Money and Wealth: Zero Sum Game?

[Josh]

what are the real wealth creators? I mean fastlane wealth? is fastlane wealth = money?

where does the distinction lie between chasing money and chasing real wealth?

wealth creators that allow one to attain freedom? Can anyone list them?

for example the stock market is that a wealth creator too? how is it when money needs to be deployed first and then when you sell higher someone has to have bought it from you with the same money? how is wealth created there? in property etc etc

The stock market creates wealth through efficiently facilitating the allocation of capital, which in turn leads to increased innovation and productivity (more efficient ways to utilise resources). This will lead to increased profitability which will be reflected in the stock price (in the long term). Traders generating short term profits through market volatility is largely irrelevant, however, they are generating value by providing liquidity to the market.

 

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[Nick314]

what are the real wealth creators? I mean fastlane wealth? is fastlane wealth = money?

where does the distinction lie between chasing money and chasing real wealth?

wealth creators that allow one to attain freedom? Can anyone list them?

for example the stock market is that a wealth creator too? how is it when money needs to be deployed first and then when you sell higher someone has to have bought it from you with the same money? how is wealth created there? in property etc etc

You need to define your system boundaries.
If you consider the stock market as a closed system, then it is actually a negative-sum game. Every transaction has a buyer and a seller--one is profiting, one is losing, and the broker and exchange always win by taking transaction fees.

The world, as a closed system, is a positive-sum game because there are people contributing wealth in the form of services not just transmutation of resources. As in previous comments, services create wealth out of thin air and inject it into the system. Also, currency is created out of thin air by debtors adding to the money supply thus facilitating the exchange of goods and services. This includes fastlane wealth. Remember, the *wealth* of fastlane wealth is no different than any other wealth. What's different is the *fastlane* part--the means of attracting it by presenting value to the system (which value is *also* a form of wealth). Eg, fastlane is that you provide a better product, a better service, or a similar product or service but marketed better--in any case you are providing some form of wealth to the system and exchanging it for currency. The currency is not the 1st part of the wealth in the equation--what you *did to exchange for it* is the instigator--that is the original form of wealth.

IOW, it's the *process* that is the wealth creator--since that is what results in something the system will exchange for currency. Once you have wealth, you can trade it for any other form of wealth. Fastlane means we don't chase what we want to trade wealth for (money/currency)--we chase the *process of creating wealth* in it's original form that we can use to trade for any other form of wealth that we prefer. You can't trade for something with something you don't have yet.

 

[UncleChuck]

Money in any form is a contingent claim on wealth, not actual wealth. You can't eat or enjoy cash like you can a Ferrari or gold-lined heated pool, unless you swim in it like Scrooge in Duck Tales.

If you want to understand whether the system is zero-sum, read up on these subsets of economics :
Velocity of money, money multiplier, technology and its effects on inflation, monetary policy, and a PDF "Modern Money Mechanics"

 

[masterneme]

Watch this video:

 

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[bboyu]

Watch this video:

Great vid Masterneme. I found that vid whilst searching endlessly on youtube for a more thorough discussion on money supply.

Now what i would really like to know is how and when does money supply actually get increased in an economy, eg its link with gdp and activity in the economy.

I know that banks create deposits when they make loans hence creating money out of thin air but when does the central bank print more notes or increase the money supply other than QE or a financial crisis?

So how and when does a country automatically have more currency circulating? Eg even 50 years ago from now not everyone had cars parked outside their house tvs cables all the luxuries were not accessible by everyone but they are now its not because everything is cheaper but because more money is circulating even the monetary base m0 has increased so how does that come about? Does more money fuel economic activity or is money printed to justify and sustain current activity?

When and how in this process does more currency enter into the economy? I really want to know how a nation becomes more wealthy.

Ancient civilisations did not have banking systems so who would have issued currency then? How is the right amount of currency to be circulated decided and who issues it? You cant just barter your way to a claim on more wealth, was their wealth created from debt/credit/interest too? Can it be deduced that all the wealth in the world now created through the banking system is through debt?

