Government Spending is Panacea

[Sundial]

You said, they have $10 million now less to spend on things they need.

But they don't have ten million less. They have the same amount as they did before.

There is no reason - is there? - why people can't build a bridge and still buy all the things they need.

I mean, unless they run out of workers. Or materials.

Other than that, why should building one thing prevent something else from being built?

Sundial, if I have $50,000 and I am taxed 20%, I now have $40,000. How do you reason that I still have the same amount of money as before?

We were talking about the private sector generally, not one particular person.

 

[Sundial]

Government will always crowd out the private sector. Every dollar the government spends on something is a dollar the private sector cannot spend or invest.

That's simply not true. Every dollar the government spends is a dollar the private sector also spends. There is no limit to the number of times a dollar can be spent.

Moreover, if the private sector needs dollars, it can always create more. It's not limited to the number of dollars in the system at any particular time.

From the equation of exchange, it seems that money together with velocity is the source of funding for economic activities.

The source of funding is banks.

Furthermore, from the equation of exchange, it would appear that for a given stock of money, an increase in velocity helps finance a greater value of transactions than money could have done by itself.

Velocity doesn't finance transactions. It's simply a variable that's supposed to represent the number of times each unit of money is spent.

As logical as it sounds, neither money nor velocity has anything to do with financing transactions. Here is why.

Consider the following: baker John sold ten loaves of bread to tomato farmer George for $10. Now, John exchanges the $10 to buy 5kg of potatoes from Bob the potato farmer. How did John pay for potatoes? He paid with the bread he produced.

Observe that John the baker had financed the purchase of potatoes, not with money, but with bread. He paid for potatoes with his bread, using money to facilitate the exchange. In other words, money fulfills here the role of the medium of exchange and not the means of payment.

The number of times money changed hands has no relevance whatsoever on the baker's capability to fund the purchase of potatoes. What matters here is that he possesses bread that can be exchanged by means of money for potatoes.

How is it that the fact that the same $10 bill used in several transactions can add anything to the means of funding? By what means does the speed of money circulation add to the real pool of funding? Imagine that money and velocity would have indeed been means of funding or means of payments. If this was so, then poverty worldwide could have been erased a long time ago.

I'm not sure I understand what you're saying here. But I think it's necessary to ask: where did the money come from in the first place?

The money didn't come from potatoes or tomatoes or bread. It came from banks. It was lent into existence.

 

[uscitizen]

Hey it worked for Reagan, Bush I, Clinton and Bush II.

Although Clowntoon was turning things around, then the repubs had to go and do away with Paygo, start a couple of wars and cut taxes....

 

[Sundial]

You do not see the the jobs the unemployed would have had if the money were not taxed away.

The "taxed away" part is problematic. The government spends money as fast as (or faster than) it gets it.

We know there's a flow of money between the government and the private sector. We know the private sector doesn't have any less money because of the flow. We know the amount that goes in is the same as the amount that goes out. So why should the private sector hire fewer people?

Let me turn the hypothetical around a little bit. Suppose the government spends first, and then taxes. Suppose also that there are some unemployed people who are skilled and willing to work.

Your business has not been taxed, so it doesn't fire anybody. The government, on the other hand, hires a bunch of people who otherwise wouldn't have had jobs or incomes, and puts them to work building a bridge.

The net result is $10 million worth of wages that otherwise wouldn't have been there. Plus a bridge. The bridge workers don't just keep that money, though, they spend it. They buy food, shelter, clothing, all of those things. In fact, they buy it from your business, which now has an extra $10 million of income. At the end of the year the government taxes your business $10 million, then hires the bridge workers to build a road.

In this hypothetical, no one in the private sector is worse off. The business does not have to lay off any workers. The difference is we created a bunch of jobs, and we got a bridge out of it.

The problem is where you're beginning and ending your hypothetical.

If you built a hypothetical where the sun evaporated water off the ocean, and then it rained, and then the sun evaporated more water, (and ended your hypothetical there) you'd think eventually all the water in the ocean would evaporate into the air.

If I am correct, you had two main arguments in the above.

1. If you look at it from the perspective that government spends first and then taxes, it becomes clear there is growth.

2. Workers funded by government spend their money on other goods as well, creating more jobs and hiring from my business. Thus, government spending creates more than just the jobs created by the bridge.

