Naturally, the political lines have been drawn: Democrats are salivating at the opportunity to hugely expand the governments role and spend oodles-&-gobs of money, while the Republicans, in classic "I'm still rel event" fashion, are opposing anything and everything the D's want to do. They do agree on one thing though: that the government needs to do something to fix the economy. The R's just don't want the D's to get the credit for doing it!
I challenge both the R's and the D's basic premise: that the government has the responsibility, or even the right, to try fixing the economy. But that is for another post -- so for the sake of argument I will assume that the health of the economy is a valid concern for the government. What then characterizes a healthy economy? One in which wealth is maximized. But this begs the question that is the title of this post, what is wealth?
For nations wealth is measured in GDP, for a financial planner it is Assets less Debts, but in the end it all boils down to plain old dollars. This seems like a simple answer, wealth is dollars, ...duhh. But have you ever asked yourself what money is? I don't mean paper or metal, or even the means of exchange for goods. I mean what is it? Only by understanding this can we know how to maximize it.
Money is products that have been produced but not consumed. In our modern economy it is often hard to see this link between production and money, so it is helpful to think in more basic terms first, and then project upward. Suppose everyone were farmers. You could only eat that which you had produced. If you produce more than you need, then that surplus represents your wealth. This wealth could be saved in case the next year was less productive, or traded via barter to other farmers for rudimentary goods. However you would not be able to save much, because the food would naturally spoil after time. And trading with other farmers would not alleviate this problem because all they have to trade to you is also their surplus food (aside from a negligible amount of home-made products) which will also spoil. So there is a natural ceiling to the total production possible to a community.
For example, suppose you become so productive as a farmer that you can reap 3 years worth of food in one year. What are you going to do with the other 2 years worth of food? Suppose you can save one years worth without it spoiling, then what about the other extra year? Maybe you can trade a quarter of it to other people for durable goods, but the last 3/4 goes to waste. This is where money steps in. If you could exchange your extra 2 years of food for money, then that money would not spoil, and in the future you could trade the money back for food or other goods if needed. Thus money is a means of saving. Of course it is also a means of exchange, but that is not it's primary purpose. Money is not important because it makes trading easier, it is important because it makes savings possible. It is savings that allows man to progress beyond a Dark Age style hand-to-mouth existence.
Without savings our modern economy would never be possible. Consider any non-farming profession: lets take an Auto maker for example. An Auto maker does not produce anything that can be readily consumed. So how does an Auto maker live (he/she has to eat something)? They must somehow obtain food from those who do produce it (farmers). If the farmers are only producing enough for themselves though, this is impossible. So the very existence of non-farming professions depends on the farmers being able to save. And, as outlined above, the degree to which farmers can save is severely limited without money, and therefor so also is the possibility of professions limited without money.
Of course we do have money, so we know how an Auto maker could survive: he sells his cars for money, and then trades that money to farmers for their food. (they then can buy things, such as cars) Here is the crucial point though: the Auto maker only got the money because he had produced something (the car). Likewise the farmer only received the money from the Auto maker because he had produced something (the food). This is true for every link in the chain of selling all the way back to the miner who brought the money (gold) out of the ground with his blood, sweat, and tears.
Now back to our society and the question at hand. Knowing that wealth is goods produced but not consumed (i.e. money, i.e. savings), how can it be maximized? Only by producing more goods than are consumed! This is the secret that the D's and the R's refuse to see. Production is wealth. The governmental approach to the economy however seeks simply to give money to certain groups, thereby "stimulating" the economy. How does this moving around of money increase wealth? Where, after all, does the government get its trillions to stimulate the economy? By taking it from people who already have it. How did the people get it? By producing. Does taking the money from them and giving it to someone else somehow increase that which had been produced? No. The total amount of production remains unchanged, and, tragically, a horrible injustice is also perpetrated. However, even if one disagrees with me that it is unjust to do this, surely one can see that it does not work!
In the primitive society imagined above, if some people refused to produce they would starve (or be left to the charity of those who did produce). However in our modern society there is the possibility of delaying this process through the use of credit. Many people consume more than they produce through this means, but we all know that eventually it catches up to them. Our government is now doing the same thing. By refusing to see that the only way to increase wealth is by increasing production the government is living on borrowed money. But government or individual, the time of reckoning always comes.
1 comment:
Amen Brother!
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