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.
Does anyone respond positively to this attitude by developing a referral relationship? I've actually heard of people referring to rude attorneys because they think rude is part of "attorney". My wife is an attorney, so I know how trading lawyer jokes is more common among attorneys than anyone.
Regarding the content, it's a very good point that people think of a central bank, fractional reserve banking, and legal tender laws are part of a package deal. I think this way too. I would like them to repeal legal tender laws. The post claims that these laws are the reason people use USD. My suppliers, contractors, service providers, etc don't actually want to trade in USD, your claim goes, b/c the value isn't stable enough. If alternatives were allowed, people would use them in trade. I hope it would be bitcoin, but so far that has not been stable compared to a basket of goods and services I typically deal with. I definitely think it should be a free country to use whatever money we want.
Learn something http://hallingblog.com/understanding-the...
I think what you may be saying is use of money is manipulative because the Fed bank is intentionally trying to discourage people from raising prices when they set policies where holding money is not costly. When they set loose policy, they're manipulating you to invest when really you're just looking for a store of value. You're saying anyone who sets up a medium of exchange ought to have a consistent cost to users, not costs that very according to what some appointed committee decides.
They really do have an impact on how I build wealth, i.e. whether I keep retained earnings in a cash account or feel like I ought to invest it now. That's exactly how they're trying to manipulate me. I say aware of it and generally follow the adage "don't fight the fed".
It would be interesting to learn how much is.
It is like using a resistor to measure current. This is fine a long as you understand that you are measuring voltage. But if you forget this then you make the mistake of thinking increasing the resistor's size will increase the current. This is what Keynesian economists do all the time. They say consumer spending is 2/3 of the economy, so what we need to do is have policies that increase consumer spending - confusing cause with effect. What their policies actually do is result in reducing (spending/consuming) our capital, which slows economic growth in the future.
http://news.yahoo.com/u-faces-higher-foo...
You can try to twist your economic theory to fit some other definition, but that statement is a fact. Actually, I think it may have crept up to be closer to 70% now, but the basic level is correct.
Consumer spending is not 2/3 of the economy, it is the result of production.
And the second is that the money that they spend has to come from somewhere - either from current consumers, future consumers, or it is created from nothing. The first merely replaces spending from one entity to another (with inefficiencies), the next replaces future spending with current spending, and the last results in rapid inflation.
If it is borrowed, then it supplants future spending that the people would have spent in the future where they will have to pay back the loaned money, theoretically at lower costs as it is assumed that some amount of inflation will have occurred, thus making future dollars worth less than current dollars.
And finally, if it is fiat money created from thin air, then the effect will be a reduction in the value of the money due to more money in the economy chasing the same amount of goods, thus creating immediate inflation.
War is not an economic benefit. You create goods that do nothing to create more productivity or wealth - the goods are basically disposed of. The same effect would occur if you paid people to dig holes and then fill them up. There would be no productivity, no item of benefit to anybody at the end of the process, and the only thing that would have occurred is that the money had to come from somewhere to be used to purchase/pay for the goods/activity.
Load more comments...