I will address each separately.

1. It does not matter at all whether or not you look first at spending or at taxation. If you look at spending first, all of the affects of taxation will simply come in the future. You do not avoid taxation by borrowing, you only delay it. The situation does not change in the least. If you spend first and create the bridge, you must eventually tax to pay off the debts. The money taxed will be spent not on more jobs, but on the previous jobs. Your scenario would only be true if government did not have to pay back debt. If the spending is instead used not to pay off the debts but to create more jobs, you will continue accumulating debt, and the future tax burden will only grow.

Again you seem to be arguing that if a dollar is taxed, that makes it unavailable to the private sector. In fact, every dollar that is taxed is also spent. No dollars ever disappear from the system.

Also, governments do not have to pay off debts. The US has had a debt since it was founded.

2. You are absolutely correct. People who obtain money through government funds will then spend that money on other goods and services, creating employment with their demand. But again you miss that those who were taxed cannot spend that money on goods and services. They would not hoard their money either. Again, there is only a transfer of who does the spending.

In my hypothetical, the business gets an extra $10,000 it would not have gotten had the government not spent it in the first place.

When the government taxes at the end of the year, it is simply taking back money it created in the first place.

Beginning on Jan 1, the private sector has an additional 10k that it would not have had but for government spending. At the end of the year, the government taxes that money back. At the end of the year, the private sector has no less money than it had before.

There is no loss of spending power anywhere in this scenario.

To illustrate the point:
Government taxes 10 million from the private sector. It then spends that 10 million to create a bridge. It is evident that any jobs created by government to build the bridge were funded at the expense of private sector jobs that could have been created had the money not been taxed away.

That's not evident at all.

1.) You're assuming there's no "extra" money in the private sector, ie, no savings.
2.) You're assuming the private sector can't borrow. In fact, businesses routinely borrow to ramp up production, if there's demand for their product.
3.) In your scenario the government takes a bunch of money and pays it out over time. That's not what governments do.

The same would be true if government spent first, the order of the affects would simply be reversed. (In fact, if government spent first, it could even be worse, because government would also have to tax interest.)

Again, the logic of your position depends on the idea that money can only be spent once.

Where does the money the government taxes for interest go?

It goes directly to the private sector. The private sector has no less money because of interest. It has no less money because of taxes. (Assuming the government spends the tax money, of course.)

Furthermore, this bridge was not really needed by anyone in the community, and was built for the sake of jobs only. The bridge is nice, and some people use it, but it is not truly necessary.

That is the initial transaction. Because government spent the money instead of the individuals who were taxed,

But the government did not spend the money instead of the people being taxed. The people being taxed get to spend the money too.

there is no net gain in wealth. Perhaps the bridge would have been created by the private sector, perhaps for less money. But since people may not have needed the bridge, money would have been spent on other sectors of the economy, producing what people actually need.

But there is a gain in wealth - the bridge. And, if you look closely, you'll see the bridge is quite useful. In fact, it's an asset, because private businesses use the bridge to do their business, and regular people use it too.

You added that bridge workers spend their money, further stimulating growth. But had the jobs funded by the private sector been allowed to come into existence, those getting paid would do the same thing. The only difference between government spending the money and the private sector spending the money is that when government spends money, it is arbitrarily spent, and not in line with consumer preference. In the private sector, spent money is inline with consumer preference because it is consumers doing the spending.

Your claim that the bridge workers now have more money to spend is meaningless, because had government not taxed away the money, different jobs would have been created, and money from those jobs would have been spent in the same fashion. Again, at best you can argue it is a zero sum game, but in reality, because of government inefficiencies, there will always be a net loss. But the loss is widespread and unseen and the benefit concentrated and visible to the eye, so people focus only on the benefit and forget the cost entirely.

Even if money worked the way you say it does - that the government spending it prevents the private sector from spending it too - which is not the case -

Businesses are not constrained by the amount of money on hand, and they don't make decisions about expanding or hiring based on how much money they have in the bank.

Businesses expand when there's demand for their products. If there's demand, they'll expand, even if they have to borrow.

