The only way is to “keep it moving”

Economics always seems very complex, and there is a reason for that. Like all mathematically impossible situations the only way to explain them is to make them seem too complex to explain.

Through all of human history the idea of exchange goods for services has required all the systems we see today, including, laws, education systems, policing, security etc.

Until a few decades ago the idea was that you would exchange services for things of equal value, such as a lump of gold or silvers or a bushel of corn. And to save carrying huge bags of gold around, notes were passed between people saying that they promised to provide the actual gold in exchange for a service. These notes of promise were called money. And to be able to make money you used to have to have a store of precious metals equal to the amount of money you printed.

And then someone has the really smart idea of getting rid of the need to actually have the store of gold to be able to print money. This allowed as much money to be made as was needed, to grow the economy. The only issue is that if anyone ever wanted to swap his or her money for gold the whole system would collapse.

So to make sure a collapse doesn’t happen there was an implicit need to make sure all the money keeps moving around. It’s like musical chairs where there are less chairs than people, so as long as everyone is moving there is no issue, but if the music was ever to stop there wouldn’t be enough places for all the money to sit, then the value of money goes down (inflation).

To make sure the money keeps moving governments used to tax money that was sitting still. This has two important effects:
1. Taxing money means it keeps moving by itself (moving to the government who could spend it on services)
2. Made it preferential for people to keep their money moving to keep it out of the hands of the taxman.

Today we have a huge issue in that the amount of tax applied to money that is not doing anything is too low to encourage people to keep it moving. This means that too much money is just sitting in banks making money without doing anything, and this is really bad, as sitting money can be seen for what it is, and that is a promise that can never be kept.

It’s okay to be rich; actually it’s the best thing to be. But the value of money will only get less if it does nothing of real value. Capitalism is without a doubt the best system the human race has ever had to build the quality and length of human life. But capitalism demands that capital be used to build stuff, it fails if it sits around doing nothing.

Tax lazy money to keep the capitalist system healthy. Either it moves to the government to spend, keeping it moving. Or it forces people to use their money to build things. Either way is much better than notes of promises that cannot be kept sitting in places where its lack of true value can be seen.

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4 Replies to “The only way is to “keep it moving””

  1. The entire blog is based on a false premise – that money in an investment is somehow not doing anything. If your money is invested in a stock, it’s being used as capital for the company you’ve invested in. A bond, the same, except that it will be repaid at some point. If it’s in the bank it’s typically being lent for some purpose (e.g. a mortgage for a house, a loan for a car or other large purchase, or line of credit for a home improvement project. The only money that’s not being used for a good reason is the money in your mattress…

    1. While it’s true that invested money does get reused, there are distortions all over the place, rapid micro-trades (which are the primary mode now by which many banks trade) don’t generate any true benefit, but just play with the inequity in different accessibility rates. Bonds only work when issuers have to repay them with earned capital and not have the ability to just print more promissory notes (money) to spoof the repayment. And lower rates of tax on non-salaried income encourages low risk savings as opposed to higher risk capital investment. Making the cost of low risk greater increases the likelihood of capital investment in more innovative businesses. Also there is a lot to be said for home investment incentives. I want to live in a place where poverty is low, and that is more likely where the cost of investing in countries with higher poverty and thus lower costs is countered by trade barriers. Money is not the end game, but the intermediate step and it works best when everyone realizes it, it’s just a means to an end. It’s a balancing act. The more capitalist a society the better, but the higher the percentage of funds that are sitting out the game in the hands of oligarchs the worse it is for capitalism overall.

  2. Only (a) federal government can issue bonds and then print money to make up the difference. Corporations, states and municipalities all issue bonds and must use their own money to pay the principal and interest. I’ll reaffirm my original point refuting your entire post. There is no such thing as money not in motion, unless you’ve taken stacks of cash and placed them in a safe deposit box.

  3. when the government issues bonds, and then prints new money to pay those bonds, it dilute the value of money. If money invested but not taxed makes a significant return, and the return is based on super fast micro trading that is supported by government low interest loans paid for with bonds that are paid for by printing money, this is not capital investment. Capitalism requires work to be bought, things have to progress. Make things and sell them. The output of industry is critical to grow humanity. The difference between number crunch a fortune and building things that deliver a fortune is the difference between promissory notes and true value. I’m a capitalist and as such deeply believe in the need for industry, work, and the true wealth of nations, and not see the long term issue with short term get rivh quick schemes.

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