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Balancing productivity growth + new real wealth from resoucre development
with money supply is the ideal for maximizing economic growth.
Excess money supply growth = inflation, Deficient money growth = economic
drag (the degree and length of time of deficiency determines if it is
slow growth, stagnation, or contraction).
Certainly we could take my initial example and let bob continue to
produce widgets and keep the size of the total economy at a total of
$7/cycle. Then we just wait until there is no further demand for widgets
and convert production to sprockets and repeat the cycle. The
cost per unit to consumers is held down but their is no economic growth
of the economy as a whole other than amassing the widget stockpile.
This does indeed represent a growth but not a monitized one so unless
barter re-enters the economy the growth is not useful to the overall
economy. Since money only is a symbol used for barter transactions
in the first place, we should allow the money supply to grow to represent
the value of these amassed goods. There is no difference than
bartering the widgets than in monetizing them. A perfectly
administered monetary system would reflect exactly that. Macro
economies are not a zero sum game. As growth occurs there is more for
everyone.
A look at today's economy vs that of 1500 reveals just how true this
is. The man-hours invested in the cost of a loaf of bread today is
about 1/10 hour. In 1500 it was about 2 hours. Yes the
cost in monetary units has risen for both the bread and the purchaser's
wages but overall the efficiency has been to the benefit of all, both
producer and consumers. In a perfect system the cost in monetary
units might remain constant as would wages. But the leverage of
barter value between them would be the same ratio as we see in the modern
currency (assuming its truly a free market without subsidy).
We have strayed quite afield from day to day trading as is the purpose of
this list. So I guess we should find another forum if we want to
continue this thread.
boater805
At 02:57 PM 5/18/2008, you wrote:
Yes, that's exactly what I was
getting at. We would have fewer dollars
but we would have a lot more stuff. So the real wealth, the stuff that
is made in the country would expand and grow from people's great ideas
on either new product development or by making all sorts of processes to
be more efficient. Either way, we use less real resources to produce
more stuff for all of us to use in some capacity.
But in my example, we hold the money supply as a constant so as not to
inflate the money and reduce it's value in the process. The money is
only a reflection of the true wealth that has been created. It is a
convenient way of valuating everything using a common measuring rod. Of
itself, it is worthless, but for the fact that it also represents the
store of wealth we keep in our local bank's savings account. In that
sense it's our claim on everything out there that we could use sometime
in the future. Our savings are our tangible claim on the universal
stockpiles that we all rely on. It stands to reason that our savings
dollars could go a lot further if the price of stuff that is reflected
by those dollars actually drops over time and doesn't rise or stay
constant as in your example. It would seem to me that I could reach a
comfortable retirement a lot sooner this way.
I don't think we need to add more dollars just because of newer
efficient innovations and processes that make an economy hum. As I see
it, the only possibility could be the need to add money at the rate at
which people enter into the economy with their labor. After all, if new
immigrants add to the pool of the nation's work force, then they too
will consume the stuff that people make while producing the stuff that
people need. In that respect there may be a need to expand money at the
rate that new labor enters the labor force and is valued. All else
should be a constant in order to raise our standard of living over
time.
Just my thoughts.
Dan
Danhostmaster wrote:
>
> You say " ... If prior increases in productivity add value to
the
> nation's pile of
> stuff and you don't inflate the money supply, then I think all
that
> happens is the value of the dollar would go up."
>
> If it worked that simply and no expansion of the money supply were
> done then we'd have the same fixed amount of dollars chasing more
and
> more stuff. This would result in running out of dollars before the
> expanded stuff could be all bought by the limited number of dollars.
> Hence the overall economy fails to grow.
>
> Afterall, money (if macro economics is idealized) is merely a symbol
> for the barter the marketplace performs.
>
> Lets look at the simplist of examples. You have $10 and Bob can
> produce 10 widgets for $ each
>
> Bob invents a widget mold that can now produce 100 widgets / week
and
> it costs him $3 to build it.