If there's no demand, they won't hire, even if - as is currently the case - they have trillions in the bank.

 

[Sundial]

Resources are idle for a reason. And there is no demand? Really? Demand for what? Demand for housing has dropped because the bubble popped. It should never have been so high anyway. Exactly what is not being demanded that should be demanded? Demand is fine. Consumer goods were affected the least by the recession. Capital-intensive goods like construction were the hardest hit. This is not about a drop in aggregate demand.

There is lots of demand, if the incomes were there to support it. There's people who live in crappy houses who would like to live in nice ones. People who drive broken-down cars who'd prefer new ones. People who'd like to be able to pay for their kids' education, but can't.

Yet at the same time there's home-builders who are idle, car-makers who are laid off, and teachers who would like to teach, if they could find a job.

That is true waste.

If the private sector is wasting those resources, the government needs to employ them.

If they had incomes, they'd create the demand the lack of which is preventing them from getting jobs in the first place.

You need to put aside the monetary issue for a moment and consider which economy produces more: one where everyone who is capable of being gainfully employed is employed, or one where 10% of the population is standing around doing nothing, in spite of wanting and needing a job?

If it were true that there was no demand because everybody had as much stuff as they wanted, that would be a different case.

Money is just a way of keeping track. It's work that creates wealth.

Money - which we can create at will - should never be the constraint that prevents productive people from doing work.

 

[ShackledNation]

You said, they have $10 million now less to spend on things they need.

But they don't have ten million less. They have the same amount as they did before.

There is no reason - is there? - why people can't build a bridge and still buy all the things they need.

I mean, unless they run out of workers. Or materials.

Other than that, why should building one thing prevent something else from being built?

Sundial, if I have $50,000 and I am taxed 20%, I now have $40,000. How do you reason that I still have the same amount of money as before?

We were talking about the private sector generally, not one particular person.

What applies to individuals applies to the private sector, which is made up of individuals. If the total income of all individuals in the private sector is 1 million and they are taxed at 20%, they will have 800,000 left, not 1 million. This should not be difficult to understand.

 

[ShackledNation]

Government will always crowd out the private sector. Every dollar the government spends on something is a dollar the private sector cannot spend or invest.

That's simply not true. Every dollar the government spends is a dollar the private sector also spends. There is no limit to the number of times a dollar can be spent.

Not all spending is of the same value. It is amazing how you look at spending soley form the quantitative angle and not the qualitative angle. Every dollar the government spends is a dollar not spent by the private sector. Of course the dollar can be re-spent, but you fail to see the differences in the value of transactions.

For example, say that I have $1,000. I use that money to produce something in line with consumer preference and demand. I hire workers to do so. Those workers will have the money, which they can respend, continuing the process. Say my initial transaction resulted in the production of 100 new goods people wanted.

Now say government taxed that $1,000 from me. I no longer can use that money to produce something in line with consumer preference and demand. I no longer have it. Period. So government spends it instead on some arbitrary product, not necessarily in line with consumer demand at all. Government has no way to judge profit and loss, so it may waste resources trying to fund the project. It has to pay bureaucrats for producing nothing. Because of all these factors, government can only produce 50 goods. Workers hired by government and even the bureaucrats will spend the money just the same as the workers hired by the private sector. But what has been produced by government is less. The private spending resulted in 100 new goods. The government spending resulted in only 50 new goods. Money can be used for exchange more than once, but the same money cannot be used simultaneously by different people. Again, the goal is production, not spending in itself. If the spending produces nothing, it is a waste.

Moreover, if the private sector needs dollars, it can always create more. It's not limited to the number of dollars in the system at any particular time.

You do not print wealth. Creating more paper dollars will only result in inflation, malinvestment, and numerous economic problems. Money is not wealth.

As logical as it sounds, neither money nor velocity has anything to do with financing transactions. Here is why.

Consider the following: baker John sold ten loaves of bread to tomato farmer George for $10. Now, John exchanges the $10 to buy 5kg of potatoes from Bob the potato farmer. How did John pay for potatoes? He paid with the bread he produced.

Observe that John the baker had financed the purchase of potatoes, not with money, but with bread. He paid for potatoes with his bread, using money to facilitate the exchange. In other words, money fulfills here the role of the medium of exchange and not the means of payment.

