A very basic business question.
Discussion
Dr Jekyll said:
That money spent on imports does not leave the economy, it comes back.
I'm surprised I have to point this out: the physical units of currency 'come back', but the value does not.You intend to buy a gadget from France. The French company want to be paid in Euros. It's your problem as to how you're going to take your £100 and turn it into the right number of Euros. You go to a currency exchange and you say, here's £100, give me some Euros, and they say OK, here's €100.
It's time to buy a gadget again and you go back to the currency exchange with another £100. They say, 'well, now we have too much exposure to sterling, and to be honest, it looks like all the growth is in Europe thanks to their burgeoning gadget industry, so we expect the pound to fall in relative value, so here's €50'
And then you go back a third time, and they say, 'we don't have any faith in this money any more, so pay us in gold or maidens will you, and by the way, here's a bin bag full of your pound coins from earlier, perhaps you'll get lucky and one of them will be chocolate'
Going back to the OP's question, you can apply the trickle-down or multiplier effect to most other forms of spending too, so in itself that argument doesn't really justify or undermine spending on the Apollo programme. You need to try to quantify the strength of the trickle-down and you need to judge whether you place more value on the Apollo programme than on the activities that it temporarily crowded out.
At anyone time you've got a roughly fixed number of people who can do work in your economy. If absolutely everyone starts making toasters, everyone can have a lot of new toasters for a time ... but you'll quickly run out of all the other stuff the economy usually produces ... like the bread to put in the toasters. The point is that over the short run there is a limit on what the population can produce, and actively shifting the focus to one set of activities will reduce your capacity to do other stuff at the same time.
So to choose a nice emotive comparison, the US could have chosen to spend a fortune in a blitz on building hospitals, medical research, training and technology. After a few years they could have turned the spending down and refocused the national effort on space. Do you want hospitals and medical advances now or later? Do you want a space programme now or later? Which legacy increased the economy's capacity the most?
Over the longer term of course the capacity of the economy's workers to produce stuff is actually pretty elastic. Technology and better organisations allow each individual on average to produce more stuff. That is the basis for increasing material wealth. Note that money doesn't have to come into that. We exchange money with each other ultimately as a proxy for exchanging each others time at work.
Savings are effectively a store of the time people have worked in the past. Loans are effectively trust in the promise to do work in the future. Simple enough in those terms, but as this thread shows, when you look at the real economic system based on money it is very easy to get confused and lost in the detail of how money operates. We all use money confidently day to day and to plan for our futures; it is absolutely fundamental to our future material well being. Yet we hardly give the nature of money and how it actually works a thought. Most people never do. We trust in the fact that our experience is that money worked in the past (e.g. someone gave me a sandwich yesterday in return for three metal tokens with the Queen's gave on them). I got a sandwich yesterday, I'll probably be able to get one today the same way. Almost complete trust in a system on average we almost completely don't understand.
At anyone time you've got a roughly fixed number of people who can do work in your economy. If absolutely everyone starts making toasters, everyone can have a lot of new toasters for a time ... but you'll quickly run out of all the other stuff the economy usually produces ... like the bread to put in the toasters. The point is that over the short run there is a limit on what the population can produce, and actively shifting the focus to one set of activities will reduce your capacity to do other stuff at the same time.
So to choose a nice emotive comparison, the US could have chosen to spend a fortune in a blitz on building hospitals, medical research, training and technology. After a few years they could have turned the spending down and refocused the national effort on space. Do you want hospitals and medical advances now or later? Do you want a space programme now or later? Which legacy increased the economy's capacity the most?
Over the longer term of course the capacity of the economy's workers to produce stuff is actually pretty elastic. Technology and better organisations allow each individual on average to produce more stuff. That is the basis for increasing material wealth. Note that money doesn't have to come into that. We exchange money with each other ultimately as a proxy for exchanging each others time at work.
Savings are effectively a store of the time people have worked in the past. Loans are effectively trust in the promise to do work in the future. Simple enough in those terms, but as this thread shows, when you look at the real economic system based on money it is very easy to get confused and lost in the detail of how money operates. We all use money confidently day to day and to plan for our futures; it is absolutely fundamental to our future material well being. Yet we hardly give the nature of money and how it actually works a thought. Most people never do. We trust in the fact that our experience is that money worked in the past (e.g. someone gave me a sandwich yesterday in return for three metal tokens with the Queen's gave on them). I got a sandwich yesterday, I'll probably be able to get one today the same way. Almost complete trust in a system on average we almost completely don't understand.
Edited by ATG on Friday 31st October 09:36
trashbat said:
Dr Jekyll said:
That money spent on imports does not leave the economy, it comes back.
I'm surprised I have to point this out: the physical units of currency 'come back', but the value does not.It's true that IF you keep importing more without exporting more the value of your currency drops. But that simply makes imports less attractive and exporting easier until an equilibrium is reached.
