Jon writes:
Economies are based on the creation of actual things that provide actual utility.
Illusions are based on the movement of money.
Point of correction, Jon.
People create actual things that provide actual utility expecting to be compensated so they can obtain other actual things providing other actual utility.
Unless using the barter system, that means of exchange is called money.
Are you familiar with the Monetarist
Equation of exchange?
MxV = PxQ
where, for a given period,
M, is the total nominal amount of money supply in circulation on average in an economy.
V, is the velocity of money, that is the average frequency with which a unit of money is spent.
P, is the price level.
Q, is an index of real expenditures (on newly produced goods and services).
Do you now see how the velocity of money is related to the production of new goods and services? You know, that production of new goods and services that means jobs and a vibrant economy?
Using this formula, Paul Volker ended stagflation in 1982. Ignoring this formula Allen Greenspan screwed up the economy in 2003. This equation is why sending all the proceeds from improved productivity to the top 1% does not help the economy as much as sending it to the other 99%. It is because the other 99% spends it on goods and services rather than hoard it, thereby increasing the velocity of money.
This is one of the reasons why forcing austerity on Greece will never work. If you force them to hoard money in anticipation of a worsening economy, they do not spend it on goods and services, thereby weakening the economic base needed to maintain any debt payments.
If you or anyone else can point to a counterexample to the Equation of exchange invariably always working, please feel free to enlighten me via the thread Economics 101 - Evidence Based Decision Making, because I as yet know of not a single one.
Edited by anglagard, : Provide balance to sentences.
Edited by anglagard, : eliminate use of the root word 'example' twice in the same sentence.
Read not to contradict and confute, not to believe and take for granted, not to find talk and discourse, but to weigh and consider. - Francis Bacon