OCTOBER 24, 2015
MONEY WEALTH
From the free online dictionary provided with my computer the five elements defining wealth are shown in this order:
- an abundance of valuable possessions or money;
- the state of being rich, material prosperity;
- plentiful supplies of a particular resource;
- a plentiful supply of a particular desirable thing; and,
- well-being; prosperity.
So we have moved to the modern meaning — abundance of valuable possessions or money — from the oldest meaning — well-being and prosperity.
Whether personal, national, or global, to understand our economy a more useful view of money might be this:
Money represents a claim against one’s own or someone else’s past, present or future labor.
In the economy that involves the distribution of goods and services money in and of itself is absolutely worthless unless others are willing to accept it in exchange for the things that they have produced or for the experiences that they are willing to provide. And labor is always required to produce those goods and to provide those services.
Since money represents a claim on labor it is easy to understand why most of us want money and why money brings power to those who have it in their dealings with other individuals and groups. As the course of time passes it becomes obvious to many that increasing one’s personal hoard of money while giving a minimum or none of one’s own labor in return is a very attractive and lucrative position to have and to hold. Over the last century those who have gained the greatest control in this area of our economy are the owners and executives of our leading banks and other financial institutions, and their major clients, the executives and the owners of the other largest corporations in the world. FIRE is the common acronym used to identify this area of our economy; it stands for finance, insurance, and real estate.
The FIRE side and the industrial and service sides of our economy are different. Most would agree that the industrial and service side of our economy directly provide — not only jobs — but also the goods and services that constitute the major source of what we personally need for our well being and prosperity. To a certain degree the FIRE side of our economy also does this. When a house is built and sold that is definitely a part of the “real” economy that serves us all. But there is an on-going competition for investment dollars between the industrial-service side of our economy and FIRE side of our economy. Increasingly in the recent decades since 1980 investors have favored the FIRE side of our economy.
To invest and to build a company that will employ hundreds or thousands requires great amounts of money, great amounts of time, and significant risk of losing everything if the business fails to succeed. The investors who may be big enough to take this risk include these:
- Households and individuals having a net worth (not counting personal residence) of more than $5 Million dollars;
- Banks, Investment Firms, Pension Funds, and Insurance Companies;
- Mutual Funds and Closed-End Investment Funds; and,
- State sponsored investment firms;
Generally these investors prefer investment positions that may be bought and sold quickly so that if the price of a particular investment is in danger of falling or of not meeting future expectations then that investment position may be sold without suffering great loss. They are not interested in long term possibilities but want to receive short term capital gains. This is their primary activity and gain from the sale of appreciated assets is their desired objective.
Here is the problem:
The sale of an appreciated asset increases the money holdings of the seller. The money holdings of the buyer are reduced and the future income of the buyer is diminished if a loan was obtained to complete the purchase. However, nothing new is produced, no new service is given, and no new jobs are created as a result of the transaction. There is no benefit received by any other participants in the economy from this financial transaction if the seller buys no goods or services but instead uses the proceeds to increase savings or to buy new investment positions in other financial assets.
