Even as the production of goods and services has declined as a result of the response to covid-19, governments are issuing larger and larger sums.
The fact that this seems reasonable to many people stems from a common and understandable misconception: that money is wealth. After all, aren’t people with a lot of money considered rich? However, while wealth and money are often found together, they are very different in character and importance.
Wealth is in many ways more tangible and therefore easier to understand than money. The useful goods and services and, perhaps more importantly, the productive resources necessary to create useful goods and services, are wealth. A loaf of bread is wealth, just like the farms, factories, human labor, and ingenuity required to cultivate and process the crops necessary for its production.
Money, on the other hand, is best understood as a tool used to transform wealth from one form to another. For example, your skills and your ability to do a job are a form of wealth. Much like the food you eat. The money paid to you in the form of a salary that you in turn transfer to the grocery store accomplishes the simple but crucial task of effectively turning your work into food.
From this it should be clear that the amount of wealth in an economy is much greater than the amount of money, as wealth only turns periodically and for a short time into money before, usually, being. transformed into another form of wealth. To illustrate, imagine a small business owner who retires and sells her business. She is unlikely to keep the proceeds in her bank account or under her mattress. Instead, she’ll likely use the money to invest in other businesses (either directly or through the stock market) to generate income for retirement. And, of course, we all know there doesn’t seem to be any time at all before our paychecks are turned into food, shelter, gas, and other basic necessities.
However, starting in the late 1990s, the amount of money in the economy grew much faster than wealth or economic output. Since the start of the covid-19 pandemic, this growth has accelerated tremendously, even as economic lockdowns have resulted in lower production.
Does this growth present a potential danger? The fact that we have not suffered from high consumer price inflation has led to speculation that there may not be a limit to the amount of money governments can create to fund. socially desirable goals such as infrastructure renewal, a transition to renewable energies or a universal child. care.
This thought, however, makes the basic mistake of confusing money with wealth. Creating billions of dollars in new money will not create the skilled labor or other productive resources needed to achieve these goals, especially since modern times most new capital is created by banks that issue loans for property and other forms of speculation. Instead, at best, it will simply divert wealth and productive resources from those who are most able to put them to good use in the hands of those who are most likely to mismanage them. At worst, this completely threatens the viability of productive enterprises.
To illustrate with an example, let’s return to our small entrepreneur. If a large amount of new money were to enter the economy during the period it was selling, the price of alternative forms of wealth would surely increase. Rising stock markets, even amid the economic disaster caused by the pandemic and associated lockdowns, are evidence of the impact of money creation on asset prices. Unfortunately for our retiree, his money, generated by the sale of real wealth, now competes with newly created money, created out of thin air, to buy income-generating assets. Its commercial wealth will therefore not be able to buy as much wealth in other forms as it would have been if new money had not been created.
More disturbingly, however, the wealth is reallocated to someone who has demonstrated the ability to create and preserve wealth and to people who, as well-connected insiders with access to unlimited amounts of newly created money, have any reckless interest.
And so we have the situation that much of the developed world is now facing. Once productive industrialized economies have, over the past forty years, seen much of their wealth come under the control of these large corporations, private equity and venture capital firms, with privileged access to the silver. However, rather than using this money to invest in innovation and growth to create additional wealth, these new owners have instead chosen to plunder the companies they control by forcing them to go into debt to buy their own. shares in stock market.
While this pushed up earnings per share and executive bonuses, it also made companies more indebted and vulnerable to economic shocks, as well as less innovative and productive. The wealth accumulated over decades has been wasted, and in the process inequalities of income and wealth have grown to the point of threatening social stability.
As insolvency specialist Roy Adkin said in the documentary “The League of Gentlemen” (episode 3 of Pandora’s box, directed by Adam Curtis): “Economists seem to think that all problems can be solved by money, by the use of money, rather than by creating wealth. But they never really approached him. So I would ask the question: to whom the money? What money? Where is he from? Money is a tool. It renders a useful service when it facilitates the exchange of different forms of wealth. However, it is not wealth. In our current monetary system, however, the power of money has grown to the point that it is no longer a servant of wealth but rather its master and destroyer. Given this, the continued and accelerated creation of money, while being sold as a means by which we could create a better society, is more likely to lead us in precisely the opposite direction.
Alex Jones breaks down the story of the whistleblower who revealed illegally altered ballots in the 2020 presidential election.
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