The Financial System and Money Supply

Maria Thomas48 said:Hyper-production and pricing don't necessarily have to be linked when you're dealing with a monopoly. Take Microsoft, for instance. They can sell their software in whatever volume they want without any thought about lowering prices. Actually, the price of every new product they release is usually higher. So, based on market postulates, Microsoft should be causing economic instability because hyper-production is happening—there’s no shortage of what they make, except for old stuff—yet the price stays the same or close to it. Basically, wealth just accumulates. Maybe I'm wrong, but it seems like a solid example. But that isn't really the point I'm interested in anyway. Market relationships are so complex that only top-tier mathematicians have managed to solve them and create equations that actually describe how a market works.

The main thing is money as a medium of exchange. Whoever produces that money can basically buy all newly created value for the mere cost of paper, ink, and printing.

Microsoft doesn't have a monopoly. 😁

I’m done with everything else. 🙄

Andrew Booth29 said:Microsoft doesn't have a monopoly. 😁

I’m done with everything else. 🙄

I don't get how they aren't a monopoly when they literally had to pay millions in fines for monopolistic behavior. Right. They made a few tiny tweaks to their S.A. and released some documents and suddenly, just like that, they aren't a monopolist anymore.

Look, the point of this thread isn't to win an argument or convince anyone of my side. It's just about using logic to look at how much money actually matters and how any new cash might be injected back into the flow. It’s about shedding some light on how the financial world works. I'm no economist, but all money operations are linear—addition, subtraction, borrowing—so they're pretty easy to break down logically. If someone wants to prove anything regarding how money drives wealth or trade, they should try applying those same rules to an isolated society, like a single family or a small town. If you can prove it works there, then sure, it probably applies to the massive, isolated system we call the USA. Because, let's face it, there aren't any proven intergalactic transactions yet.

If something can't be proven in a tiny village, it's impossible to prove it for the entire planet.

So, the question of issuing new money is still wide open. If it exists, the government probably isn't in a corner, but if it doesn't, we'll end up exactly like that little isolated village with a strictly limited starting amount of cash.

I'm not exactly advocating for printing more money, but looking at the logic, I don't see a solution. Our government can print bills based on credit, but if there isn't enough surplus coming in from abroad to cover our debt payments, then we're clearly in a tight spot. Maybe people remember things like rationing or gas coupons from back in the day. I have a feeling we'll be remembering stuff like that again soon.

The real issue with money is that its whole purpose is exchange. And honestly, I don't have a fix for how to inject new money into that isolated village scenario. No matter how hard the villagers work, their products have zero value if there isn't any money available to buy them. Plus, sooner or later, all the wealth would just gravitate toward whoever was selling their goods at the highest price—or whoever was just way more productive than everyone else. The village wouldn't actually end up wealthier; the wealth would just concentrate in one place. Sounds familiar, doesn't it? 🙂 I wonder if those hands happen to belong to our big bankers.

Nicole Collins13 said:When will they finally realize that’s just impossible? 😁

Oops, I just realized what I wrote there. The goal is to avoid deflation while keeping inflation at a low level, ideally around 3%. Based on current assumptions, that seems to be the healthiest rate for economic growth. If I recall correctly, the main objective of the Federal Reserve's monetary policy is to maintain price stability.

Maria Thomas48 said:I don't get how they aren't a monopoly when they literally had to pay millions in fines for monopolistic behavior. Right. They made a few tiny tweaks to their S.A. and released some documents and suddenly, just like that, they aren't a monopolist anymore.

Just because someone pays a fine for being a monopoly doesn't mean they actually hold one. 😁
To be a true monopolist by definition, you have to actively use force to block any competition from entering the market. Since Microsoft doesn't have that kind of power, they don't qualify. I mean, if you really wanted to, you could just install a free operating system right now.

I actually reached out to the Federal Reserve regarding the increase in the money supply and a few related issues. After waiting three weeks, here’s the gist of their reply: "Read the Federal Reserve Act and an introductory economics textbook."

I’d describe the response from the Fed representative as the ultimate non-answer. It basically means the person you're talking to either has no clue or is too afraid to speak up.

