Money! The Misunderstood Concept And The Financial Pie

I once had a friend say to me "I don't know why our government does not print enough money for everyone to have everything they want so we can all be rich". My reply was if printing, or having, money was the answer than Latin Americans would be the richest people on earth. To the contrary, printing money without economic productivity to justify such an action is a slow but sure way to the poor house. It creates a false sense of prosperity. Money is nothing but an agreed upon medium of exchange. Money by itself does not make a person rich. The purchasing power of that money is what determines the wealth of an individual. Many factors go into determining the purchasing power of a specific currency. Chief among these factors are free market forces and government economic policies. However there is another less talked about , or should I say less understood, but equally important factor that determines the purchasing power of a currency. That is the limiting factor. This translates into productivity within the confine of what I like to call the financial, and other, pies. That is what makes an individual or a nation rich. Rich only in comparison to other not so productive society(ies).

Our ability to produce (economic activities) is limited by many factors including human resources, natural resources, political stability, free market principles or the lack thereof and yes financial resources as well. Economic activities require, among other things, financing and the financial pie is by my definition finite, no matter how big it is or how big it grows. There is always a limit on our ability to grow that pie. Limits are imposed ultimately by the value of money. Money is just another commodity that has a price that is determined by, among other factors, what the perceived value is and what others are willing to pay for it. That could be in the form of outright purchase or exchange for other currencies, services or simply the interest rate attached to that currency's debt. All financial pies are limited (by definition) but all are not equal. In other words Americas' financial pie is limited but much bigger than all other countries' pies including China's.


Today, America is faced with the phenomena of other economies vying for a greater share of the financial pie which ultimately determines the size of all other pies these economies can afford (production pie, consumption pie, etc...). Even though the size of the pie does grow over time to reflect changes in demographics and economic activities and changes in human economic behavior ( desire for more goods and services whether as luxury or as necessity as we see today in Bangladesh and Tunisia), its borders are always defined. As I always say if everyone is economically equal society could not function. Economic inequality is a necessary beast in our society as we know it today. Of course that does not mean that individuals or nations can't progress. They can, they should and they do. But it does mean that the progress ladder will always have lower steps that have to be climbed to reach the ever changing upper steps. If one tries to jump to the top they run the risk of falling hard. The point I am trying to make here is that because of the pie shaped limitations the betterment of any economy(ies) always comes, in the long run, at the expense of another economy(ies). China at the moment seems to be capturing a bigger share of some of the pies, certainly the financial pie. However, this comes at the expense of denying its people the right and opportunity of a better life by keeping the value of the yuan artificially low and at a substantial risk to the economy going forward. But China can't be ignoring market forces for good and it certainly can't keep artificially growing its economy much longer. So eventually China's share of the pie will stop growing and start declining giving others an opportunity.

Because money in itself has no value other than being a medium of exchange printing more of it causes the value determining factors of that currency to assign it lower valuation.

As for me I have always liked apple pies because they are as American as pies can be.