I haven’t seen Mad Max, but I can say that during some periods in history people did anything in the quest for gold, including risking their lives.
So while a thinking person would take the pig, I think there would at least be a lot of exceptions…and of course, the pig would be worth a lot of gold.
Think: deeply atavistic. The obsession today occurs among the easily obsessed. Gold isn’t a large part of our current financial system. It isn’t a huge industry either. Central banks are slowly easing their way out of the gold storage business as well.
In my experience, the current economic underpinnings of gold aren’t very well understood by the Goldline crowd. Empirically, it’s not a particularly great hedge for inflation. It’s price should be expected to go up when inflation adjusted interest rates are low, as they are now and as they were during the 1970s.
Same for oil.
It’s not surprising that gold would be pursued by the Spanish conquistadors. It was the main medium of exchange among nations back then after all. The North Koreans build printing presses to forge US currency today: that’s not surprising either. Goldline makes a good living, as did sellers of Florida swampland in the past.
Past threads on gold buggery:
Well, it was your metaphor.
My point was that gold - like dollars - are valuable but aren’t a fundamental necessity of life. When an economy drops below a certain level, people stop being interested in abstract units of value and only want the fundamentals. As yorick noted, there are times when a canteen of water is worth more than a bar of gold.
That was the exact thought I had.
You make some interesting points; that last point about value I can only see as a semantic issue; but I have to look at it again later. I was thinking about it on the bus today(on my way to my job as an investment banker), and I feel I have an equation that illustrates my perception of the situation in regards to what the OP is asking about. There are a few scenarios, and in each of them I will show the ratio of money in circulation in the economy to the ratio of stuff that can be bought. Let’s say that there is a small country that consists of 5 pigs, 5 farmers and 5000 in circulation and a printing press. The 5 pigs represent the entire amount of items that can be bought in the economy. At the start, the ratio of pigs to dollars is 1 pig to 100 dollars. one farmer A has 4000 dollars, the rest have 250.
Scenario 1: farmer A pays farmer B 3000 for his pig.
What has changed? Farmer A now has 2 pigs and $1000 dollars, farmer B has 0 pigs and $3250. However, the amount of dollars in circulation is still $5000 and the total number of pigs is still 5. The ratio of dollars to pigs has not changed.
Scenario 2: Farmer A trades 1 pig for 2 pigs with someone from another country. In this scenario, the total amount of pigs changes from 5 to 6, but there is no change in currency in circulation. In this situation the ratio of dollars to pigs is 6 pigs total and $5000 total. Every pig equals $833.33, so instead of $1000, a pig now costs $833.33, those who have dollars can buy more than they could before, those who have pigs cannot get as many dollars per pig as they could before.
Scenario 3: Farmer A trades 1 pig for 2 pigs with someone from another country, at the same time $1000 is added into circulation. In this situation, the amount of pigs has increased to 6, but the amount of money in circulation has increased to $6000, so by printing that amount of money the ratio of dollars in circulation to pigs has not changed.
Scenario 4: The number of pigs has not changed, but the printing press prints $1000. In this case the the ratio of dollars to pigs has changed and each pig is $1200, so you can no longer get a pig for $1000, your money cannot acquire the same amount of pigs .
This is the basic foundation of my position in regards to the question posed by the OP.
I would add emphasis to the fact that the US government can take money out of the economy just as easily as put it in; the Fed has several mechanisms for control; it could raise the reserve rate held by banks, it can raise the discount rate etc. This point seems to get lost in these kinds of discussions and then people start freaking out that everyone better head for the hills cause hyperinflation’s a comin. No turnin back once all that money’s printed. Then the worst is when people know about fractional reserve banking but don’t fully understand the multiplier effect and are certain that a billion trilion dollar bubble is about to burst.
Bolding mine. The bolded parts in your last sentence illustrate the reason why the statement is incorrect. No item that you would trade for another has like-value to the other item, or else you wouldn’t waste the energy to conduct the trade.
The nation and both individuals have gained wealth. You have $1000 in your pocket and a driveway that is clear of a junk car. The other guy has $1000 more in his pocket than he otherwise would have had, and he has a ride to work. The nation benefits by one more citizen being employed to create more wealth, and benefits by having one more neighborhood free from the blight of a junk car rusting in a driveway. These are all ascertainable benefits that happen because of this exchange.
So what do you claim comprises a wealth-creating process in this scenario? Is it only “final goods” that you are counting as wealth?