It’s honestly like asking a local cable technician how to fix a TV where the picture is squashed into a horizontal line, and they just tell you, "Go study electrical engineering, circuit design, and integrated circuits." The response doesn't actually help anyone; it's just a generic brush-off that applies to any question about fixing hardware.

So, I sent a letter over to the finance department at Harvard Business School. Now I'm genuinely curious to see what they come back with. I'll let everyone know once I hear something.

By the way, I’ve been digging through some econ books and skimmed through a free PDF on macroeconomics by an American author, Dietrich Krueger. The only thing I really gathered is that the sheer volume of money isn't the main point. More money leads to higher prices, sure, but there wasn't anything specifically addressing ways to increase the real money supply without relying on bank credit. Pretty interesting stuff.🙂

Regarding the relationship between money and social structures, the humanist Aleksandar Šarović wrote extensively about this a long time ago, and naturally, he didn't find a solution within the framework of capitalism. http://www.sarovic.org/novac.htm
If anyone is interested, give it a read.

Well, they actually gave you an answer...

"The mandate of the Federal Reserve

The primary objective of the Federal Reserve is to maintain price stability. Without compromising this core mission, the Federal Reserve supports the economic policies of the United States while operating within the principles of an open market economy and free competition.
..."

http://www.federalreserve.gov/about/purpose.htm

Is everything clear now? Or do we need more diagrams?

As an added bonus—if you happen to notice that price stability is measured using a different index here in the States than what the European Central Bank uses (which places much higher weight on things like groceries, for instance)—then maybe you can finally explain the dollar's appreciation against other currencies over the last few years. You know, that famous conspiracy theory about the "import lobby."

Maria Thomas48 said:I actually reached out to the Federal Reserve regarding the increase in the money supply and a few related issues. After waiting three weeks, here’s the gist of their reply: "Read the Federal Reserve Act and an introductory economics textbook."

I’d describe the response from the Fed representative as the ultimate non-answer. It basically means the person you're talking to either has no clue or is too afraid to speak up.

It’s honestly like asking a local cable technician how to fix a TV where the picture is squashed into a horizontal line, and they just tell you, "Go study electrical engineering, circuit design, and integrated circuits." The response doesn't actually help anyone; it's just a generic brush-off that applies to any question about fixing hardware.

So, I sent a letter over to the finance department at Harvard Business School. Now I'm genuinely curious to see what they come back with. I'll let everyone know once I hear something.

By the way, I’ve been digging through some econ books and skimmed through a free PDF on macroeconomics by an American author, Dietrich Krueger. The only thing I really gathered is that the sheer volume of money isn't the main point. More money leads to higher prices, sure, but there wasn't anything specifically addressing ways to increase the real money supply without relying on bank credit. Pretty interesting stuff.🙂

Regarding the relationship between money and social structures, the humanist Aleksandar Šarović wrote extensively about this a long time ago, and naturally, he didn't find a solution within the framework of capitalism. http://www.sarovic.org/novac.htm
If anyone is interested, give it a read.

Hold on—do you honestly believe Šarović actually has answers to these problems?!

"Every economy would benefit most if the amount of money in circulation exactly matched the value of produced goods."
So, his grand plan is daily inflation and deflation? Truly brilliant—he’s solved everything. 😂

On the distribution of money: "The population will recognize the pros and cons of a specific monetary distribution through their own experience, making adjustments as they see fit so that both individuals and society as a whole achieve greater benefits. In this way, society will adopt economic policy as its own—one of the most vital elements in loosening the grip of the production system and, by extension, society itself." 😂

His critique of capitalism: "On the other hand, mass production leads to saturation, which results in shrinking corporate profits. A privately owned company that fails to turn a profit has no value." 🤣

And of course, the Holy Grail: "A stable production system can only be established through a planned economy." 🙏 🤣

People told you once: stop reading charlatans and pick up an actual economics textbook—maybe then you'll actually learn something. ☕

Regarding A. Šarović, I’m not saying he’s right about everything or every single solution. He wrote quite a bit in his book, but I was really just focused on one specific connection: how we regulate the influx of new money. Capitalism doesn't have an inherent fix—or maybe it's designed to lack one—which you can see in those recurring cycles of economic booms and busts.

