On the fifth day, God created fractional reserve banking.

[davywavy]

I got into a debate about economics with someone online last week, during which they came up with the remarkable assertion that it's impossible to create more money.
Now, on the one hand this is plainly ridiculous. The UK and US are currently creating more money as fast as the presses can turn in order to reduce the relative value of our debts, but I think I understand what the person was really saying; and that is that it's impossible to create more wealth.

This is an idea I've encountered before from several sources - raggedhalo and jonnyargles have both come out with it at me in the past, and I can see why, to some, it might be an attractive idea. If there is a set, fixed, amount of wealth in the world, then it adds a great deal of weight to arguments in favour of wealth redistribution. After all, if it's impossible to create more wealth than currently exists, the only way for poor people to get richer is by moving wealth about from one person to another. If your political philosophy is based on a hatred of teh Greedy Bankst0rs then this view of wealth adds a moral weight to your beliefs which some* might say is otherwise lacking.
Indeed, there's only one problem with the idea that you can't create more money/wealth. It's complete bollocks. Apart from that, though, great idea.

But over the weekend it struck me; what if it wasn't possible to create more money? If that were the case then it would have to be possible to project all the money in the world backwards in time to the creation of the universe. Obviously, if that were the case, money cannot have been created out of the formless entropy of the big bang. It would have required some form of active agent to denominate it.
It seems strange to realise that the extreme left economic position is that the world - and all the money in it - was created in toto on October 23rd, 4004 BC, but it would appear Bishop Ussher was right. Who'd've thought?



^{* People who can do sums, for example.}

Comments

[borusa.livejournal.com]

What's "wealth"?

It's easy to create more money, anyway. Pay that ten pound note into your bank account. Woo! 10 pounds created!

[davywavy.livejournal.com]

In this particular case, I'd say that wealth is the stuff that money represents. Many people don't seem to have twigged the representational system of exchange thing, so they tend to use money to mean that.

A bit of an assumption on my part, I know, but not an unfair one.

[(Anonymous)]

Hmmm...

wealth is the stuff that money represents.

So money = Stuff.

Stuff = Everything. Everywhere.

As you clearly cannot go around creating something from nothing the statement that you cannot create more money is true.

Of course, you can assign different values to stuff at different times... That's a very good way to make money.

[davywavy.livejournal.com]

So money = Stuff.

Stuff = Everything. Everywhere.

-------

No, try again.

[(Anonymous)]

Wealth = value.

The houses in a street are worth more if the street is litter free than litter strewn. Pick up the litter, and see how much wealth you create...

[(Anonymous)]

JK Rowling created something from nothing

H

[(Anonymous)]

I expect she stole the old rope from some workers.

H

[crocodilewings.livejournal.com]

A 13th century peasant would live for around 40 years. A third of their children would die before they reached one year old. They would carry out well over a hundred hours of manual labour a week. It would take about six hours of that labour to produce a dozen candles, which would collectively provide about 2.5 kW h of light and heat. Over their lifetime they were unlikely to travel more than a few dozen miles from where they were born, at a maximum speed of about fifteen miles an hour, but probably much slower. They would meet perhaps 150 people in their entire lifetime. Anything they knew, they had either witnessed themselves or learned verbally from someone else. Anything they owned, they either made themselves, inherited, or traded directly with the person who had made it using something they themselves had made or done. If they broke a bone, it wouldn't be unexpected for them to die.

The 21st century has more wealth than the 13th.

[davywavy.livejournal.com]

Extremely well put. Thank you.

[crocodilewings.livejournal.com]

I've recently had to comprehensively answer the question for an assignment, but I've found the question "what is money?" really puts the willies up people who haven't thought about it.

[davywavy.livejournal.com]

A number of people will get as far as "It's a representative system of exchange", but ask them what it actually represents and mostly they get no further.

[davywavy.livejournal.com]

I good description I heard lately was "A crystallisation of the relationship between creditor and debtor".

[crocodilewings.livejournal.com]

A lot of the textbook discussion of money makes the distinction between what money actually is and what it should be capable of doing. The specification of currency is a medium of exchange, a method of deferred payment and a store of wealth. Both £10 against the Gold Standard and £10 of fiat cash accomplish these to different extents, but each of those £10s is a fundamentally different thing, even if they have the same face value.

My current econ module is covering theories of inflation at the moment, and it's all I can do not to hold up notes to cashiers in shops and say "have you any idea how bloody weird this stuff is?"

[davywavy.livejournal.com]

Ain't it though? Everyone knows what it is right up until you ask them. I regard it as humanity's only 4-dimensional invention, as you can manipulate it consistently across both the past and future.

I assume you've read Ferguson's Ascent of money?

[crocodilewings.livejournal.com]

I haven't, actually. It's on my list, but it's a long list.

[robinbloke.livejournal.com]

Money is created value amongst other things; draw a picture on a piece of paper using a 10p pencil and a 1p piece of paper and instantly you've created value/money/weathly from your own toil.