The number of times money changed hands has no relevance whatsoever on the baker's capability to fund the purchase of potatoes. What matters here is that he possesses bread that can be exchanged by means of money for potatoes.

How is it that the fact that the same $10 bill used in several transactions can add anything to the means of funding? By what means does the speed of money circulation add to the real pool of funding? Imagine that money and velocity would have indeed been means of funding or means of payments. If this was so, then poverty worldwide could have been erased a long time ago.

I'm not sure I understand what you're saying here. But I think it's necessary to ask: where did the money come from in the first place?

The money didn't come from potatoes or tomatoes or bread. It came from banks. It was lent into existence.[/QUOTE]
According the the equation, if I was merely exchanging the same good with the same person over and over again, the economy would be growing. Velocity does not measure growth, it measures how often people exchange goods in an economy. You can exchange goods quite often even if you are not producing anything new. For example, I could buy from a friend a TV for $100. He then buys from me the same TV for $100, and we repeat the process at lightning speed over and over. According to the equation, this would create economic growth. It should be obvious there is not growth at all. Money is a medium of exchange. More exchange does not necessarily mean more production.

Yes, money was loaned into existence. But wealth was not loaned into existence. Money is not wealth. When more money is created, its supply increases. An increase in supply decreases price. And the price of money is its purchasing power. The creation of more money only reduces the purchasing power of money, thus rising prices. It is a myth to think that printing more and more money will result in more and more wealth.

 

[ShackledNation]

The "taxed away" part is problematic. The government spends money as fast as (or faster than) it gets it.

We know there's a flow of money between the government and the private sector. We know the private sector doesn't have any less money because of the flow. We know the amount that goes in is the same as the amount that goes out. So why should the private sector hire fewer people?

Let me turn the hypothetical around a little bit. Suppose the government spends first, and then taxes. Suppose also that there are some unemployed people who are skilled and willing to work.

Your business has not been taxed, so it doesn't fire anybody. The government, on the other hand, hires a bunch of people who otherwise wouldn't have had jobs or incomes, and puts them to work building a bridge.

The net result is $10 million worth of wages that otherwise wouldn't have been there. Plus a bridge. The bridge workers don't just keep that money, though, they spend it. They buy food, shelter, clothing, all of those things. In fact, they buy it from your business, which now has an extra $10 million of income. At the end of the year the government taxes your business $10 million, then hires the bridge workers to build a road.

In this hypothetical, no one in the private sector is worse off. The business does not have to lay off any workers. The difference is we created a bunch of jobs, and we got a bridge out of it.

The problem is where you're beginning and ending your hypothetical.

If you built a hypothetical where the sun evaporated water off the ocean, and then it rained, and then the sun evaporated more water, (and ended your hypothetical there) you'd think eventually all the water in the ocean would evaporate into the air.

If I am correct, you had two main arguments in the above.

1. If you look at it from the perspective that government spends first and then taxes, it becomes clear there is growth.

2. Workers funded by government spend their money on other goods as well, creating more jobs and hiring from my business. Thus, government spending creates more than just the jobs created by the bridge.

I will address each separately.

1. It does not matter at all whether or not you look first at spending or at taxation. If you look at spending first, all of the affects of taxation will simply come in the future. You do not avoid taxation by borrowing, you only delay it. The situation does not change in the least. If you spend first and create the bridge, you must eventually tax to pay off the debts. The money taxed will be spent not on more jobs, but on the previous jobs. Your scenario would only be true if government did not have to pay back debt. If the spending is instead used not to pay off the debts but to create more jobs, you will continue accumulating debt, and the future tax burden will only grow.

Again you seem to be arguing that if a dollar is taxed, that makes it unavailable to the private sector. In fact, every dollar that is taxed is also spent. No dollars ever disappear from the system.

Also, governments do not have to pay off debts. The US has had a debt since it was founded.

Governments do not have to pay off debts? Tell me: what economic school of thought do you consider yourself to follow? Debt does not disappear. Debt is real. If a dollar is taxed, it is unavailable to the private sector. I explained this in my post above. The dollar will return to the private sector, but it will have been used to produce less. Dollars have not disappeared, but wealth has. You are grossly conflating wealth and dollars.