Dr Jekyll said:
BGARK said:
Dr Jekyll said:
By producing goods AND services that people want to buy.
I give up now, you are simply wrong.If I have a 100 gold coins (country 1), and you have 100 gold coins (country 2)
I make something that costs me 10 gold coins, then sell it to you for 100 gold coins.
My country (1) now has more gold coins than yours, simple
BGARK said:
Lets go back a 1000 years.
If I have a 100 gold coins (country 1), and you have 100 gold coins (country 2)
I make something that costs me 10 gold coins, then sell it to you for 100 gold coins.
My country (1) now has more gold coins than yours, simple
You made something that people want to buy, therefore you have 90 gold coins more than you started off with.If I have a 100 gold coins (country 1), and you have 100 gold coins (country 2)
I make something that costs me 10 gold coins, then sell it to you for 100 gold coins.
My country (1) now has more gold coins than yours, simple
BGARK said:
Dr Jekyll said:
BGARK said:
Dr Jekyll said:
By producing goods AND services that people want to buy.
I give up now, you are simply wrong.If I have a 100 gold coins (country 1), and you have 100 gold coins (country 2)
I make something that costs me 10 gold coins, then sell it to you for 100 gold coins.
My country (1) now has more gold coins than yours, simple
We move and exchange our silver coins around to leverage these exchange rates and magic more gold into existance.
Somebody invents Bronze.
BGARK said:
I give up now, you are simply wrong.
No, BGARK, he is right. A country's wealth can grow entirely on providing services. There is nothing magic about manufacturing. Any economic activity that someone else is prepared to pay for can add value and increase wealth. If foreign manufacturers need legal and banking services, then we can provide them in return for the goods they manufacture. It is as simple as that. If it helps, forget about the exchanges of money that we actually user in these transactions. Goods in exchange for services works perfectly well in a barter economy ... albeit banks would have to reinvent themselves.Edited by ATG on Friday 31st October 12:17
BGARK said:
Lets go back a 1000 years.
If I have a 100 gold coins (country 1), and you have 100 gold coins (country 2)
I make something that costs me 10 goldby coins, then sell it to you for 100 gold coins.
My country (1) now has more gold coins than yours, simple
I'm in country 1, you're in country 2. You ask my law firm to draught a contract for you. You pay me 100 gold coins.If I have a 100 gold coins (country 1), and you have 100 gold coins (country 2)
I make something that costs me 10 goldby coins, then sell it to you for 100 gold coins.
My country (1) now has more gold coins than yours, simple
Dr Jekyll said:
BGARK said:
Lets go back a 1000 years.
If I have a 100 gold coins (country 1), and you have 100 gold coins (country 2)
I make something that costs me 10 gold coins, then sell it to you for 100 gold coins.
My country (1) now has more gold coins than yours, simple
You made something that people want to buy, therefore you have 90 gold coins more than you started off with.If I have a 100 gold coins (country 1), and you have 100 gold coins (country 2)
I make something that costs me 10 gold coins, then sell it to you for 100 gold coins.
My country (1) now has more gold coins than yours, simple
You are now 90 gold coins worse off.
Dr Jekyll said:
BGARK said:
Isnt that what I said?
You are now 90 gold coins worse off.
No, I'm better off because I exchanged coins worth 100 for a product worth (to me) more than 100. We are both better off.You are now 90 gold coins worse off.
I still have 190.
Tell you what I will buy the item back from you for 20 gold coins so save you on fees
A fundamental part of what Dr Jekyll has been arguing is that because we pay for things in international markets using our own sovereign currency, the same value must somehow come back again like a racing pigeon and be spent here, on account of it being otherwise useless, so it doesn't matter if you buy everything from abroad.
This is obviously dim, but if we have to get into it, it forgets what contemporary money actually is - a token of no inherent value, whose worth is decided by the market based on what your economy is doing. And if your economy is not adding value to anything, thus not growing, but instead handing wealth over to other economies that do, then it's not going to be worth very much any more.
So this:
Your pigeon comes home but it's by second class post in an airtight bag.
This is obviously dim, but if we have to get into it, it forgets what contemporary money actually is - a token of no inherent value, whose worth is decided by the market based on what your economy is doing. And if your economy is not adding value to anything, thus not growing, but instead handing wealth over to other economies that do, then it's not going to be worth very much any more.
So this:
Dr Jekyll said:
Leaving aside the question of whether you could actually find a BMW made enirely by German workers and sub contractors. Then compared with leaving your money under the mattress, yes you are helping the Bristish economy [by buying German cars] because those pounds will be spent or envested back here.
Tell that to Zimbabwe or Argentina or the Weimar Republic or any other nation whose currency has failed.Your pigeon comes home but it's by second class post in an airtight bag.
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