It’s like building a house on a shaky foundation. It can collapse. That's just physics. So, if capitalism is built on the value of money (capital), and that money's value fluctuates from period to period, then you end up with the mess we have now. But, you have to be brave enough to say it: regulating the flow of money isn't working. Here is why, once again. If the value of the US dollar is equal to all products and services divided by the total number of dollars, then as products and services accumulate, the number of dollars has to increase to keep that value constant. And because labor adds value every year, that accumulation happens continuously.

Who doesn't see that?

And if you do see it, then we need a solution. Either we haven't added any value since the mid-90s (which the GDP reports totally contradict) or we're still being foolish and trying to solve a shortage of money—caused by an increase in value—by taking out loans. In that position, the Federal Reserve can easily generate dollars based on international credit to satisfy the demand for issuing currency into the financial system.

The same goes for this: without new dollars, you can't have some people getting richer without others getting poorer. Which would be normal if nobody actually worked.

So, if that's true, then when a major corporation announces they made a massive profit last year, it just means everyone else was impoverished by that exact amount (spread out across many small businesses).

And it will stay this way until the system for issuing new dollars is fixed. Everyone immediately thinks of devaluation. But people finally need to realize that newly created value requires an equal amount of new dollars, so there's no such thing as devaluation in that context.

So, we still don't have a solution, even though one should be codified into law. This implies that the top economists and lawyers who drafted our laws were short-sighted. Or, more accurately, they just followed what everyone else was doing. If nobody else in the world has solved this yet, we aren't suddenly going to be the ones to do it.

Basically, first we have to prove with hard facts that injecting a new quantity of dollars is necessary. Then we find a solution, write it into law, pass it, and start implementing it. It would be good to do this sooner rather than later because we are facing a massive problem.

There is one catch with injecting this money. Whoever controls the injection holds all our newly created value in their hands. If that money is mismanaged, it might just create even bigger problems.

Finally, I'd ask you all to contribute to finding a solution. Everyone is entitled to an opinion, but let's base it on the actual definition of what a dollar is worth.

And anyone who thinks we don't need new dollars to account for accumulated new value should think about how we're supposed to pay back international debt. See, paying back that kind of debt involves pulling dollars out of the system to buy the foreign currency needed for repayment. If those dollars aren't there, the debt can't be paid. And even if there are just enough, having a massive shortage of dollars in the financial system won't do anyone any favors.

Quincy:

If the value of the dollar is defined by all goods and services divided by the total supply of dollars, then logically—as products and services accumulate—the money supply must expand just to keep that value constant.

😲
Jesus...
After posting something like that, it’s honestly no wonder nobody takes you seriously or even wants to engage in a debate with you. For heaven's sake, man—go read an actual economics textbook!!

Quincy:

However, one must be brave enough to say it: regulating capital flows is a bad idea. Then find a solution, draft the legislation, pass it, and put it into action.

You're contradicting yourself. You claim regulation is bad, yet your "solution" is more regulation. 🙄

No matter how hard people try to claim I don't understand economics, there are still questions that nobody on this forum seems willing to actually answer.

If economic science is supposedly useful to billions of people, then it should be just as useful to a much smaller, isolated group. So, come on, you PhD economists, show me how you would regulate money within an isolated system. For example, take an isolated community of 10 families. Set up one bank, distribute various jobs among those 10 families with some initial amount of cash held by the bank and each family. Then just show me how that works year after year. The assumption is that every family has a surplus of goods or labor to put on the market. Using that example, explain how a successful family grows and how there is a real increase in the money supply. Leave out population growth for now, though you can try to factor that in later. Assume there are no natural disasters and that we have predictable crop yields and livestock production every single year. Basically, a perfectly stable environment.

So far, not a single person here has even attempted this, even though I brought it up as the core issue at the start of this thread. Everyone brags about being experts and refuses to debate with "ignorant" people, yet they get stuck on a simple hypothetical and have no idea where to go from there.

Look, I'm not asking you to square the circle (scholars know that a perfect result involves infinite decimals). I just want one simulation showing the flow of wealth and prosperity for each family, year by year. Let's assume all families work equally hard.

I tried to design a simulation that would function indefinitely, and it doesn't work. It always turns out that the entire sum of money ends up with one single family due to tiny differences in prices or productivity. That's for a solution without any money printing. And I honestly cannot figure out a fair way to handle money emission in an isolated system.