> Now, Bob can sell 10 widgets to you for $7 or 100 widgets to you for
> $7 (the other $3 is tied up in his plant expansion. The economy has
> actually shrunk then rather than remained constant or expanded.
>
> Its an overly simplified example of course but scale it up to an
> economy and it remains true. Without growth of the money supply to
> mirror productivity growth the productivity will either quit growing
> both from lack of incentive and lack of capital, or worse, the
economy
> will actually contract due to dollars previously available to be
used
> to make purchases now being tied up in investment to produce goods.
> Expanding the money supply faster than productivty growth + value of
> physical plant will lead to inflation (more dollars chasing fewer
> goods). Expanding slower will lead to contraction as per the bob
> example above.
>
> boater805
>
> At 11:17 AM 5/18/2008, you wrote:
>
>> Thanks for the added insight, but....
>>
>> I still can't figure out why future productivity growth, or an
economic
>> expansion, needs the extra money creation to work better at
making new
>> innovations? Why should a piece of paper, an IOU backed by
the
>> government, have anything to do with bringing new idea's to
market? The
>> money is only a convenient way to transfer some sort of implied
value
>> from one person's hands into another person's hands. It just
makes it
>> easier for the inventor to create or consume whatever it is
needed to
>> create their new masterpiece. If the inventor still needs a
partner to
>> try out or perfect a new idea, he or she still needs to
convince
>> someone, maybe a banker, to provide the needed funding.
>> If prior increases in productivity add value to the nation's
pile of
>> stuff and you don't inflate the money supply, then I think all
that
>> happens is the value of the dollar would go up. It represents
the
>> output, or more of the stuff, made by a nation's innovators and,
I
>> think, can only be valued in the currency of that nation's
producers.
>> It seems to me that the only thing that would change is the
amount of
>> money needed to fuel the new ideas. Since the value of the
dollar goes
>> up, and no inflation of the money supply, I would need fewer
dollars to
>> fund my idea. I still need to compete with everyone else's ideas
for
>> getting my funding.
>>
>> I know this is simplistic, but isn't this kind of intuitive? Am
I still
>> wrong about this?
>>
>> Dan
>>
>> hostmaster wrote:
>> >
>> > Friedman's is exactly the model I have in mind. To some
extent we do
>> > see productivity gains "passed along" to the
consumer. Market forces
>> > however do come into play and without an expansion of money
supply in
>> > accordance with productivity gains we experience a choking
off of
>> > capital available for growth (of both inovation and
production) as
>> > more and more successes (that have created and benfited
from the
>> > productivity gains) compete for the same limited capital
pool for
>> > their own growth.
>> >
>> > The federal reserve bank in San Francisco used to have a
game in their
>> > lobby (I don't know if they still do) where the visitor
could adjust
>> > knobs for interest rates, money supply, and taxes and then
watch the
>> > effect on the economy in terms of inflation and
productivity. Their
>> > algorithm included lag time from the time of change until
the effects
>> > rippled thru the economy and reflected the ripples thru the
feedback
>> > loops. It was quite a challanging game to maintain growth
and avoid
>> > collapse while fiddling with the knobs. Only very slight
tweaks used
>> > sparingly from time to time (like flying a helicopter) were
ultimately
>> > successful.
>> >
>> > Boater805
>> >
>> > At 06:32 AM 5/18/2008, you wrote:
>> >
>> >> This is an interesting discussion and one in which I'd
like to
>> join with
>> >> my take.
>> >>
>> >> Milton Friedman stated that inflation is and always
will be
>> nothing more
>> >> than a monetary phenomenon. I believe that this makes a
lot of sense.
>> >> It hearkens back to the simplicity of the barter system
of trade.
>> >>
>> >> You bring up an important point, namely, that
productivity gains can
>> >> offset inflationary growth in the monetary base. I
believe this makes
>> >> sense also. If we can produce more stuff with fewer
resources,
>> then the
>> >> price of that stuff should come down relative to
everything else.
