Creating gold out of thin air

Money is difficult concept for alot of people to grasp. After all, having used it for so long, we have somehow forgotten than it is a medium of exchange, and have come to see it as more of a valuable thing in its own right. It does not help that money is increasingly becoming less and less "worthless" in a sense, for once upon a time, money was denominated in gold and silver, itself a precious, scarce, and pretty object. Even if you did not use the gold, and just stockpiled it, you could melt it down, and make jewellery, which are pretty stuff. Nowadays, we no longer carry bags of heavy metal around; instead we use pieces of paper. Paper, too is getting a little cumbersome and expensive, as our poor forests cannot take kind of strain. Plastics then, in the form of credit cards. And increasingly, money have shifted into something that we cannot see directly, as virtual information.

But money is a medium of exchange. You have something I want, and I have something you want. And money is to facilitate this exchange, for it is a universal exchange. Possibly, if you have something I want, then I must value it. So far so good, we are on standard economics theory. The best case scenario for me, is when I exchange my stuff, which I do not value as much, for your stuff, which I value for more. This hardly happens, since you also want to have the best case scenario. Therefore the least that can happen is that we exchange goods of equal value. That sounds strange though, for since the stuff being traded are of equal value, why trade at all? Maybe the case where I value you stuff more than my own stuff, and likewise, for some wierd reason, you value my stuff more than your stuff! It could be the case that the stuff being exchanged are equal in value, but because each of us sees the good in the other's hands as being more valuable than the one in his own hands..we might be better off exchanging.

This strange situation recalls a story I heard or read before somewhere.. Once 2 brothers fought each other over the division of their father's assets upon his death, even though in the poor father's will, he had clearly written that both sons were to get equal amount of his assets. Each son was given 1 house, 2 cars, and $10 million dollars separately(rich dad indeed). However, the worst possible case happened, for 1 brother saw that the other had been given a house bigger than his, and the other brother thought that it was unfair the the first brother was given a more car of better brand. As it was, the truth was that all the assets were equal, but in the eyes of each brother, each thought that their father had been unfair to them, giving them the smaller of the pie. They brought their case to the court. The judgement meted out was that the brothers exchange the assets that was given to them. Upon which, the brothers starting fighting all over again. Now, both brothers saw each other as using the lawsuit as a ploy to lay their hands on the other's assets!

As it is with humanity's greed, we want something that we value highly, but are unwilling exchange with something of at least equal value. Seeing each other as trying to ripoff ourselves, we have forgotten our situation is symmetrical. We keep advocating that we need higher wages, and goods of lower prices, and we have forgotten the situation is closed and symmetrical. Money is only a exchange, therefore it circulates around like charged particles in a circuit. What goes in must come out. For some weird reason, we dislike rich people, because they are seen to be extorting money from the billions of poor around. Perhaps we have forgotten that even rich people need to eat and buy pretty jewelleries, toilet paper, etc. And they use money for that. And where to the money go? To other's people's pockets. To whose? The butcher's, the grocer's, , the jewellery man, etc. Unless, the rich people hoard money and starve to death on their mountain of gold, we certainly cannot remain poor for long.

Crucially, we can perhaps observe that, some people become rich while others are poor, is because money does not flow around in an equal way. For some reason, some people are "funnelers", concentrating money into flowing towards themselves, while outflow of money becomes distributed over many people. Thats why for every rich man created, at least a few thousand people are poor. The reason that a particular person becomes a "funneler" varies, could be due to talents, luck, etc. Additionally, we observe that the more money we have now, the money we can make in the future. This property accentuates the small initial differences, until we have a rather big and discernible inequality. The economists' simple concept a money velocity in an economy is rather simplistic, implicitly assuming that the velocity must be uniform throughout the economy. This cannot be true, anymore than the assumption that all pipes must be of uniform cross-section. A pipe can split into many smaller pipes, and rejoin somewhere else, but the total amount of water flowing must be closed and conserved.

And another thing, value is something that can be created, its not something fixed. If you can somehow be persuaded that a particular object can be highly valuable to you, then value of the object would have increased tremendously. In a world of heavy advertisements, and consumerist culture, value of goods are increasingly rising. And the cost for increasing that value? Very little. A catchy tune; popularity that attract more popularity; etc. The implications? Well, money is being transacted, and reflects in a way the value of goods. If the perceived value of goods is increasing overall in an economy, then either money is flowing more rapidly around the economy, or else, the money supply must be increasing. Both results leads to inflation, and one former leads to more inequality, while the latter creates devaluation of money itself. I correct myself; in the latter case, money supply may not actually be increasing, but the effect is the same. Since value of goods in the economy overall in rising, while money supply, now being controlled by controlled by the central bank is fixed, what happens is that each dollar now buys less goods than before. What do we call this phenomena? Inflation.

Another implication is that GDP rise is not that important after all. Because value of goods can be created, its all in the mind, and therefore is not something fixed and unique. Voila, we can just create more gold out of thin air.