Money Confusion
Posted by CircuitGuy 10 years, 11 months ago to Economics
Some people have a tendency to confuse money with wealth. Money is a medium of exchange. It's only valuable because other people value it. This allows us to trade without requiring mutual coincidence of wants.
This trade is very powerful. It allows people to specialize in one area, confident they'll be able to trade that one specialty for anything others want to trade.
What makes this trade powerful is people's eagerness to create things that helps others, i.e. to serve others. When I hear serve others, I first think of slavery, but there are two kinds of service-- forced service and service in mutually agreed exchange. “Take your choice-- there is no other.”
What we use to trade should be an afterthought. If you create something that many people want, it really doesn't matter what medium of exchange you use. You will build wealth, and some of that wealth can go back into the business to help more people, some can go to trade with others for whatever you desire, and some can go into other businesses (buying an office building to rent out, investing in mutual funds, etc).
If you invest $1k [USD 2014] in a broad portfolio and things go basically well for the world, after 50 years that wealth will be over $10k in USD 2014, over $100k measured in USD 2064. If you take your $1k invest invest in a plot of rural undeveloped land or commodities such as 1oz of gold, after 50 years you'll have roughly $1k in USD 2014 or $10k as measured in USD 2064.
It becomes very difficult to compare value over a 50 year period. For example, you can't compare the cost of a wealthy person having a film projector and collection of movies to watch on demand in his house in 1964 to the cost of having access to a collection of movies today. I suspect $1k USD 2014 will buy a round trip to a low-earth-orbit space station in 2064, while such a trip today would cost over $100k per person.
Suppose someone's grandfather bought $100 (USD 1964) of rural undeveloped land that's now worth $1000. If it's roughly the same value, why can he buy such more electronics now with that money than he could in 1964. He did not do any work to create value. Where did that value come from? Did someone magically gift it to him?
The same person finds his grandfather buried $100 (USD 1964) on the land. That would have bought over a month's worth of groceries for a small family. Now it won't buy one cart of assorted groceries. Where did that value go? His grandfather did $1000 (USD 2014) worth of work for it, and now most of it is gone. Someone must have stolen it, he thinks.
The same person finds his grandfather invested $100 (USD 1964) in a whole life policy investing in stocks and that got rolled into mutual funds when they became common in the 80s. Somehow this wealth was sheltered from taxes. It's now worth $10,000 (USD 2014), a year's worth of groceries.
All this is enough to make someone think there's a conspiracy going on with all this wealth appearing an disappearing. For most of human history prior to the industrial revolution, wealth did not appear and disappear like this. Wealth and life were more static.
All the amazing things humans do to help one another in voluntary trade drives humankind forward. What we trade along the way is inconsequential. When people buy a $100 product, hopefully it will lead to better and better products and ways to meet peoples needs and wants in 150 years. The $100 note, apart from its value as a collectable, will be worthless in 150 years.
All the value is in people freely doing work to make things to serve other people.
This trade is very powerful. It allows people to specialize in one area, confident they'll be able to trade that one specialty for anything others want to trade.
What makes this trade powerful is people's eagerness to create things that helps others, i.e. to serve others. When I hear serve others, I first think of slavery, but there are two kinds of service-- forced service and service in mutually agreed exchange. “Take your choice-- there is no other.”
What we use to trade should be an afterthought. If you create something that many people want, it really doesn't matter what medium of exchange you use. You will build wealth, and some of that wealth can go back into the business to help more people, some can go to trade with others for whatever you desire, and some can go into other businesses (buying an office building to rent out, investing in mutual funds, etc).
If you invest $1k [USD 2014] in a broad portfolio and things go basically well for the world, after 50 years that wealth will be over $10k in USD 2014, over $100k measured in USD 2064. If you take your $1k invest invest in a plot of rural undeveloped land or commodities such as 1oz of gold, after 50 years you'll have roughly $1k in USD 2014 or $10k as measured in USD 2064.
It becomes very difficult to compare value over a 50 year period. For example, you can't compare the cost of a wealthy person having a film projector and collection of movies to watch on demand in his house in 1964 to the cost of having access to a collection of movies today. I suspect $1k USD 2014 will buy a round trip to a low-earth-orbit space station in 2064, while such a trip today would cost over $100k per person.
Suppose someone's grandfather bought $100 (USD 1964) of rural undeveloped land that's now worth $1000. If it's roughly the same value, why can he buy such more electronics now with that money than he could in 1964. He did not do any work to create value. Where did that value come from? Did someone magically gift it to him?
The same person finds his grandfather buried $100 (USD 1964) on the land. That would have bought over a month's worth of groceries for a small family. Now it won't buy one cart of assorted groceries. Where did that value go? His grandfather did $1000 (USD 2014) worth of work for it, and now most of it is gone. Someone must have stolen it, he thinks.
The same person finds his grandfather invested $100 (USD 1964) in a whole life policy investing in stocks and that got rolled into mutual funds when they became common in the 80s. Somehow this wealth was sheltered from taxes. It's now worth $10,000 (USD 2014), a year's worth of groceries.
All this is enough to make someone think there's a conspiracy going on with all this wealth appearing an disappearing. For most of human history prior to the industrial revolution, wealth did not appear and disappear like this. Wealth and life were more static.
All the amazing things humans do to help one another in voluntary trade drives humankind forward. What we trade along the way is inconsequential. When people buy a $100 product, hopefully it will lead to better and better products and ways to meet peoples needs and wants in 150 years. The $100 note, apart from its value as a collectable, will be worthless in 150 years.
All the value is in people freely doing work to make things to serve other people.