>> >> Right? If we increase the money supply by the same
amount, give or
>> take
>> >> a bit, then I would think that price reductions from
productivity
>> >> improvements would be erased. Perhaps remaining about
the same as it
>> >> were before the inflation of the money supply. So, why
is that
>> maneuver
>> >> by central bankers necessary at all? Why can't
consumers just keep the
>> >> benefits derived from these productivity improvements
and passed along
>> >> to the masses, creating a higher standard of living for
all?
>> >>
>> >> What am I missing?
>> >>
>> >> Just my thoughts.
>> >>
>> >> Dan
>> >>
>> >> hostmaster wrote:
>> >> >
>> >> > Ira's post in thinly veiled nonsense. Yes, the
Saudi's still have
>> >> > almost 2 million bbl/day reserve output available.
However, the
>> >> > Saudis CORRECTLY point out that an increase in
production by them
>> >> > would not have any material effect on the markets.
The markets
>> >> > themself are setting the price largely due to
speculation in futures
>> >> > trading (the sort of thing this list is really
supposed to be about
>> >> > but that Ira's article totally ignored to comment
upon). A look at
>> >> > the price fluctuations compared to net changes in
inventories shows
>> >> > they are decoupled and therefore therefore we can
conclude price is
>> >> > not currently linked to supply/demand. In fact the
net inventory
>> >> > changes in crude oil (both in the US and globally)
show that prices
>> >> > are rising while inventories are rising. Rising
inventories indicate
>> >> > a declining demand (or at least demand in excess
of supply). Either
>> >> > way one wishes to interpret it the conclusion is
that price is
>> >> > decoupled from supply and demand and an increase
in supply would
>> >> > merely increase inventories without moderating
prices.
>> >> >
>> >> > Likewise, Ira's rant goes on about inflation and
interest rates and
>> >> > money supply expansion without discussing
productivity. While I
>> won't
>> >> > attempt to argue that productivity gains
completely offset some
>> of the
>> >> > money growth supply factors, the fact Ira
completely ignores
>> that part
>> >> > of the equation again exposes his tirade for what
it is (as
>> opposed to
>> >> > any kind of sound financial analysis). I have been
a member of this
>> >> > list long enough to know that Ira is not a fool
nor unaware of these
>> >> > counterbalancing economic factors. Therefore I can
only conclude his
>> >> > article was authored deliberately in a way to
justify a viewpoint
>> >> > rather than to provide a financial analysis of any
kind. That's just
>> >> > my opinion but if you go back and reread his tripe
in detail I think
>> >> > you will find it funny instead of
freightening.
>> >> >
>> >> > Boater805
>> >> >
>> >> > At 11:55 AM 5/17/2008, you wrote:
>> >> >
>> >> >> First of all, I seriously doubt if the Saudi's
can raise output. I
>> >> >> strongly suspect they are at full production
now.
>> >> >>
>> >> >> As to filling up the reserves, Bush is hell
bent to keep the
>> reserves
>> >> >> up rather than use them for a short term
solution to high
>> prices. (A
>> >> >> solution which would do little to help the
price problem anyway).
>> >> >>
>> >> >> Ira's post offers some sobering thoughts but
what would happen
>> if oil
>> >> >> came down? What if it came down to $80? And if
we stopped promoting
>> >> >> the insane idea of bio fuels driving up food
prices? If grain came
>> >> >> down 50% and meat 30%? Then what would the
consumer situation look
>> >> >> like? Science fiction? I don't think so. I
think the whole ethanol
>> >> >> craze is being seen for just what it is,
crazy. A fuel that costs
>> >> >> more to make, pollutes worse than fossil
fuels, and drives food
>> >> >> through the roof is certainly not the answer.
Atomic energy and
>> >> >> hydrogen fuel cells are where I'm putting my
energy dollars
>> from this
>> >> >> point forward. Solar and wind will be minor
players, especially for
>> >> >> home use but they do little or nothing for
transportation and
>> large,
>> >> >> commercial purposes.
