Our country is burdened with an understanding of economics at a level of sophistication as that of the Four Humours in physiology.
Dollars go around, from butcher to baker to candlestick maker, and from every transaction of funds some magic sprinkles come forth and drives "the economy." Interesting, this approach suffices for Governmental understanding; every transaction carries for the potential for taxation elicited from every exchange. No real economic sophistication is needed from the Government side - just tax every transaction, and act to maximize the rate of transactions.
There is no concept of an actual value being produced - and again, from a Government revenue standpoint, there is no need to do so. Wasteful spending and useful spending are the same. The FAILURE to spend is a great wrong from the Government's distant vista upon the scene.
The quantity of exchange is equal to the amount of money in motion times the velocity of that money. The quantity of exchange is usually unaffected by the money supply. In the instance that there is insufficient money in circulation, to the degree that it has an impact upon transactions, one would see the slowing of transactions, and the increase in the value of money, that would be, deflation. This is a normal course of the slow improvement in productivity by means of innovation; it is rarely seen in its raw form. In this case, other fungeable assets would be drawn in to act as money; also, the value of credit would increase. When sufficient money exists, the incremental profitability of credit would drop to below zero, and credit would usually be avoided.
In the situation where there is an abundance of money, its velocity is low, although the total exchange number is unchanged. The value of money is low; the value of credit is low, and borrowing is cheap but fruitless. The incremental profitability on borrowing is almost universally negative.
From a Government position, increasing the supply of money acts as "fool's credit" - the longer you hold it, the more you lose. Therefore, the rate of increase of the supply shows an increase in the quantity of exchange, and makes "the economy" appear to improve. That is why Governments claim that economic slowdowns are due to "sluggish business" - savers are saving, supposedly because the supply of money is contracting, and money is itself an investment which accrues value. Simply arresting this process brings one effortlessly out of a depression. A splendid, elegant,wrong and noxious answer.
Dollars go around, from butcher to baker to candlestick maker, and from every transaction of funds some magic sprinkles come forth and drives "the economy." Interesting, this approach suffices for Governmental understanding; every transaction carries for the potential for taxation elicited from every exchange. No real economic sophistication is needed from the Government side - just tax every transaction, and act to maximize the rate of transactions.
There is no concept of an actual value being produced - and again, from a Government revenue standpoint, there is no need to do so. Wasteful spending and useful spending are the same. The FAILURE to spend is a great wrong from the Government's distant vista upon the scene.
The quantity of exchange is equal to the amount of money in motion times the velocity of that money. The quantity of exchange is usually unaffected by the money supply. In the instance that there is insufficient money in circulation, to the degree that it has an impact upon transactions, one would see the slowing of transactions, and the increase in the value of money, that would be, deflation. This is a normal course of the slow improvement in productivity by means of innovation; it is rarely seen in its raw form. In this case, other fungeable assets would be drawn in to act as money; also, the value of credit would increase. When sufficient money exists, the incremental profitability of credit would drop to below zero, and credit would usually be avoided.
In the situation where there is an abundance of money, its velocity is low, although the total exchange number is unchanged. The value of money is low; the value of credit is low, and borrowing is cheap but fruitless. The incremental profitability on borrowing is almost universally negative.
From a Government position, increasing the supply of money acts as "fool's credit" - the longer you hold it, the more you lose. Therefore, the rate of increase of the supply shows an increase in the quantity of exchange, and makes "the economy" appear to improve. That is why Governments claim that economic slowdowns are due to "sluggish business" - savers are saving, supposedly because the supply of money is contracting, and money is itself an investment which accrues value. Simply arresting this process brings one effortlessly out of a depression. A splendid, elegant,wrong and noxious answer.
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