Finitely existing however is energy and resources; I can see (perhaps) that eventually some commodity such as the kW or the litre of water could take over as the economic stable if the dollar falls down the hole it's dancing with, we've already got this to some extent in gold, which has the advantage that it's not only not massively useful beyond jewellery and flashy contacts for your hifi but more importantly it doesn't degrade so for long term storage of wealth, it's the biz. As long as some kook doesn't sell all yours off of course...

[davywavy.livejournal.com]

Yes, exactly; money can be said to represent a localised reversal of entropy in reality or in potentia, created by directed human activity.

The idea that you can't create more money is fallacious because it assumes that more human activity cannot be directed to that reversal, and that external energy cannot be harnessed to achieve that. raggedhalo, arguing that more money/wealth cannot be created, once told me that the Earth is a closed system, and I had to point out to him the big yellow thing in the sky which constantly inputs new energy which may be harnessed.

[robinbloke.livejournal.com]

I was taught economics and trade by playing Elite on the Beeb, this is possibly not the best source, as a Military laser is always a sound investment.

[zenicurean.livejournal.com]

I could buy tenth of a Cobra Mk III for that! You're clearly used to starting each day with a nice cup of Masa Super Premium.

[(Anonymous)]

You need to automatically reverse your joystick when you switch to aft guns.

[matgb]

Hmm, y'know, it never occured to me before. Is my openness to the idea of markets and competition despite being a great big lefty influenced by spending far too long playing Elite and other trading games as a kid (and a bit too long playing Oolite these days as well).

[crocodilewings.livejournal.com]

Why do you think markets belong to "the right" more than "the left"?

[(Anonymous)]

Because centralised state planning is a rival system of distribution?

H

[crocodilewings.livejournal.com]

That doesn't really answer the question, though, since you could ask with equal legitimacy why centrally planned economies have the associations they do. Classical feudalism accommodates the idea of centrally orchestrated production, but I've yet to hear a firebrand socialist advocating vassalage.

[davywavy.livejournal.com]

Yes you have, they just call it fairness.

[crocodilewings.livejournal.com]

Say what you like about a warrior aristocracy safeguarding land through the threat of extreme violence and a serf underclass carrying out all the agricultural labour, it was at least a functional system of governance persisting for several centuries.

[matgb]

And they set a "fair price" for everything and did things like expell merchants who overcharged from towns. Then wondered at times why there were shortages and people were starving. Oh, um, maybe not so good?

[crocodilewings.livejournal.com]

It is at least possible to centrally plan an economy in which there are only about thirty different goods and services. I wouldn't like to live in one, though.

[matgb]

I don't, I've always believed they were a neutral tool and it's up to us to make sure they remain a force for good.

But so many that're otherwise on 'my' side in economics discussions seem to think markets=teh evil, including those who also think govmint=teh evil. The latter group really confuse me, they favour a free economy, but hate anyone who works to understand the principles of that even more than they dislike corporatists and state monopolists.

Ah well.

[crocodilewings.livejournal.com]

It's anarcho-communists that get me. They reject centralised authority, simultaneously reject self-organising mechanisms of resource production, and still somehow expect there to be a functional society with complex artefacts like insulin and breeze blocks and fiberoptic cable. How is anyone supposed to know what to produce?

David Friedman (son of Milton) has written at great length advocating anarcho-capitalism, in which all goods and services, including money, enforcement of property rights, common property resources and judicial functions are provided on an open market. As mental as I find such an idea, it's at least consistent.

[matgb]

Money is created value amongst other things; draw a picture on a piece of paper using a 10p pencil and a 1p piece of paper and instantly you've created value/money/weathly from your own toil.

Well, assuming the picture is any good.

One of the better definitions of growth I've read is turning low value things into higher value things (eg turning a derelict old Victorian mill into nice desirable apartments, or melting some useles jewellery, putting the metal onto some plastic and calling it a 'circuit board' or similar).

Pretty much the same thing. The very idea that Earth is a closed system and there's no more wealth to be made, just shared about, is just...

So wrong my brain can't get my head around it.

[davywavy.livejournal.com]

But it does allow people to morally justify taking people's possessions from them and divvying them up on the basis of fairness.

I use the word morally advisedly.

[belak-krin.livejournal.com]

You can create all the money you want, it doesn't necessarily change anything, Zimbabwe.

Wealth can be created if solely for the reason that we ran out of places to mine gold and instead look to strange and arcane methods of discerning how much money there will be in the future and paid people with that.

I think a wizard did it. The concept of stock exchanges (which i understand get to do lots of fun things because of fancy computer models which work most of the time) are some kind of philosopher's stone would make for a very different Harry Potter.

[crocodilewings.livejournal.com]

Wizarding currency in Harry Potter is based on fixed exchange rates between completely different precious metals. I have a theory that they don't use decimalised currency to make arbitrage harder.

[zenicurean.livejournal.com]

If you squint very hard, it might be they were trying in some way to suggest simply the quantity theory of money. But it takes a great deal of squinting indeed, I think.