Please can the senior members of the forum discuss this aswell id love to hear your insights

 

[DayIFly]

Now what i would really like to know is how and when does money supply actually get increased in an economy, eg its link with gdp and activity in the economy.

I know that banks create deposits when they make loans hence creating money out of thin air but when does the central bank print more notes or increase the money supply other than QE or a financial crisis?

Type into Google "When does central bank increase money", this should solve your question

Eg even 50 years ago from now not everyone had cars parked outside their house tvs cables all the luxuries were not accessible by everyone but they are now its not because everything is cheaper but because more money is circulating even the monetary base m0 has increased so how does that come about? Does more money fuel economic activity or is money printed to justify and sustain current activity?

Everybody has a car, a tv, etc. because of technological innovations and increased productivity. The fact that this leads to cheaper goods is an important factor too.

For example, one of Elon Musk's goals is to increase the efficiency of his factories and technologies (through continous production), so that one day the costs of his electric cars will be low enough for ordinary people to buy.

Printing money has nothing to do with our wealth because it's just paper. It's function is to help organize the creation of wealth, I would even say it's the "infrastructure for creating things".

Of course there are theories about printing money to help the economy in the short-term, which might be valied, but I don't know enough about it. So far it seems that things like QE only create bigger problems down the road.

Then there are countries that manipulate their currency to gain an advantage at foreign trade.

Ancient civilisations did not have banking systems so who would have issued currency then?

Almost every High Culture had a banking system at one time, of course not as sophisticated as we have it today, but it's interesting nontheless. https://en.wikipedia.org/wiki/History_of_banking

Can it be deduced that all the wealth in the world now created through the banking system is through debt?

Your formulation is imprecise. You can create wealth without money like Robinson Crusoe. But I know what you mean, so yes, it is.

 

[Nick314]

Great vid Masterneme. I found that vid whilst searching endlessly on youtube for a more thorough discussion on money supply.

Now what i would really like to know is how and when does money supply actually get increased in an economy, eg its link with gdp and activity in the economy.

I know that banks create deposits when they make loans hence creating money out of thin air but when does the central bank print more notes or increase the money supply other than QE or a financial crisis?

So how and when does a country automatically have more currency circulating? Eg even 50 years ago from now not everyone had cars parked outside their house tvs cables all the luxuries were not accessible by everyone but they are now its not because everything is cheaper but because more money is circulating even the monetary base m0 has increased so how does that come about? Does more money fuel economic activity or is money printed to justify and sustain current activity?

When and how in this process does more currency enter into the economy? I.e how do countrys end up with more money going around?

Check youtube for the 3-part "money as debt" series--it's a good explanation of the entire process.
It *is* a little simplified--but to get the forrest view it is a very good start.

 

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[jlwilliams]

Interesting discussion.

First, neither money nor wealth is or ever has been "zero sum" either for individuals or countries. If you want to use a pre-industrial, agrarian example you could look at simple farming. You have a field that you plant. There was an outlay of some sort to gain the seed and there is considerable work added to the mix, but at the end of a season you have sacks of grain. The yield of grain is hopefully greater than the sum of the seed plus the work. That grain is storable or can be bartered. That grain is created wealth. Likewise, a gold mine would, when worked industriously, create the stuff coins, treasures and fortunes are made of. In short, people could make valuable goods out of the resources around them via their smart efforts. A nation of people so doing becomes a more wealthy nation, as long as they don't get wiped out by marauding barbarians which was always a possibility and still is.

In a nut shell; people and nations have always been able to create money and wealth by being industrious. The exact mechanism by which "they" know when to make how much more currency is interesting but not all that useful (in my opinion) because the basic root element of getting more grain and gold is still simple to understand if not easy to do. Be industrious and be smart about it. Make a plan, work the plan, re evaluate the plan, adjust the plan and work it some more. That is what worked from the time of King Solomon through the time of Carnegie and Vanderbilt and through the time of Elon Musk and will be what works for tomorrow's luminaries.