Because there are, in fact, entire industries centered around production of non-final goods. Normally the killing of pigs and some initial processing of the carcass is done at a slaughterhouse, whose only contribution to the economy is to take live animals and produce dead ones… and people pay them for the service of doing so.
Other industries like auto parts manufacture, restaurant supply, smelting, microchip fab plants, lumber mills, &c., all do nothing but take non-initial inputs and produce non-final outputs. Hell, even our heroic pig farmer/butcher is producing a good that requires additional labour input before it is consumed – it has to be cooked.
I am certainly comfortable labeling any definition of wealth that defines large swaths of the economy to be non-wealth-producing as “heterodox”.
And back to the main point, there are also in the world marketplaces and trading floors which contribute nothing to the economy except for making trade easier. And people make good livings operating these businesses, because trade creates wealth, and people who trade are willing to pay to the people who make trading easier.
Once again that pernicious mind worm of “true value” rears its head. I have no discomfort with saying the pig carcass has more value to the person who knows how to butcher a pig than it does to the person who just wanted a pet. It is only the idea that every object has some context-independent “true value” that makes “pig carcass is highly valuable to a butcher, but not an accountant” a paradox.
You are missing the point. A slaughterhouse or a trading floor provide a service for a customer. They gain wealth by providing labor and knowledge. The commodity is labor and knowledge. For the customer, the expense of having a butcher prepare cuts or a trader make trades is the cost of doing business and either eats into profits or is reflected in the sales price. The point I am making is that slaughtering a pig does not add value to the pig. The reason a butchered pig costs more than a live pig is because you are paying for pig + labor. The wealth gained from the added cost of the pig goes to the laborer and the higher price paid for the butchered pig is the cost of doing business.
I am not talking at all about “true value” though you seem to be hung up on the idea. I’m saying that a butchered pig will cost more than a live pig because some work has been done and you are paying for that work. If the meat spoils then that work went to waste and the pig now is worthless. Intent does not add value. Maybe I planned to sell the meat but I screwed up and now I can’t sell it. Since I am doing the butchering, and I value my time at X dollars an hour, I would have charged the amount of the pig + my cost of labor to the customer. Now that the pig is useless.
I think that is incorrect. You seem to be confusing what you want more and the price you can fetch for something on the open market. Even though the car has no value for him it is still worth something to somebody. The owner does not have an “extra” $1000 in wealth. He has $1000 minus the market value of the car. The net gain is zero in wealth. Just because he prefers the money to the car doesn’t mean he magically gained $1000 in wealth.
Let’s take another example. Let’s say you buy an ounce of gold at $1200 or so. After a while you decide that the gold is useless to you so you decide to cash it in. You sell your gold for the exact same amount that you bought it for. Do you now have $1200 in new wealth? No, you have traded something of value that you do not want for something of equivalent value that you do want.
The claim that goods have fixed worth is clearly wrong.
Some of the greatest fortunes have been amassed by moving goods from one point to another (an instance of “rearranging atoms”). Silk or spice of little worth in China was immensely valued in Europe. Moving a rusting car to an aficionado’s driveway is a similar example. The added wealth comes from labor, transportation, entrepreneurship, or a combination.
Don’t worry, the only one in this thread who really knows what he (or she) talking about is exapno mapcase; me and the other posters either know just enough to be dangerous or have ludicrous ideas are from posters who have no training whatsoever in finance or economics just a bunch of wacky misconceptions about the way things work based on false assumptions and intellectual laziness; so, the odds of you saying anything more rediculous or stupid than anything me and many of the other posters are saying are pretty low.
Sooo, VAT should now be called the "Inconsequential Rearrangement of Preexisting Atoms Tax’? Just curious.
Who said anything about “inconsequential”?
Do you believe it’s inconsequential to take a bunch of iron atoms out of the ground, process them into steel and then combine them with glass, plastic, and other materials, and assemble them into a motor vehicle? Seriously?
The issue here is that some people are thinking about “wealth” in a way that is totally contrary to how nearly everyone else uses the word. It’s like there’s a pig, and that’s wealth. When we measure this, our wealth-count is: ONE PIG. The pig gets moved to another place, and the result is no increase in wealth, because hey, our count is still ONE PIG. This is basically what yorick73 has been arguing. “No. Wealth is transferred but not created. No gain or loss for the nation.” This is an attractive notion. It seems to make a certain amount of intuitive sense.
But it’s still wrong.
