And the purely stupid thing is, it’s all made up. The same number of people exist to produce the same amount of goods and consume the same amount of goods. The society could just continue on. But they can’t, because money.
Absolutely not, and I hate this term “made up” whenever people are trying to describe the economy.
In an economy populated by free economic agents, prosperity is determined less so by the amount of goods available but by how much those agents trade among each other. For each type of economic resource, whether that be goods, services, labour, money, or social status, there is a certain distribution of those resources which maximises everyone’s utility. It is impossible to nail down what that distribution is, but when people are more willing to trade with each other, those resources have a tendency to flow towards the people who most want them. Even though the amount of resources available does not grow, a “good economy” where people are willing to exchange resources will feel more prosperous than a “bad economy” where everyone is scared of losing their resources and thus hoard what they have.
You are happy when you are able to trade the resources you have (possibly just your labour) and get in return things that you value more than keeping your labour. Food, shelter, cars, and Pokémon cards. You could keep your 40 hours, but surely you wouldn’t be very happy with just that, would you? Trade creates value.
And because I know people like talking about socialism here, this is where the Soviets went wrong and where the Chinese went right. The Soviets thought that the way to prosperity is to produce more. The Chinese know that the way to prosperity is to allocate better, and one of the best ways to allocate resources that we know of, is by letting people trade. That’s not to say it’s a perfect way or even a good way, but so far we have not come up with anything better than to let people trade and then step in when the trade goes wrong or does not produce an optimal distribution of resources. Don’t misunderstand; unregulated trade tends to clog itself up and results in a very suboptimal resource distribution. It needs to be closely regulated.
Money is nothing more than an intermediary to allow trade to occur. When people hoard money, that in itself is a dampener on economic growth. Money which is spent circulates again and again, and greases the wheels of trade. An economy where people freely spend and freely earn money is a prosperous one. An economy where people hoard money is one where nobody gets what they want (except the idiots who somehow derive utility from hoarding money).
So no, it is not “made up”. In economics, public confidence is what creates prosperity. When people are confident, they spend. They earn it back. They trade. They create value. When people are scared, they desperately hold on to what they have. They stop trading. That value, it never gets created.
I think you’ve hit it on the head. The economy is the stupid part.
If there is food, and there are people, it’s stupid that we have hungry people who don’t get the food. And all the reasons you listed are a consequence of the “economy” which incentives people to not get the food to the other people.
That isn’t to say that an economy is worthless. But when it’s failing to the point that people are starving, it’s idiotic to follow its incentives.
Labor creates value, trade allows us to quantify the value between different goods (which are themselves still the output of labor)
I agree with what you’ve laid out here, except that I think you’ve missed the point of the comment you are replying to. When an economic downturn happens not for material reasons (resource constraints, logistical choke-points, and the like) but for financial reasons, then yes, physically it is arbitrary. The 2008 crash happened because of mortgage debt in a ledger - our physical ability to work and produce goods didn’t change.
And the purely stupid thing is, it’s all made up. The same number of people exist to produce the same amount of goods and consume the same amount of goods. The society could just continue on. But they can’t, because money.
Absolutely not, and I hate this term “made up” whenever people are trying to describe the economy.
In an economy populated by free economic agents, prosperity is determined less so by the amount of goods available but by how much those agents trade among each other. For each type of economic resource, whether that be goods, services, labour, money, or social status, there is a certain distribution of those resources which maximises everyone’s utility. It is impossible to nail down what that distribution is, but when people are more willing to trade with each other, those resources have a tendency to flow towards the people who most want them. Even though the amount of resources available does not grow, a “good economy” where people are willing to exchange resources will feel more prosperous than a “bad economy” where everyone is scared of losing their resources and thus hoard what they have.
You are happy when you are able to trade the resources you have (possibly just your labour) and get in return things that you value more than keeping your labour. Food, shelter, cars, and Pokémon cards. You could keep your 40 hours, but surely you wouldn’t be very happy with just that, would you? Trade creates value.
And because I know people like talking about socialism here, this is where the Soviets went wrong and where the Chinese went right. The Soviets thought that the way to prosperity is to produce more. The Chinese know that the way to prosperity is to allocate better, and one of the best ways to allocate resources that we know of, is by letting people trade. That’s not to say it’s a perfect way or even a good way, but so far we have not come up with anything better than to let people trade and then step in when the trade goes wrong or does not produce an optimal distribution of resources. Don’t misunderstand; unregulated trade tends to clog itself up and results in a very suboptimal resource distribution. It needs to be closely regulated.
Money is nothing more than an intermediary to allow trade to occur. When people hoard money, that in itself is a dampener on economic growth. Money which is spent circulates again and again, and greases the wheels of trade. An economy where people freely spend and freely earn money is a prosperous one. An economy where people hoard money is one where nobody gets what they want (except the idiots who somehow derive utility from hoarding money).
So no, it is not “made up”. In economics, public confidence is what creates prosperity. When people are confident, they spend. They earn it back. They trade. They create value. When people are scared, they desperately hold on to what they have. They stop trading. That value, it never gets created.
I think you’ve hit it on the head. The economy is the stupid part.
If there is food, and there are people, it’s stupid that we have hungry people who don’t get the food. And all the reasons you listed are a consequence of the “economy” which incentives people to not get the food to the other people.
That isn’t to say that an economy is worthless. But when it’s failing to the point that people are starving, it’s idiotic to follow its incentives.
Labor creates value, trade allows us to quantify the value between different goods (which are themselves still the output of labor)
I agree with what you’ve laid out here, except that I think you’ve missed the point of the comment you are replying to. When an economic downturn happens not for material reasons (resource constraints, logistical choke-points, and the like) but for financial reasons, then yes, physically it is arbitrary. The 2008 crash happened because of mortgage debt in a ledger - our physical ability to work and produce goods didn’t change.
This was quite educational, thank you very much for all the detail! I feel like I understand fundamental economics a little better now.