Cash Pig

August 9, 2011 § 2 Comments

A couple weeks ago, the boys and I hopped into the truck and drove a handful of miles to a small farm at the dead end of a dirt road. There, I traded $200 for a pair of chunky, copper-colored Tamworth-Old Spot cross piglets.

Piglets for $100. A few years ago, I couldn’t have imagined it, but now it’s pretty much the going rate, at least around here. Some charge a bit more, some a bit less, but $100 is pretty much dead-on average. Ten years ago, back when we first started raising pigs, the going rate was about half that. I’m almost certain we paid $40 each for our first piglets.

Now, I have no problem spending money on piglets because unlike money, a pig can be eaten. To my mind, a good chunky piglet is better than money in the bank, a truth that becomes particularly resonant when I consider that the bank doesn’t really have any of my “money.” Or, at the very least, would be hard-pressed to come up with it if more than a few percent of its depositors demanded their holdings on any given day. This is probably not the place to delve into a detailed explanation of how modern banking works, but this salient point is worthy of mention: It is highly likely, if not certain, that your bank does not hold enough cash to cover more than 10% of its deposits. Comforting, eh?

Believe it or not, there’s a direct connection between the rising price of piglets and the fact that your bank doesn’t actually have your money. This connection is what’s known as “fractional reserve banking,” and basically what it means is that banks are required to hold in cash reserves only a fraction of the value of the deposits they hold and the loans they write. When we borrow money from a bank, we tend to think that we’re borrowing the bank’s money. This is emphatically not true, as banks are allowed to loan at a rate at least 10x their cash reserves.

The obvious question is: Where does the loan “money” come from? To which the only honest answer can be: Nowhere. In essence, the lending institution creates it. Indeed, this is how most of the money in our economy is created: Not by printing, not by so-called economic stimulus, but by simple lending. And this is why our financial and political leaders will do everything within their power to stave off a credit crunch.

So what the hell does this have to do with the price of piglets? Only this: Because banks and lending institutions are the primary sources of money creation, and because money creation lays the groundwork for rising prices by flooding the market with currency and credit that must be absorbed by available goods and services, the fact is that our nation’s banking system (and that of most other nations) is directly responsible for my having to shell out 200 bucks for two piglets a few weeks back.

I am struck by this irony: It is the very worthlessness of our currency, the purchasing power of which is constantly being eroded by the leveraged means of its creation, that makes things seem expensive.

And the piglets? Why, they are doing just fine, fattening nicely on a diet of milk and woods forage. Frankly, I wouldn’t sell them for anything.

§ 2 Responses to Cash Pig

  • David says:

    The one thing that I would add to the concept of keeping your savings in livestock is the principle of diversification. You wouldn’t put your life savings into one company in the stock market since you could lose everything if that company fails or has poor financial returns. If there are predators, a contagious disease, or even extreme weather, you could lose your livestock investment the same way. Farmers that raise grain know that they must either reserve a portion of their seed grain in case of failure or have the means of purchasing additional seed grain, assuming it is available. Having multiple types of livestock or having them in multiple locations is a common way to spread out the risks.

  • Dawn says:

    I think it’s called not putting your eggs in one basket!
    In Canada financial institutions are required to provide a deposit guarantee of $60,000, which sounds somewhat comforting (if your savings don’t exceed that amount!) except that it probably holds as muich water as a leaky bucket. As you say, the money isn’t real. I always think explaining stuff like this to kids is the best way to understand it. Back when 2008 happened, I did a demo with my kids of how money moves around – instead of monopoly money, we played with promise notes – we wrote little iou’s for each transaction, but none of us actually had more than $100 in our cash pile. It was a great visual! It wasnt long before we could clearly see how people get into financial difficulties. There’s a great book out there: The Price of Everything, by Eduardo Porter, which looks at the value we place on…everything, and how that translates to money, or not.

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