Well, this is where the doctors of economics can step in and solve the puzzle.

If you can't solve this basic little example, then you certainly can't solve the economic problems of a massive isolated entity like the United States.

Go ahead and insult me personally if you want, but anyone who doesn't know the solution to the task above for an infinite timeframe (even just the first 100 years will do) probably shouldn't brag about their economic expertise or tell others to go read their textbooks.

Because of that, I am asking you to please work on the solution to this incredibly simple task and just focus your arguments there.

Happy 2010 to everyone!!

The fundamental issue here—and I say this quite bluntly—is that you don't actually grasp what money represents. That’s precisely why your simulation is failing to produce anything remotely coherent. 😁
If every single cent in the entire economy were somehow funneled into one family's hands, the very concept of exchange would vanish. We're talking about goods and services no longer moving through the system. In that scenario, money effectively ceases to exist—because, let's be honest, money only holds value as long as there is active commerce to facilitate. And since we know from basic economic reality that such a total vacuum never occurs...
You really ought to walk us through your simulation—if you can—so we can pinpoint exactly where your logic went off the rails. 😁

Andrew Booth29 said:The fundamental issue here—and I say this quite bluntly—is that you don't actually grasp what money represents. That’s precisely why your simulation is failing to produce anything remotely coherent. 😁
If every single cent in the entire economy were somehow funneled into one family's hands, the very concept of exchange would vanish. We're talking about goods and services no longer moving through the system. In that scenario, money effectively ceases to exist—because, let's be honest, money only holds value as long as there is active commerce to facilitate. And since we know from basic economic reality that such a total vacuum never occurs...
You really ought to walk us through your simulation—if you can—so we can pinpoint exactly where your logic went off the rails. 😁

Look, I don't know much about economics anyway (my grades in class were pretty mediocre). There's no point in looking for mistakes in my work. I already admitted that I don't know how to build a successful long-term economic simulation within an isolated environment.

If you think you can do it, go ahead and try to make one yourself. If you can't, then there wasn't really a reason for you to jump into this conversation.

And I’d appreciate it if we could keep things civil. Throwing around insults like "you don't understand money" doesn't actually help the debate. Just use actual expertise instead of attacking someone's credentials. This topic is genuinely serious.

A while back, I read that they ran into this exact same issue—injecting new currency—back in the Roman Empire. Their fix was to melt down silver coins and mix in cheaper metals. Obviously, the fallout a few hundred years later is easy to see. Their currency ended up being practically worthless. I'll step back from that specific point though, since I'm not a historian and my source might be off.

We're dealing with a problem that's over 2,000 years old. I don't think we're going to solve it by questioning each other's intelligence.

It wasn't some sudden "crisis" that forced them to inject new money into the system. The reality—and let's be blunt here—is that they were debasing the coinage, pulling out the gold and silver and mixing in base metals just to manufacture more currency. But this wasn't some strategic move to fix an economic hurdle; it was the Roman state—specifically the Emperor—doing it simply because they wanted cash for their own vanity projects. They loved building roads to nowhere and massive stadiums that nobody actually needed. Of course, that decision backfired spectacularly. You can practically trace the entire collapse of the Roman Empire back to that specific turning point. It’s also worth noting how they tried to implement price controls—basically a desperate attempt to fight the very inflation they caused—focusing primarily on grain, which was the most essential commodity at the time. The inevitable result? A total collapse in grain production.
Every monarch throughout the Middle Ages played this same game. Whenever the state treasury ran dry, they’d just hit everyone with a tax disguised as inflation. Honestly, it hasn't changed much. We see the same patterns everywhere—from Germany following World War I, all the way through America and the USA, right down to Zimbabwe.

It’s also worth pointing out—and this is a crucial distinction—that this whole "currency debasement" scam can only happen when the government holds a total monopoly over the money supply. Back in the day, when anyone with the resources could mint their own coins, you didn't see inflation triggered by these kinds of systemic manipulations.

As far as running a simulation goes, I honestly don't see the point in wasting my time with it... You’ve essentially backed yourself into a logical corner here—if one single family holds every cent in existence, then that money ceases to function as currency for anyone else (because they'd have to be tapping into some other source of value entirely). All they could really do with that hoard is use it as toilet paper—and even then, only if we're talking about physical cash. They wouldn't be able to trade goods or services with anyone else, which means they'd likely starve to death pretty quickly, or at the very least, end up living in absolute, crushing poverty.