A used car dealership can buy an old Toyota for 5000 and then resell it for 6500. All that has happened here is a pair of trades: “Wealth is transferred”. One particular aggregation of atoms was sold, and then sold gain. But that sale, and others like it, will show up in GDP representing part of the productive power of our economy. The ability to connect people who don’t need their old imports anymore with other people who can find use in them is a necessary service in the economy. This is utterly obvious when there are two sales, because we can see and compare two prices. But just as obvious is that selling a pig adds the same sort of value, and the only reason that it doesn’t count in the economic data is that the middleman got cut out so we have no objective way of immediately measuring how valuable the service is when we move Mr Hogly from one farm to another. Unless he got sold to a commercial butcher, he might get left out of the calculations altogether. But getting him to a higher-valued owner is definitely an increase in wealth, regardless of whether that’s immediately measurable.
And that’s the point. There’s no coherent way to understand wealth when we cut out the “transfer” of existing items. We should see the literal truth of this once we realize that a good is nothing more than rearranging previously existing items. This is just conservation of matter at work. The laws of physics aren’t nebulous. But that doesn’t mean we’re talking about an inconsequential amount of effort. It can be extraordinarily hard to get iron atoms out of the ground, and then add in all that other stuff necessary to make a car. That’s exactly why they’re so expensive.
People have been explaining this all kinds of ways, but apparently it’s not sinking in. That’s why yorick73 keeps saying things like: “The point I am making is that slaughtering a pig does not add value to the pig.” This is simply wrong. It represents a near total misunderstanding of wealth and value as those words are commonly used – including, most importantly, every tax authority in the world tasked with collecting revenue from Value Added.
Our brains are so ridiculously efficient at generalizing/aggregating (that’s a chair! that’s a glass! that’s a light switch!) that it feels very abstract to start talking about atoms instead of the aggregate shapes. But it’s not abstract. It’s concrete. The real abstraction is the “chair”. The reality of the chair is just a certain arrangement of physical stuffs that were already there. At Karl Smith said in my cite, this is not easy to think about it. But that doesn’t make it any less the truth.
Karl Smith, the guy you just quoted
If value never comes from creating things, then what is the proper terminology for Value Added Tax?
Clearly you misunderstand what is involved in the calculation of the GDP. By definition, sales of second hand goods are not included in GDP, this is not even a point worth debating. Now if you don’t like how they do the GDP you could come up with something like HDP, Hellestal Domestic Product, and include whatever you want in it; but it’s not nice to go spreading rumors about GDP like that, how would you like it if GDP went around spreading lies about you?
He says no such thing.
What’s wrong with Value Added Tax?
From my very first post in this thread: “The new formation of the atoms, in their different places, is more highly valued than the old formation.” Changing the shape of what’s already there adds value for us. So what’s your problem in calling it that?
The car was bought for 5000. It was sold for 6500. Up to 1500 would be added to GDP from the sale of that used car, the profit from the sale. This is not from the car itself. It’s from the service of finding a new home for that car. Here’s one cite for that. Here’s a second.
You’re half-educated on this topic. That’s fine in itself. We all have to start somewhere. But your ignorance isn’t cute. It’s just ignorant. Used car dealerships provide a service in moving “previously existing” assets around to higher-valued uses, and that service naturally counts in GDP calculations just as all other commercial services are counted. We attempt to measure this value by the profits that they make. Those dealerships are not little black holes of value, despite the outward appearance to the contrary. It’s actually an important thing to get stuff to people who want it more, and the value of that service is measured.
I never said I was fully educated on the topic, as I stated previously in this thread, the only one in the thread who seems to really know this topic thoroughly is excapo mapcase. I may not be as intelligent as you so that could be the reason I am having difficulty understanding your points. For example, you give me an example of the sale of a used car as adding to GDP, to which I say that the sales of used goods are not counted in GDP, to which you say yes they are and back up your claim with this cite:
which says clearly to me that secondhand goods are not included in GDP calculations, and as an example states that sales of used cars are not included in GDP, which is what I have been saying all along. So, yes, I do need more extensive education to come to an understanding of how the cite you just gave me proves your point and disproves mine.
When reading a paragraph, read the whole paragraph.
The first sentences might be your favorite part, but the last sentence is important, too.
Paragraphs convey information.
When you’re reading, it’s best to read to the very end so that you don’t miss any of this information.
In this case, “commissions” refers to the profit made from the used car sale. This is the difference between what the car was purchased for, and what it was sold for, as I previously said.
This information is corroborated in the second cite, which I must assume you also failed to read, since you were unable to finish a full paragraph in the first cite.