes, there's gold. You can take this paper money to a bank, you can swap it for gold." Maybe you've seen old dollars that say on them "Promise to pay the bearer so many dollars in gold." You could swap it.

Then we decided, it was the year 1933, we decided you can't trade in dollar bills for gold anymore in this country. Dollar bills are just gonna represent the idea of money. That's it. They're not gold, they're just money. And when I talked about this with Jacob, he said, it get's more abstract:

Jacob Goldstein: Because now, if you think of most of the money that you have or most of the money that I have, it's never currency, right? I get paid, that is just a direct deposit from NPR, from my employer to my checking account. I never--It's not like they give me a few hundred dollar bills every week. And then, you know, I pay my bills online, so now, currency even now is like old fashioned. You know, you don't have to touch money, you don't have to see it. It's just information.

[...] The money doesn't really exist. Not only is there no gold, there aren't even bills for most of the money that exists. Most of the money that exists is just the idea, it's just the bank saying "Yes, there is this much money in your account."

Walker also has an economic vision for his state—one which is common currency in the Republican Party today, but hitherto alien in a historically progressive, unionist Midwestern state like Wisconsin. It is based on a theory of economic growth that is not only anti-statist but aggressively pro-corporate: relentlessly focused on breaking the backs of unions; slashing worker compensation and benefits; and subsidizing businesses in order to attract capital from elsewhere and avoid its flight to even more benighted locales. Students of economic development will recognize it as the “smokestack-chasing” model of growth adopted by desperate developing countries around the world, which have attempted to use their low costs and poor living conditions as leverage in the global economy. And students of American economic history will recognize it as the “Moonlight and Magnolias” model of development, which is native to the Deep South.

[...]

Even before the arrival of Haley, this was the default model of economic growth in Southern states for decades—as the capital-starved, low-wage region concluded that the way it could compete economically with other states was to emphasize its comparative advantages: low costs, a large pool of relatively poor workers, “right to work” laws that discouraged unionization, and a small appetite for environmental or any other sort of regulation. So, like an eager Third-World country, the South sought to attract capital by touting and accentuating these attributes, rather than trying to build Silicon Valleys or seek broad-based improvements in the quality of life. Only during the last several decades, when Southern leaders like Arkansas’s Bill Clinton and North Carolina’s Jim Hunt called for economic strategies that revolved around improving public education and spawning home-grown industries was the hold of the “Moonlight and Magnolias” approach partially broken.

It has been suggested by an ingenious thinker that it is possible to use as a standard of monetary value no substance whatever, but instead, force, and that value might be measured in units of energy. An excellent development this, in theory, at any rate, of the general idea of the modern State as kinetic and not static; it throws the old idea of the social order and the new into the sharpest antithesis. The old order is presented as a system of institutions and classes ruled by men of substance; the new, of enterprises and interests led by men of power.