Andrew Booth29 said:As far as running a simulation goes, I honestly don't see the point in wasting my time with it... You’ve essentially backed yourself into a logical corner here—if one single family holds every cent in existence, then that money ceases to function as currency for anyone else (because they'd have to be tapping into some other source of value entirely). All they could really do with that hoard is use it as toilet paper—and even then, only if we're talking about physical cash. They wouldn't be able to trade goods or services with anyone else, which means they'd likely starve to death pretty quickly, or at the very least, end up living in absolute, crushing poverty.

The simulation I tried to run to figure out what happens to the actual amount of money was based on something with intrinsic value—like a gold coin. The whole issue stems from a limited supply of currency, regardless of how much total money exists. I believe that sooner or later, a more productive family or one that holds a monopoly on a specific service will start hoarding wealth. Because of the shortage of cash, the others—even if they have the drive and the work ethic—won't be able to sell their products or services to anyone except the person who actually has the money (assuming we stick to cash exchanges). As long as the amount of money in circulation stays fixed over time, wealth accumulates in whichever family generates the highest profit. Basically, the biggest gap between earnings and expenses. Like some frugal, hardworking family, for example. But again, the moment a family turns a profit in a society with a finite amount of money, it means someone else has to take a loss. The system would practically function if every family's annual profit were exactly zero gold coins. That's a utopian model, though; it isn't capitalist-oriented and just wouldn't work in reality.

So, the main problem remains: in an isolated system with a finite amount of money, creating profit is the issue. It pulls money away from non-profitable entities, and as you mentioned, they are left with nothing but bartering. In this isolated environment with limited cash, it's impossible for everyone to be successful (profitable). For everyone to be profitable, there has to be an influx of new money to fill the profit quotas of all the families.

It’s just pure logic:

1. If someone is earning, someone else—or several others—is losing.

2. If someone consistently turns a profit, as they hoard money, the rest of the community is left without liquidity—there’s no sense in borrowing someone else's profit when they have no way to pay it back. By accumulating profit, that wealthy family is effectively shrinking the available money supply in the long run, making the repayment of long-term loans questionable.

These two things are undeniable for an isolated community with a fixed money supply. I'd ask anyone following this to confirm these points or refute them with opposing arguments.

If this is true, what is the real way out? Implementing a 100% tax on profits or issuing new currency. The question is how to introduce money into an isolated society without destabilizing its value. We are still talking about gold coins here.

As you can see, it’s easy to set up the simulation logically and see where the result leads. It's frustrating because I don't see a good way out of this situation. That's why I started this thread. The problem is heavy, and we really need a solution for it.

The simulation didn't prove that new value requires new money, but it did show logically that with a limited money supply, while some people are making a profit, others are suffering a loss. So, if the solution is injecting new money, then we really need to think carefully about how to do that in a fair, honest way.

First off, everyone has the capacity to generate "profit" in this little game of yours. It isn't some exclusive privilege reserved for the top tier.
Money exists as a medium—a way to swap goods and services. You provide something of value to someone else, you get paid. You take something from them, you pay up. At its core, you’ve just recreated a barter system, only you're using a middleman to facilitate the trade. When someone operates with a "profit" motive, it actually benefits everyone else in the marketplace. They receive the product or the service while they hold onto their capital for a moment. So, here is my first point: a person who "accumulates" wealth is effectively acting as a benefactor—someone who restrains their own immediate consumption and indulgence for the sake of others.
Something to chew on during your New Year's Eve celebrations. 😉

mistystag0 said:I’ll try to be gentle here. From my perspective, since you seem to have a somewhat naive view of finance, you are making some pretty significant errors.😢

To start with, maybe you could look up some basics on monetary policy: the Bretton Woods agreement and the gold standard, how a central bank maintains its independence, primary versus secondary money issuance, supply and demand, and monetary aggregates.

I guess once you've looked all of that over, you might realize just how much there is left to learn.

