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Creating Businesses

  1. Dec 15, 2009 #1
    Is it accurate to say that business can be created? Since the pool of money a society has is fixed, businesses are only competing each other for market share. If population grows and the pool of money is fixed, on average everyone will become poorer.

    Then, as a whole, how can an economy be sustainable? Is it implied that the population must saturate?

    What would happen if, instead of collecting taxes based on transactions, the government collects taxes based on saving? For example, what happens if the law is that "For every dollar you earn today, you have exactly 1 year to spend it. If you don't spend it by then, that dollar belongs to the government. Pure transfer of money is outlawed. Money can only change hand through registered business transactions."

    How do you reason and imagine the economy of such a society? Would your behavior change if this law applies to you?
  2. jcsd
  3. Dec 16, 2009 #2
    The amount of money is not necessarily fixed; also, if real GDP increases its not just a redistribution of the resources within the economy, but actually more output=income=expenditure
  4. Dec 16, 2009 #3
    The Brazilian government is planning to collect tax on saving accounts ...

    Read more Here

    I'm curious to see how this policy will play out for Brazil.

    I imagine this economic policy will not go well if a US president suggests it ... they'll be name-calling of all sorts.
  5. Dec 16, 2009 #4


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    Staff Emeritus
    Science Advisor

    Well business/industry can be created. For example, mankind went from hunter-gatherers to agricultural in which certain foodstocks (grains, vegetables, fruits, nuts, . . ) were grown, and certain animals bred for food and clothing. Some plants, in addition to animal hair, were used to produce textiles.

    The trees were harvested for wood to create dwellings and furniture - and shipbuilding. Shipbuilding lead to expanded trade.

    Instead of living in caves, rocks were quarried and bricks were made to build castles and cities.

    Dams were built in rivers and the flow of the river was used to provide power for mills.

    Coal and oil were used for heat and light domestically, then eventually for industry.

    Minerals were processed into metals from which tools and weapons were made.

    Metals were eventually used to make bigger ships, railways (and locomotives, freight and passenger cars), trucks, busses and cars, aircraft, and spacecraft. Metals also enable very tall buildings (skyscrapers).

    And so on.
  6. Dec 16, 2009 #5
    Hi, I think I understand the concept of productivity from this thread. The amount of money that circulates is proportional to the amount of resource that is circulated. The resource could include physical resource, time, or intellectual property. Economic grow is a combined growth in these three resources.

    If the demand for the resources slows, economic growth would also slows. Growth in the circulation of physical resource is limited by the resource available on the land.

    Suppose money only exists as numbers. A village has 10 people and each person has $10. So the total amount of money in the village is $100. Now two of them have two kids. The parents split their money with the kids. So there are 12 people, the total amount of money is still $100, but four people have only $5.

    How would the economy reach a new balance?
  7. Dec 16, 2009 #6


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    Staff: Mentor

    The money becomes worth more. You've discovered why we no longer use gold as the standard currency (or currency backing): it is rare enough that as the economy grows, using it as money would make it too valuable.
  8. Dec 16, 2009 #7
    Is "economy" a single quantifiable number? Does it have units?

    Is it more like "health", that has indicators to infer it but doesn't have a unit itself?

    What is "economy"? Is it a "phenomenon"? Is it "interaction"?
  9. Dec 17, 2009 #8
    I took Accounting 101 and Money and Banking in night school at the local community college about 25 years ago. The night school professors were excellent philosophers and I'd stack up their common sense understanding against the Ivy League professors any day.

    My Accounting 101 professor said don't try to understand debits and credits, you'll go crazy. It is merely a means of recording a transaction. A debit is a side of a page in a book. A credit is a side of a page in a book.

    My Money and Banking professor showed us the money multiplier effect, which is how the commercial bankers create money, in the form of debt, by keeping their books as a scheme of debits and credits. My professor said 80% of bank executives probably do not understand how banks create money (debt-money, actually). This kind of money does cause borrowers to compete for interest payments, and when economic growth won't support all the contracted debt (the interest payments aren't created when the loans go out) there will be defaults.

    Hence the bankers loan other peoples money at interest, which increases the money supply in the form of debt. Generally this causes asset price inflation, which we've seen in the extreme form in the housing bubble. When the bubble bursts the banks take title to property in bankruptcy and get the taxpayers to bail out their balance sheets.

    So your questions are very astute and particularly the question of sources and sinks of money (similar to sources and sinks of power/energy) is going to become an important area of social significance as the electronic money supply gets more and more distributed around the globe. Money will cause the psychological/financial equivalent of hurricanes ...
  10. Dec 18, 2009 #9

    Economy is the snapshot of an economic system. What is the function of
    an economic system?

    Function: To account for contribution to determine resource distribution.

    o Money
    o Entities
    o Resources
    o Goods/Services

    Component Interactions:
    Money: Representation of the value of past contributions
    Entities: Makes decisions on how to distribute their services and money
    Resources: Made into goods
    Goods/Services: Stuff with value

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