>> >> >>
>> >> >> So, a lot of the problems can be solved by
simply forgetting about
>> >> >> ethanol and I feel there is a large amount of
speculation in oil
>> >> >> now. We moved from 100 to 125 in days but
demand most certainly
>> >> >> didn't increase by 25% in days. Who knows,
maybe things will work
>> >> >> out after all.
>> >> >>
>> >> >> Bob
>> >> >>
>> >> >> At 01:46 PM 5/17/2008, you wrote:
>> >> >> >And strangly Mr.Bush justifies Saudi for
not raising oil
>> outputs,not
>> >> >> >only that he was not in a favour of
stopping filling oil reserve
>> >> >> >near Gulf of Mexico...very strange
attitude and this has been
>> >> >> >discussed among all leading newpapers
round the world.
>> >> >> >--- In
realtraders@xxxxxxxxxxxxxxx
>>
<
mailto:realtraders%40yahoogroups.com>
>> >> <
mailto:realtraders%40yahoogroups.com
>>
<
mailto:realtraders@xxxxxxxxxxxxxxx>>
>> >> >> <
mailto:realtraders%40yahoogroups.com
>>
<
mailto:realtraders@xxxxxxxxxxxxxxx>
>> >> <
mailto:realtraders@xxxxxxxxxxxxxxx
>>
<
mailto:realtraders@xxxxxxxxxxxxxxx>>>, "Ira"
<mr.ira@xxx> wrote:
>> >> >> > >
>> >> >> > > It is time to take a good look at
where we are at this time. In
>> >> >> >the first quarter of this year more than
158,000 families lost
>> their
>> >> >> >homes to foreclosure. The American public
is going deeper in debt
>> >> >> >every day. In a society where 70% of the
economy is driven by
>> >> >> >consumer spending, inflation and debt are
economy killers.
>> Millions
>> >> >> >of people have homes that are worth less
than the mortgage
>> amount on
>> >> >> >their home. When they look at the
economics of the situation will
>> >> >> >they pay the inflated mortgage payments or
walk away from the
>> >> >> >house? Family homes were the main source
of their wealth and now
>> >> >> >with that gone they have no place to go
for that extra money they
>> >> >> >need to pay the ever-increasing cost of
living. Duke Power said
>> >> >> >that they are cutting off utilities to 50
people a day because of
>> >> >> >unpaid utility bills. Whether the
government wants to admit it or
>> >> >> >not we are in a recession. We are also in
an inflationary spiral
>> >> >> >that won't quit. The government is pumping
liquidity into the
>> >> >> >system at an alarming rate to save the
financial institutions that
>> >> >> >created a large portion of the
problem.
>> >> >> > >
>> >> >> > >
>> >> >> > >
>> >> >> > > The balance of the article is on the
web site if you are
>> >> >> >interested.
>> >> >> > >
>> >> >> > >
>> >> >> > >
>> >> >> > > Just one man's opinion.
>> >> >> > >
>> >> >> > > Ira
>> >> >> > >
www.delta100.com
<
http://www.delta100.com/> <
>>
http://www.delta100.com/
<
http://www.delta100.com/>> <
>> >>
http://www.delta100.com/
<
http://www.delta100.com/> <
>>
http://www.delta100.com/
<
http://www.delta100.com/>>>
>> >> >> > >
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>> >> >> > >
http://www.pctools.com/free-antivirus/
>>
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http://www.pctools.com/free-antivirus/>
>> >> <
http://www.pctools.com/free-antivirus/
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http://www.pctools.com/free-antivirus/>>
>> >> >> <
http://www.pctools.com/free-antivirus/
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http://www.pctools.com/free-antivirus/>
>> >> <
http://www.pctools.com/free-antivirus/
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http://www.pctools.com/free-antivirus/>>>
>> >> >> > >
>> >> >> >
>> >> >> >
>> >> >> >
>> >> >> >------------------------------------
>> >> >> >
>> >> >> >Yahoo! Groups Links
>> >> >> >
>> >> >> >
>> >> >> >
>> >> >>
>> >> >> No virus found in this incoming message.
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