LP👋

Look, I’m not going to play nice like you are, so I’ll just say it: your post is incredibly arrogant. Here is a person trying to learn, politely asking for help, and you’re just standing there rubbing their nose in it? Get a grip. Remember, there are no stupid questions—only stupid mistakes in life. From a purely human standpoint, why don't you take a second to evaluate whether your response was a massive mistake or not?

One more thing—just out of pure curiosity—what is the deal with that "Void" username you use? The name truly fits the content.

mistystag0: I guess maybe this is worth looking into.

I guess there might be some room for interpretation here, maybe? It seems like a bit of a gloss over the main points, I suppose. mistystag0 says: One tries so hard to gain some actual knowledge and politely asks for help, yet you seem to be siding against them. I suppose there are no truly foolish questions, only foolish mistakes made in life. From the perspective of interpersonal relationships, maybe you should just judge for yourself whether your response was a mistake or not.

There are such things as foolish questions and foolish answers, along with all their consequences. From the perspective of interpersonal relationships, I suppose you should look at those last two sentences you directed at me. One was telling someone they don't have a clue about a subject and pointing them toward where to find information, while the other was simply an insult.

mistystag0

Maria Thomas48 said:I actually reached out to the Federal Reserve regarding the increase in the money supply and a few related issues. After waiting three weeks, here’s the gist of their reply: "Read the Federal Reserve Act and an introductory economics textbook."

I’d describe the response from the Fed representative as the ultimate non-answer. It basically means the person you're talking to either has no clue or is too afraid to speak up.

It’s honestly like asking a local cable technician how to fix a TV where the picture is squashed into a horizontal line, and they just tell you, "Go study electrical engineering, circuit design, and integrated circuits." The response doesn't actually help anyone; it's just a generic brush-off that applies to any question about fixing hardware.

So, I sent a letter over to the finance department at Harvard Business School. Now I'm genuinely curious to see what they come back with. I'll let everyone know once I hear something.

By the way, I’ve been digging through some econ books and skimmed through a free PDF on macroeconomics by an American author, Dietrich Krueger. The only thing I really gathered is that the sheer volume of money isn't the main point. More money leads to higher prices, sure, but there wasn't anything specifically addressing ways to increase the real money supply without relying on bank credit. Pretty interesting stuff.🙂

Regarding the relationship between money and social structures, the humanist Aleksandar Šarović wrote extensively about this a long time ago, and naturally, he didn't find a solution within the framework of capitalism. http://www.sarovic.org/novac.htm
If anyone is interested, give it a read.

He received the exact same response from both me and the Federal Reserve. I suppose he really needs to brush up on the fundamentals. Actually, I might have overestimated him; perhaps I should have pointed him toward some more introductory texts. For instance, he could start with Samuelson, P., A. and Nordhaus, D. Economics, 18th edition, or maybe move on to o. Blanchard, Macroeconomics, 3rd edition, Prentice Hall, 2002.

mistystag0 says: "Quote:"

I suppose there might be some merit to that idea. Maybe. mistystag0 says: The government is essentially an expense to society. It doesn't actually generate wealth; instead, it just redistributes existing resources and spends capital that belongs to someone else, largely because it holds a monopoly on both the national currency and legal force. I guess one has to wonder why anyone believes that government spending, at any level, would actually stimulate economic growth for the rest of us. Maybe it's just wishful thinking.

Based on what you wrote, I guess it might be a good idea for you to start with those same textbooks. I don't think anyone is going to sit here on a forum and explain the fundamentals of how economics works to both you and Nostradamus from scratch. To really grasp the basics, you probably need to go through the core subjects covered in the first two years of an American economics program. Economics is quite a bit deeper than just those few topics that pop up in the news or the nonsense peddled by people like Davor Šuker.

It seems there might be a misunderstanding or a missing piece of information here. I am not quite sure what you are referring to. Maybe you could provide more context? I guess I'll just wait to see what you meant. mistystag0 says:
Just one more thing, I was simply curious—what exactly does the username "mistystag0" refer to? A name truly says it all.

Do you happen to know even a tiny bit of Latin? That’s great. I assume you went to a good prep school. Back when I was in high school, we actually had a class called politics and economy in our junior or senior years. It probably wouldn't hurt to brush up on that a little bit.

All this is assuming you actually want to learn something, rather than just trying to fix a broken Mississippi.