In my hypothetical, the business gets an extra $10,000 it would not have gotten had the government not spent it in the first place.

When the government taxes at the end of the year, it is simply taking back money it created in the first place.

Beginning on Jan 1, the private sector has an additional 10k that it would not have had but for government spending. At the end of the year, the government taxes that money back. At the end of the year, the private sector has no less money than it had before.

There is no loss of spending power anywhere in this scenario.

The business gets an extra $10,000, yes. But you once again ignore the unseen. Another business or a combination of businesses do not get $10,000. That $10,000 must be taxed away from another business, which will have reduced purchasing power because of it.

That's not evident at all.

1.) You're assuming there's no "extra" money in the private sector, ie, no savings.
2.) You're assuming the private sector can't borrow. In fact, businesses routinely borrow to ramp up production, if there's demand for their product.
3.) In your scenario the government takes a bunch of money and pays it out over time. That's not what governments do.

I am not assuming any of those things. Government taxes savings of the private sector. It taxes what could be extra money. By directly taxing income, there is a loss of savings. I never said savings were nonexistent. Of course the private sector can borrow, so long as there are savings to borrow from.

Again, the logic of your position depends on the idea that money can only be spent once.

Absolutely WRONG. You clearly are not comprehending the argument. I have stated numerous times that the money can be respent. But you are ignoring the differences in value of spending. You are assuming it is all equal, even if what the spending produces is not.

Where does the money the government taxes for interest go?

It goes directly to the private sector. The private sector has no less money because of interest. It has no less money because of taxes. (Assuming the government spends the tax money, of course.)

But it has less wealth. For it has lost one potential use of the money. Once they get it back, they can use it again. But they lost potential to use that money to produce more than the government did with the same amount. Also, taxation is constant. So when the money returns to the private sector, it will be taxed away again. For example, say the government taxes 1 million from the economy every year. The economy will get 1 million back in spending, but lose another million again in taxes. So ultimately, the government will be spending a portion of money at all times that the private sector was prevented from spending. Again, the money can be respent. But each time the money is spent, varying degrees of wealth are created. And government spending will create less wealth than private spending would have.

But the government did not spend the money instead of the people being taxed. The people being taxed get to spend the money too.

False. If I am taxed, I do not get the money back. Another individual in the private economy will. I do not get to spend the money the way I would have, government does. Again, government spending will be less productive for the reasons I stated in the OP and have continued to state. Money can be spent more than once, the the same money cannot be spend more than once at the same point in time.

there is no net gain in wealth. Perhaps the bridge would have been created by the private sector, perhaps for less money. But since people may not have needed the bridge, money would have been spent on other sectors of the economy, producing what people actually need.

But there is a gain in wealth - the bridge. And, if you look closely, you'll see the bridge is quite useful. In fact, it's an asset, because private businesses use the bridge to do their business, and regular people use it too.

Reread my post.

You added that bridge workers spend their money, further stimulating growth. But had the jobs funded by the private sector been allowed to come into existence, those getting paid would do the same thing. The only difference between government spending the money and the private sector spending the money is that when government spends money, it is arbitrarily spent, and not in line with consumer preference. In the private sector, spent money is inline with consumer preference because it is consumers doing the spending.

Your claim that the bridge workers now have more money to spend is meaningless, because had government not taxed away the money, different jobs would have been created, and money from those jobs would have been spent in the same fashion. Again, at best you can argue it is a zero sum game, but in reality, because of government inefficiencies, there will always be a net loss. But the loss is widespread and unseen and the benefit concentrated and visible to the eye, so people focus only on the benefit and forget the cost entirely.

Even if money worked the way you say it does - that the government spending it prevents the private sector from spending it too - which is not the case -

Businesses are not constrained by the amount of money on hand, and they don't make decisions about expanding or hiring based on how much money they have in the bank.

Business are absolutely constrained by the amount of money on hand! If the revenue of a business is $10,000, its costs of production cannot exceed that amount or it will go out of business. You are demonstrating total economic ignorance. And yes, if government is spending money in a transaction, it cannot also be spent by someone else. You are ignoring time. The money can be spent after the government spends it. But that is true of all transactions. What is being looked at is the transaction the government makes vs. the transaction the private sector would have made but could not because the government was the current user of the money.

