I like money. Who doesn’t? Money is useful. It holds value for us, it allows us a medium of exchange so that we are not burdened by carrying around sheep or forever racking up debts to be paid off in, perhaps, labor, such as “Six hours of leather-making” or “Nine hours of river-dredging.” But I think we’ve come to a fundamental misconception about money and wealth, and what it means to use it.
On a micro level, we all know when we are better off. If we look at our bank account and there’s more money there we, like it. If we add up our assets and liabilities (be they property, student loans, credit card debt, or the gift of a new hot tub that we didn’t have to pay for) and the assets are greater than the liabilities, we’re good. We are in the black. We can see clearly that we have more than we had yesterday, and that’s a good thing. If everyone had more money in their bank account, we would all feel better, more secure.
But on a macro level, on the country economic level, we continue to talk about things like GDP as if the GDP itself were a measure of a good economy. The GDP, itself, is not a measure of wealth but it is a measure of how fast that wealth exchanges hands. If I buy a hammer for $3.00, that’s considered an increase to the GDP, because it’s more economic activity. But in terms of wealth, nothing has changed. Before, I had a surplus of dollar wealth, and the other guy had a surplus of hammer wealth. All we’ve done is exchange one type of wealth for another. We haven’t really added anything, though by our measure, GDP, we have.
Measuring our economy by the speed at which people exchange money is not only wrong, it’s downright misleading. It says that as long as people just push money faster, we’ll all be better off, because, well, we told ourselves that we were! Quite the paradox.
But if we were to measure our wealth fully, by how much assets we have compared to our liabilities, we would be providing for ourselves a truer picture of what we’re really doing with all of this. I have more to say on this, but you’ll have to wait for the next post (all 3 of you who read this far). Basically, we are not measuring our assets right, and we’re not measuring our liabilities right. We need to get the whole picture of the assets, and the whole picture of the liabilities, rather than just looking at the cash flow that’s affecting them.
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From → finance
Nice, Steve!
I agree with what you’re saying.
Many Americans are materialistic consumers. We think because we have “stuff” we are wealthy, when most of us are upside down and enslaved to lenders.
What can we expect? Commercials preach it every 15 minutes on TV, on the internet, in our papers, and now our government promotes it.
Spending wealth does not create or preserve it, but we’re told that it does.