A Zero Sum Game

I think of the world as a zero sum game. Every gain has an equivalent loss, somewhere. We live in a world of finite resources. The allocation of these resources is constantly being rebalanced and life continues to evolve because these resources are being recycled and redeployed. The earth’s surface is covered by water or land. Life that is sustained in these macro environments is further divided up, and as we move into finer focus, we can view ourselves as competitors for space and it’s resources with other species and amongst ourselves. Battles are continually waged on every scale, from the global to the personal. The competition for resources and ultimately life, is essentially our global economy. One nation prospers, consumes land and resources at another’s expense. It may be hostile or symbiotic, but in the end, finite resources are being consumed or hoarded. The US is a military and economic powerhouse. They wield a big club and they have acquired a greater proportion of the planet’s resources. Canada and other exporting nations sell our resources and seemingly do well, but our oil cannot be put back into the ground, the minerals back in the rock, or the nutrients in the trees regenerated. Once sold, they are consumed and gone. This trade cannot last forever. Businesses compete for market share. Some prosper, others wither. They are all in competition for a finite pool of money and resources. Money spent on one thing is money not spent on another. This is the balancing of resources and wealth is an accumulation of resources.

In nature, how do animals store wealth? Predators can’t store wealth because meat rots and if they spend all their time dedicated to protecting any excess meat from scavengers, they can’t acquire more of it. As such predators compete day to day and rely on the continuing health of the prey population and their ability to hunt to sustain them. It isn’t in their best interest to consume more than their immediate needs. Animals that live off less perishable food can store wealth. Squirrels compete for a store nuts to provide nourishment during the long winter. Even then, it is a seasonal event. Eventually a new supply of nuts will be favoured over old ones. We humans have developed an ingenious way of accumulating wealth. We have a system of IOUs. In Native cultures, if a hunter kills more moose than he can eat, the excess is handed out to others in exchange for favours. He has effectively stored wealth by gaining favours from the others in the community. This store of wealth is only as good as the promise to repay. If the person who received the meat doesn't repay the favour, the perceived store of wealth is lost. In more complex societies, money has replaced the unwritten favour exchange. Favours are represented by monetary tokens. The store of wealth is physical and quantified. The resources that the money represents is divided up among the people and it is constantly being rebalanced as money exchanges hands in the economy. In a zero sum game there are winners and losers. Those who successfully acquire excess money live more comfortably than those who do not. As long as there are enough resources to keep everyone fed, peace will persist. When the survival of a large group of people is at risk, a dramatic rebalancing will occur.

I am speaking in very broad terms because in order to understand the present economic situation, we need to have a very broad perspective. We are dealing with a macro financial event that is generational in scope. We are experiencing the beginning of the end of an experimental approach to wealth that has been decades in development. Historically the store of wealth has been represented by physical tokens such as gold . There are strong compelling reasons for this. It is scarce, and cannot be easily counterfeited. It is durable and thus will not lose value over time. It is easily divisible making it a convenient medium of exchange. All these properties lend itself to being a reliable store of wealth as long as everyone views it as such. On it’s own it has little value. Pieces of paper or digits on a computer have little value on their own. Money is valued based on mutual trust. Gold was always held in the banks as a store of wealth and paper currency was created to represent the value of the gold in the vaults. Note that as long as the currency of a nation is backed by physical gold, money cannot be created nor destroyed. Gold is effectively a constant supply. The only way it can be increased is the result of the considerable labour involved in extracting it from the earth. Therefore the cost of things is always balanced and relatively stable. As the demand for one item rises, so does the price, but as a result the price of another item must fall. In the end, it is a zero sum game.

When the currency of a nation is taken off the gold standard, the money supply ceases to be constant. The value of money becomes unstable and is no longer a reliable store of wealth. It can be created out of nothing. It is no longer finite. That's why we speak in terms of trillions now instead of millions. It may be quadrillion if the money supply continues to expand at it's current rate. The end result is a greater pool of money, which may appear like more wealth, but in practical terms, all it has done is increase the money supply that represents the same finite resources. Now more of that money is required to represent the same thing. Thus inflation is born. We may have more dollars but unless we make money at the same rate of inflation, our wealth has decreased. Wealth isn’t created by the key strokes of a computer. It is earned through labour. At it’s core, money represents favours between people.

The financial crisis of today is a process of wealth destruction. Those who have stores of wealth linked to money are watching their excess wealth erode. Wealth is only as durable as the underlying promise to pay. If the debtor doesn’t have the resources to repay the loan, then those who have accumulated the most credit have the most to lose. As such they are the most desperate to see the debts honoured and not have them defaulted. The governments of the world are desperately trying to shuffle the money around and create more of it to maintain the illusion of wealth, however, creating money from nothing and giving it to the banks and other insolvent businesses only serves to redistribute the value of the existing money away from the people who earned it, to those who have lost it. The natural rebalancing of money and wealth is being perverted. The argument is made that if the banks go bankrupt the economy will collapse. I disagree. The economy is the consumption and distribution of resources required for life, not the exchange of symbolic tokens of wealth. There is complex process underway where the wealthy are scrambling to preserve existing debts. In nature there is no such thing. The store of meat is rotting.