The assumption that value simply multiplies without reference to underlying mechanisms treats money as magical. While this description often matches observed behavior, I think this apparent match requires explanation. Some people become very wealthy precisely by finding or creating exceptions to this pattern.
I try to decompose apparently irreducible trends into physical configurations and social agents’ decisions. When apparent magic persists, I look for the magician—someone intentionally working to make the magic appear true.
Sometimes people are directly targeting a trendline in underlying reality that would support a corresponding high-level economic trend. For exampke, Intel worked for a long time fairly explicitly with the goal of keeping up with Moore’s law). Other times they’re cooking the books. For example, economist Scott Sumner proposed making smooth nominal GDP growth the explicit Fed target, since it’s already the implied target).
Cooking the books causes the nominal trend to diverge over time from what we originally might have wanted to measure with it. So, since we’ve been cooking the books to make financial investment smoothly profitable outside the original context where that trend emerged, this corresponds to some sort of decline in the purchasing power of money, as the set of goods and services we care about increasingly diverges from the ones for which we transact in dollars.
I believe I did explain/decompose the underlying mechanism
A simple way to see this: even a relatively crappy factory will make more goods in a month than it & its employees consume in a month. Likewise for farms, mines, fishing vessels, etc etc.
I could also have mentioned that it’s relatively easy for two people to make three.
If someone prints money for themselves, they’ll devalue their currency, but they won’t be making factories less productive.
Intel makes more stuff than they use, no technical progress required.
I should’ve said “a dollar’s worth of stuff can produce 1.03 dollar’s worth of stuff”. That would have been more clear.
The assumption that value simply multiplies without reference to underlying mechanisms treats money as magical. While this description often matches observed behavior, I think this apparent match requires explanation. Some people become very wealthy precisely by finding or creating exceptions to this pattern.
I try to decompose apparently irreducible trends into physical configurations and social agents’ decisions. When apparent magic persists, I look for the magician—someone intentionally working to make the magic appear true.
Sometimes people are directly targeting a trendline in underlying reality that would support a corresponding high-level economic trend. For exampke, Intel worked for a long time fairly explicitly with the goal of keeping up with Moore’s law). Other times they’re cooking the books. For example, economist Scott Sumner proposed making smooth nominal GDP growth the explicit Fed target, since it’s already the implied target).
Cooking the books causes the nominal trend to diverge over time from what we originally might have wanted to measure with it. So, since we’ve been cooking the books to make financial investment smoothly profitable outside the original context where that trend emerged, this corresponds to some sort of decline in the purchasing power of money, as the set of goods and services we care about increasingly diverges from the ones for which we transact in dollars.
I believe I did explain/decompose the underlying mechanism
I could also have mentioned that it’s relatively easy for two people to make three.
If someone prints money for themselves, they’ll devalue their currency, but they won’t be making factories less productive.
Intel makes more stuff than they use, no technical progress required.
I should’ve said “a dollar’s worth of stuff can produce 1.03 dollar’s worth of stuff”. That would have been more clear.