Businesses expand when there's demand for their products. If there's demand, they'll expand, even if they have to borrow.

If there's no demand, they won't hire, even if - as is currently the case - they have trillions in the bank.

And if the cost of interest is too high, it will not be profitable to borrow money. Businesses cannot just obtain money magically whenever they want.

 

[ShackledNation]

Resources are idle for a reason. And there is no demand? Really? Demand for what? Demand for housing has dropped because the bubble popped. It should never have been so high anyway. Exactly what is not being demanded that should be demanded? Demand is fine. Consumer goods were affected the least by the recession. Capital-intensive goods like construction were the hardest hit. This is not about a drop in aggregate demand.

There is lots of demand, if the incomes were there to support it. There's people who live in crappy houses who would like to live in nice ones. People who drive broken-down cars who'd prefer new ones. People who'd like to be able to pay for their kids' education, but can't.

You are confusing want with demand. For there to be demand, you must have the means to pay and actually pay. You do not want things into existence. I want a teleportation device, as does probably everyone else. That does not mean it will appear into existence.

Yet at the same time there's home-builders who are idle, car-makers who are laid off, and teachers who would like to teach, if they could find a job.

That is true waste.

If the private sector is wasting those resources, the government needs to employ them.

You are assuming idle resources are being wasted. Home builders are idle because people do not really demand homes. Monetary policy of creating more and more money inflated the housing market to unsustainable levels. Idleness is not always waste. For example, many kids in their early teens could easily work, but they do not. Why? They are investing their time in education.

Another example. Say an engineer is looking for a job. He could easily get a job bagging groceries, but he chooses to remain unemployed so he can find a job as an engineer. His idleness is in fact very productive. Also, the act of being idle is performs the service of availability. There are resources available to be used to produce. If there were always full employment, the economy could never change. We would still be in caves hunting and gathering.

A resources is being wasted when it is used in an industry that is unsustainable. Because the homebuilder was building homes, there were less workers available for other lines of production to expand. Since the housing market was stimulated beyond what people would actually buy, the waste occurred the minute the worker was hired. Again, you fail to distinguish between types of spending, and are stuck in a quantitative way of looking at everything that completely ignores the reality of economics.

You need to put aside the monetary issue for a moment and consider which economy produces more: one where everyone who is capable of being gainfully employed is employed, or one where 10% of the population is standing around doing nothing, in spite of wanting and needing a job?

That depends. In one case, if everyone capable of being employed is employed, but they produce nothing of value, and in the second if all but 10% are employed and the 90% produce everything of value in line with consumer demand, the second case would be better.

Money is just a way of keeping track. It's work that creates wealth.

Money is a medium of exchange, not wealth. Employment is a means to create wealth, correct. But being employed does not mean you are creating anything of value, or that you could be creating something better if you were employed somewhere else.

Money - which we can create at will - should never be the constraint that prevents productive people from doing work.

Money, as you say, is not wealth. Creating more of it will not result in sustainable growth. It results in malinvestment, malemployment, and economic booms that always result in terrible recessions. You cannot print your way to prosperity. Creating more money will simply result in prices higher than they otherwise would have been. Money does not prevent people from producing what should be produced. Intervention in the market does. And government is the king of intervention, the master of misallocating resources and creating dead loss.

 

[Sundial]

Sundial, if I have $50,000 and I am taxed 20%, I now have $40,000. How do you reason that I still have the same amount of money as before?

We were talking about the private sector generally, not one particular person.

What applies to individuals applies to the private sector, which is made up of individuals. If the total income of all individuals in the private sector is 1 million and they are taxed at 20%, they will have 800,000 left, not 1 million. This should not be difficult to understand.

You're arguing that money disappears from the private sector when it's taxed. It doesn't.

The government spends the money as fast as - and, in fact, faster than - it gets it.

 

[ShackledNation]

We were talking about the private sector generally, not one particular person.

What applies to individuals applies to the private sector, which is made up of individuals. If the total income of all individuals in the private sector is 1 million and they are taxed at 20%, they will have 800,000 left, not 1 million. This should not be difficult to understand.

You're arguing that money disappears from the private sector when it's taxed. It doesn't.