Rest assured that making more money for yourself does not take money away from anybody else unless you flat out steal or swindle it. That bears repeating. Your success DOES NOT equal the misery of others as long as you are not the afore mentioned marauding barbarians. Just be productive and the value you add will help others. A rising tide lifts all vessels.

 

[Andy Black]

Interesting discussion.

First, neither money nor wealth is or ever has been "zero sum" either for individuals or countries. If you want to use a pre-industrial, agrarian example you could look at simple farming. You have a field that you plant. There was an outlay of some sort to gain the seed and there is considerable work added to the mix, but at the end of a season you have sacks of grain. The yield of grain is hopefully greater than the sum of the seed plus the work. That grain is storable or can be bartered. That grain is created wealth. Likewise, a gold mine would, when worked industriously, create the stuff coins, treasures and fortunes are made of. In short, people could make valuable goods out of the resources around them via their smart efforts. A nation of people so doing becomes a more wealthy nation, as long as they don't get wiped out by marauding barbarians which was always a possibility and still is.

In a nut shell; people and nations have always been able to create money and wealth by being industrious. The exact mechanism by which "they" know when to make how much more currency is interesting but not all that useful (in my opinion) because the basic root element of getting more grain and gold is still simple to understand if not easy to do. Be industrious and be smart about it. Make a plan, work the plan, re evaluate the plan, adjust the plan and work it some more. That is what worked from the time of King Solomon through the time of Carnegie and Vanderbilt and through the time of Elon Musk and will be what works for tomorrow's luminaries.

Rest assured that making more money for yourself does not take money away from anybody else unless you flat out steal or swindle it. That bears repeating. Your success DOES NOT equal the misery of others as long as you are not the afore mentioned marauding barbarians. Just be productive and the value you add will help others. A rising tide lifts all vessels.

Nice. This will do for me.

 

[bboyu]

Right guys, I understand a bit more than before about the subject.

Money at any 1 point in time is an x amount. It is currently increased by the central bank of a country through monetary policy.

What I am trying to find out is the mechanics of how money increases through business and entrepreneurship and whether that has an effect on the money supply in a country/economy.

The money that is out there in circulation is not there so we can all play monopoly with it. It is not just handed to you. Is it not true that the amount of money in circulation in an correlation at least with economic expansion and more money is printed to accommodate the amount of goods and services now present in the economy?

Does anyone know how this works in practice? Okay money itself, as a concept, is an IOU based on credit, so nothing really exchanges hands other than these "tokens of claim to wealth" around the world which everyone holds dear to them.

But really, is there enough to go around? and is the "money pie" expanding at the same rate at "innovation" is or business in general? Say we go back 100 years, the amount of money in circulation will be a lot lower than it is now.

If we rebuilt everything that is here now, where would the extra money come from to accommodate everyone if we did not take bank loans out?

I'm not sure if I'm able to get my point across, but let's go back 2000, 3000 years currency has existed, trade has existed, economies have existed how do you think certain people became "wealthy" in the money sense of the world when there was no central bank but say 1 ruler who's face was on the coins? would they have just minted more coins to accommodate the amount of activity in the economy or what?

Apple Inc has billions of $$$ in cash. Those Billions of cash were in the economy? we all bought iphones, ipads etc and passed a piece of our incomes over to Apple. Now all that money that has shifted to Apple has created some gap? or no? if it has created a gap in the money supply, where would that gap be filled through?

Let's not involve commercial banks into this as they're silly with money as we know from all the crises we have, they all have a big orgy together in the fractional reserve banking house.

I'm talking before all of this clever fractional banking stuff.

I hope this makes some sense.

I did request for the senior guys to come in and spread some wisdom but I don't know why no one into this thread and said anything.

Can anyone shed some light on the above points please?

I think it's an important concept to understand and it indeed can make you wealthy by being resourceful and working only on those things which bring a greater amount of a medium of exchange about in your life and other's lives which can increase everyone's standard of living.

