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Again, you bring out another interesting point about economies. I think
this one really strikes a cord with me.
You mention the cost of bread 1500 years ago verses today and how much
cheaper it is today than yesterday in terms of the average hours of
labor necessary to make the product for the average laborer. This is so
true. Today our standard of living is so much better and all because of
the genius of man to leverage his labor hours in the production of stuff
that we use. This is true insight and tells me two things. First, that
the wealth of a nation grows as it's ability to assimilate new
technologies grows. And second, it's not the value of the money supply
that defines the wealth of a nation and it's individuals, but the value
of the hours of individual laborers that create the wealth or stuff in
the first place.
Obviously the labor of a doctor is priced higher than the labor of a
baker, so the doctor will accumulate wealth and be able to use it faster
than that of the baker. The innovator who creates the new technical
innovations also benefits by keeping more of the savings squeezed out of
the processes used to make the stuff, so he too accumulates wealth a lot
faster than the baker. There will always be the rich and the poor
because we collectively decide who's labors are more valuable to us.
Nevertheless, savings from technological improvements do seem to
increase the overall standard of living for everyone, rich and poor.
Thanks for helping me clarify my thoughts. I still don't see why
central banks need to expand the money supply faster than labor hours
are valued. I think that's about it.
Dan
hostmaster wrote:
>
> 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>>>
>> >> >> >> < mailto:realtraders%40yahoogroups.com
>> <mailto:realtraders@xxxxxxxxxxxxxxx>
>> >> < mailto:realtraders@xxxxxxxxxxxxxxx
>> <mailto:realtraders@xxxxxxxxxxxxxxx>>
>> >> >> < mailto:realtraders@xxxxxxxxxxxxxxx
>> <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/>>> <
>> >> >> 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/ <http://www.delta100.com/>>>>
>> >> >> >> > >
>> >> >> >> > > No virus found in this outgoing message
>> >> >> >> > > Checked by PC Tools AntiVirus (4.0.0.26 - 10.072.012).
>> >> >> >> > > http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>
>> >> < http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>>
>> >> >> < http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>
>> >> < http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>>>
>> >> >> >> < http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>
>> >> < http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>>
>> >> >> < http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>
>> >> < http://www.pctools.com/free-antivirus/
>> <http://www.pctools.com/free-antivirus/>>>>
>> >> >> >> > >
>> >> >> >> >
>> >> >> >> >
>> >> >> >> >
>> >> >> >> >------------------------------------
>> >> >> >> >
>> >> >> >> >Yahoo! Groups Links
>> >> >> >> >
>> >> >> >> >
>> >> >> >> >
>> >> >> >>
>> >> >> >> No virus found in this incoming message.
>> >> >> >> Checked by AVG.
>> >> >> >> Version: 8.0.100 / Virus Database: 269.23.20/1452 - Release
>> Date:
>> >> >> >> 5/17/2008 6:26 PM
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>> >> >>
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>> >> >> 5/18/2008 9:31 AM
>> >> >
>> >>
>> >>
>> >> No virus found in this incoming message.
>> >> Checked by AVG.
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>> >> 5/18/2008 9:31 AM
>> >
>>
>>
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