A fundamental difference between the water cycle and the economic cycle is that it is far easier to increase or decrease the amount of money in existence. There are a number of ways to do this, but the simplest to explain involve banking.
Suppose you have $100 in currency. You decide to deposit this money at the First National Bank. You still have $100, but now it’s in your checking account.
First National Bank has to decide what to do with this money. Let’s say they keep $2 of it in currency, just in case you (or other depositors) decide to come back into the bank and make a withdrawal. They take, say, $8 and deposit it in their account at the Federal Reserve Bank to meet their reserve requirement. Then they loan the other $90 to the United Widget Company. That $90 is in the United Widget Company’s checking account at the First National Bank. You still have your $100 checking account, so there now is a total of $190 of money in existence. And it doesn’t stop there: The First National Bank now can loan out most of the $90 in the United Widget Company’s checking account, so the process continues. If the First National Bank continues to loan out 90% of its deposits, then your $100 ultimately will enable the existence of $1,000.
Note that there has been no wealth created during this initial process: Each money creation is offset by an equal amount of debt, so everyone’s net wealth remains the same. However, if the loans are successful, then wealth ultimately will be created by the borrowers’ business endeavours and by the bank’s interest on its loans.
If there is a recession, the process is likely to work in reverse: The bank will reduce the amount it is willing to lend and the total amount of money in circulation will be reduced.
Nope. Or, to put this another way, where do you think that all the water on Earth came from? How did it get here? When did it get here? Why is it here? Why would it stop happening now? Because we are here now?
(I know others have addressed this already, but it bears repeating that this is one of the fundamental flaws in your OP)
A college ‘bio prof’ told you this?? :eek: Even if we are just talking about potable water, has this person never heard of these things called a ‘sewage treatment plant’??
Nope. ‘Money’ doesn’t work that way. But then, neither does water. There is, for all practical purposes, and unlimited supply of water in the same place where all the water on Earth came from. It’s an open cycle, since in theory a large comet or asteroid could slam into us tomorrow and bring more of the stuff here in the same way all the stuff you see here today got here. POTABLE water is a more limited commodity, but even there you can cycle (naturally or artificially) between the different types of water (global warming is taking care of that frozen stuff as we speak for instance). Money is pretty much the same thing…it’s for all practical purposes unlimited. The current limitations are simply due to the current equilibrium that exists. However, if tomorrow a new product is created that a large percentage of people on earth just have to have then new wealth will be generated…and the overall amount of ‘money’ will go up by some non-zero amount.
Think of it this way. Is there more ‘money’ on Earth today than there was 100 years ago? I’d say by any measurement there is. More people alive today have access to more assets than at any time in human history. For one thing there are more PEOPLE today than at any time in human history, if nothing else, and assuming each of those people doesn’t have a large fraction less than the collective in years past then that pretty much shows an increase in the total amount of ‘wealth’ or ‘money’ today than in the past. There isn’t a fixed pie but a pie that grows over time, to put it another way.
Nope. I’d say that each person on earth on average has access to more ‘water’ today than at any time in history. You have to look at absolute ‘wealth’ verse relative ‘wealth’. The average American today lives better and has more access to real wealth than the highest level of elite in the past. The average Chinese today has access to more real wealth than many upper class or artisan class persons in the past. Same in India. When you look at Chinese or Indians or folks from some African countries today and compare them to Americans or folks from Western Europe, Japan, South Korea, Canada, Australia, etc etc then it looks pretty disproportionate. But compare them to folks in the past and it’s pretty stark. If there was a fixed pie then that same wealth would be divided by even more people today than existed in the past, and overall people would be much poorer just to keep the pie the same. That’s not the case.
Physical ‘cash’ makes up a very tiny percentage of the total amount of ‘money’ out there. I’m not sure the total amount in circulation, but at a guess there is more ‘cash’ in circulation today than in the past, even taking into account inflation. There is certainly orders of magnitude more WEALTH in the US today than at any time in the past.
Another example. Let’s say it’s 60 years ago and you are an average middle class family. Do you have a car? Maybe. How long will that car last? A few years..you’ll be pretty happy to get 100k miles out of it. Do you have a TV? Maybe one if you are lucky…and you’ll be lucky to get 3 or 4 decent channels out of it. Do you have a phone? Maybe. Do you have a dish washer? Clothes washer? Etc.
Read “The Power of Gold” by Peter L. Bernstein. For centuries gold was valuable precisely because it was stable (doesn’t rust!) and there was no other use for it except ‘ornamentation’. If you needed something to serve as a unit of wealth, gold was about the only choice; much better than shells, rocks, etc.
Nowadays of course we do have some industrial uses for it.
It’s a surrogate for anything you would exchange it for. But primarily it reperesents a dollars worth of someone’s labor. In a free market society, everything has a value set by the market. IOW, people can buy and sell goods and services for the best deal they can negotiation. here is no fixed worth of any item. Everything is relative to the value of other products or services.
Think of it this way. If someone offered to a house for a dollar, most people probably wouldn’t sell it. The reason is that you know a dollar buys a lot of things that are worth a whole lot less than a house.