Okay, i'm a bit of an economic illiterate but from my research so far i've gathered that wealth can only be created by increasing productivity through investments, expanding capacity etc. So, basically more stuff is being made.
But in order for this new wealth to be consumed, do people necessarily have to expand the money supply (i.e. create debt), otherwise all of this stuff cannot be bought? So everytime new wealth is created, does this also mean more debt is created?
Or can wealth increase without the need to increase debt?
Prices adjust to the supply of money in circulation, not the other way around. An increase in the volume of economic goods will lead to a decrease in the price of those economic goods. Therefore, in a stable monetary environment you would see a fall in prices with increases in productivity. This, in fact, is how increases in wealth are represented—your purchasing power rises.
By the way, debt is not always synonymous with an increase in the supply of money. For example, if Individual A loans Individual B $1000, individual B is in debt to Individual A, but the supply of money remains the same. An increase in the supply of money would only occur if Individual A loans Individual B the same quantity of money in money substitute, and then both individuals circulate their claims to money.
Yes, wealth can increase without the need to increase debt. It essentially entails innovation and specialization. People can find new ways to do existing things that are more efficient. As production becomes increasingly efficient, people can become more specialized. Indeed, specialization itself is an innovation, as it makes production processes less direct by adding more "stages". Each "stage" itself could then be used in other production processes, increasing their efficiency.
Does this make sense? Let me know if I can explain anything more clearly.
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Autolykos,
It's important to realize that these innovations and specializations, and whatever other productive improvements you want to include, require capital accumulation. In a society with a complex division of labor, and therefore a complex capitalistic structure of production, it follows that more often than not one individual will not be able to accumulate the necessary capital accumulation for a project within an economical amount of time. Therefore, more often than not, producers will have to borrow capital. This represens debt, but like I said in my first response, debt is not synonymous with money creation.
Time is property and I can sell time in order to gain wealth or items of value, thus no we do not need to increase the money supply for consumtion because those who require time in production are willing to barter those items, or mediums of exchange
I observed...that the more public provisions were made for the poor, the less they provided for themselves... on the contrary, the less was done for them, the more they did for themselves... Benjamin Franklin
Jonathan M. F. Catalán:Autolykos, It's important to realize that these innovations and specializations, and whatever other productive improvements you want to include, require capital accumulation. In a society with a complex division of labor, and therefore a complex capitalistic structure of production, it follows that more often than not one individual will not be able to accumulate the necessary capital accumulation for a project within an economical amount of time. Therefore, more often than not, producers will have to borrow capital. This represens debt, but like I said in my first response, debt is not synonymous with money creation. Of course. I am aware of that. My point was to hopefully provide an answer to the question of how wealth can be created without going into debt. I wanted to dispel the notion that wealth cannot be created without additional debt being created. Hope this helps. The keyboard is mightier than the gun. Non parit potestas ipsius auctoritatem. Voluntaryism Forum | Post Points: 5
Of course. I am aware of that. My point was to hopefully provide an answer to the question of how wealth can be created without going into debt. I wanted to dispel the notion that wealth cannot be created without additional debt being created.
Hope this helps.
It isn't wealth if noone wants what is produced. It becomes wealth when it is sold. In order for people to consume, they must first produce/save. It is by savings that consumption occurs. Debt from loans and credit created by savings is using the savings of others to consume. Expanding the money supply to create loans and debt is stealing the savings of others to consume (ie. inflation).