Punchinello’s Chronicles

April 19, 2009

The Gold Standard and Layaway

Filed under: Just Thinking — Punchinello @ 10:00 pm
Tags: , , , ,

Young folks may not have heard of this, but there used to be something called layaway. If you wanted to buy something expensive and you didn’t have the money, you could ask the retailer to put it on layaway. That meant you’d pay a portion of the final price each month or each week, or sometimes whenever you wanted. Only after you paid the entire balance did you get the item.

The interesting thing about layaway is that the store kept the item you wanted. It retained the asset as collateral. They owned it, but you paid for it in bits and pieces. UN-like a credit card, there was no interest! The store made no extra money on the “charge,” they simply made the profit of the item itself.

Of course that would never do!

Another problem for the store is how to account for the “sale.” If you contract to buy an item in the future, did the store sell the item today? Or did they have to keep it on the books as inventory?

What if the store says they sold the item today. That goes to increased profits for the quarter and the stockholders are happy. But what if you choose NOT to take ownership of the item? Say you decide you can’t afford it, or don’t really want it, or don’t need it? Then at a future date, the store has to charge back the item. They lose money for the quarter.

The point here is that layaway offered a way to buy things on time. But without paying interest. The stores actually made money on the item, and sometimes might charge a small fee for storing the item until you took it home. The money they had was real money. The inventory they had was real inventory.

And most importantly, no banks were involved. No borrowing was involved. When you paid the last installment, you were done. UN-like a credit card, you weren’t paying for something years and years after it fell apart and got thrown away.

Layaway is like the gold standard, where the government ties paper money to actual gold and silver. It forces the government to declare a real inventory of real money. The problem is what do we do in an emergency?

Ah Hah! An “emergency!”

What if the US government and your friendly politician had to justify borrowing money every time? What if they had to come to the American public and tell us that we needed money for a war? Why? What would we gain from the war? How would it help anyone or anything?

You can’t put a war on layaway. But can’t you put an aircraft carrier on layaway? No, that wouldn’t work either. What business is going to spend the billions of dollars on workers, parts, development and such on the hope that the government will buy the aircraft carrier later? What if the government doesn’t have enough to pay for it?

But suppose the politicians had to actually justify why we need an aircraft carrier before borrowing the money?

When you put a new television on layaway, you gained time. Time to pay incremental amounts, and time to THINK about whether or not you really need a new television. And that’s why stores stopped offering the option of layaway. If you don’t have impulse buying, you don’t sell as much crap.

Buying on layaway locks in a certain amount of money for a certain particular item. That’s what “earmarks” do in a congressional bill; they lock in a certain amount of money for a particular project. And you notice the politicians talk about wanting to get rid of earmarks, too! But they don’t.

It’s only layaway that disappeared. Because it allows ordinary citizens a way to buy on time without borrowing money. And we surely don’t want that! No siree, no way!

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