The government spends the money as fast as - and, in fact, faster than - it gets it.

NO I AM NOT. I made that point clear countless times. Spending money fast does not mean spending money efficiently. I am tired of repeating my self over and over again, Sundial. If you are to continually assume that I am arguing that money disappears when it is taxed, then you have not grasped one bit of my position. What is true is that the money is placed in the hands of government instead of the private sector. Government then spends the money in the private sector again. But as you have failed to comprehend, that single act of spending by government was at the expense of the spending of the private sector, because the same money cannot be spent by two entities at the same time.

 

[Sundial]

Well, I've read the rest of what you wrote, and it may be we're consigned to disagree.

The problem is first principles- specifically, the nature of money.

The attributes you assign to money are attributes that properly belong to labor (or, in some circumstances, real - as opposed to financial - assets).

Labor is time-constrained. A unit that's used in one place, at one time, cannot be used somewhere else simultaneously. It's capable of being used inefficiently, or of being wasted. The same is true of other resources.

Money, on the other hand, can't be wasted. Neither its creation nor destruction affects net financial balances. It is not time-constrained, and it can be used in any number of places simultaneously.

Without an agreement about the nature of money, we can't agree to the rest of it.

 

[ShackledNation]

Well, I've read the rest of what you wrote, and it may be we're consigned to disagree.

The problem is first principles- specifically, the nature of money.

The attributes you assign to money are attributes that properly belong to labor (or, in some circumstances, real - as opposed to financial - assets).

Labor is time-constrained. A unit that's used in one place, at one time, cannot be used somewhere else simultaneously. It's capable of being used inefficiently, or of being wasted. The same is true of other resources.

Money, on the other hand, can't be wasted. Neither its creation nor destruction affects net financial balances. It is not time-constrained, and it can be used in any number of places simultaneously.

Without an agreement about the nature of money, we can't agree to the rest of it.

I asked you earlier: what is the economic school of thought you follow/believe? MMT? Chartalism?

That is completely false. Money is just a commodity like anything else. Money is simply a commodity that obtains value as the medium of exchange because everyone is willing to accept it as payment. When people spend money, they are simply exchanging it for something they value more. When you buy a candy bar for one dollar, the owner of the candy bar is buying the dollar for 1 candy bar. You are simply exchange one item, the unit of currency, with another.

The purpose of money, more accurately, is to facilitate indirect exchange. It allows for the complex transactions of the modern economy. In order to barter, you would have to find someone who both demanded what you wished to supply and supplied what you demanded. This made trade less efficient. Eventually, people began to exchange items for gold, thus money came about. (gold, at least, was the european way. Native americans used beads, and other cultures used different goods of universal value as currency).

Say the owner of a cow wanted a pair of shoes, but such a pair of shoes was worth a fraction of a cow. He could not cut his cow in half to buy the pair of shoes. But by selling his cow for gold, he could indirectly exchange half a cow for the pair of shoes by purchasing the pair of shoes with half the money he obtained from buying the cow. In reality, he was exchanging 1/2 a cow for a pair of shoes. The gold simply made possible and facilitated the exchange.

In today's economy, we often obtain money through a service we provide to employers. Say I design computer software and I am paid $60 an hour (and thus $1 per minute). When I purchase a candy dollar for one dollar, I am really exchanging 1 minute of programming computer software for 1 candy bar. Without a currency, I would have to be paid in candy bars from my employer, or whatever else I demanded for my service to him.

Money is time constrained just like any other commodity. The same unit of currency cannot exist in two places at once. The $20 bill I hold in my hand cannot be used by someone else at the same time I use it. Another $20 bill could also be used, but not the same one I am using. Money is perfectly capable of being used inefficiently.

Your notion that the creation and destruction of money has no affect on financial balances is naive. Surely you have heard of the hyperinflation of Hungary, the Weimar Republic, and Zimbabwae, which was caused by rapid expansion of the money supply. Surely you do not suggest destroying all money will have no affect on an economy. Because the creation of money reduces the purchasing power of money, it reduces the real value of both debt and savings. In this way, governments can increase the supply of money to pay off their debts, indirectly sucking the wealth away from the people by decreasing the value of their savings.