 

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[Nick314]

Go watch the videos I posted previously. They detail the basic history of currency and monetary systems.
The world began with barter systems. Then various fiats such as rocks, shells, precious metals, on to government issued coins, tally sticks and paper currencies. Fiat currencies have different meanings depending on how they are issued and what they represent. Colonial script, arguably one of the most successful fiat currencies, was literally just paper with no backing--just an accepted social contract--a soft-backed currency.
We've since also had hard-backed currencies that represented actual amounts of gold or silver on deposit. Right now, most of the world, including the US is using some form of debt-backed currency. A US "federal reserve note" is a private bank note, indicating that the US govt owes that much money to the federal reservere bank--at interest no less--but because it is declared as legal tender good for payment of all debts including taxes that is where it gets its power.
When an entity receives a bank charter, they are literally given license to print money because the paper contract that people sign when they originate loans essentially creates that money in the supply. That loan note is a form of currency and is sold and traded as such.
So, currently in the US, there are two ways the money supply is increased: 1) the US treasury has the Federal Reserve Bank print more notes and borrows them (the logistics of this may vary) 2) chartered banks originate loans

1) is controlled by various people in a mostly-visible way
2) is controlled indirectly by the chairman of the federal reserve bank setting the interest rate at the reserve window and directly via private communications through the ABA, which is why the chairman of the Fed. Reserve Bank is arguably one of the most powerful persons on the planet.

 

[JustAskBenWhy]

I have a question that I've been pondering upon for a few days now.

There's a belief that Money and Wealth is the same thing. Apparently there's a difference between the two.

There's a set amount of money which is circulating around a country or the world for that matter. So when you pay someone something they have gained but you have made a loss, if the thing you've bought is not satisfactory.

Their gain is your loss = Zero Sum Game of money.

Yes someone can create a chair from a tree and create value but that has to be paid for with money? Where is the extra wealth created? How is wealth created? How is the extra Wealth then created if there's a set amount of money? and where does the extra money come from to make someone more wealthy?

The same money that has been paid for the chair has come from somebody else who got it from somebody else and now sits with the chair maker who will pay the guy who makes the chainsaw who now has the same money?

How has that made the chair maker more wealthy?

You are missing a vital point:

If you pay for your life using your money - it's zero sum gain. However, the financially free use other people's money to pay for their life...

Think of it this way: You buy insurance - why? To deflect the responsibility to pay for (or cover) a catastrophic financial event away from yourself and onto the insurer. In sort of the same way, the financially free people figure out ways to deflect the cost of their lives away from themselves and onto someone else...Makes sense?

 

[bboyu]

Money was invented due to trade - to get away from the inconveniences of barter - money an IOU was established as a means of exchange due to trade.

What i would like to know is what is the relationship between money supply and business.

Yes there are certain things which are not included in gdp but money is still flowing in second hand transactions - so does the money supply increase as more business is done?

 

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[bboyu]

Or is the money pie finite?

 

[JustAskBenWhy]

Money was invented due to trade - to get away from the inconveniences of barter - money an IOU was established as a means of exchange due to trade.

What i would like to know is what is the relationship between money supply and business.

Yes there are certain things which are not included in gdp but money is still flowing in second hand transactions - so does the money supply increase as more business is done?

Money supply does not increase, but velocity of money increases. Think of velocity as oil in an ICE - if there's no oil, the entire engine ceases up. The value of fiat currency becomes "real" only when this currency is being used to conduct trade, otherwise currency is worthless. Velocity of trade, which is velocity of money, is needed to maintain value of currency. What happened in the financial crisis 8 years ago is that velocity froze...

 

[Jon L]

there are a lot of complex answers here. I haven't heard anyone state the answer simply, so I'll attempt to:

When I buy a hammer from Home Depot, we both win as follows:

I value the hammer more than the money I'm paying for it. Home Depot values the money more than the hammer. We both end up with what we want. We both win.

I now have a hammer that I can use to build or fix stuff. They have profit and money that they can use to buy another hammer to sell.

Multiply this value-creation exchange billions of times, and you have an economy that creates value (wealth / money).

 

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