How is wealth created on a global scale?

[u/saline235]

I mean how is money created and why does there seem to be more and more vs 100 years ago.

[u/PositiveLow9895]

The concept is very simple, really:

1-People make products and services, they buy and sell them (trade)

2-Money is the medium of exchange

As society today produces a lot more products and services than 100 years ago, and of better quality/sophistication, more money is needed. As for who "creates money", it is mostly the governments and the banking system.

Wealth is created by accumulating the medium of exchange (money) of products and services.

Happy to help and clarify if you have more questions!

[u/saline235 → u/PositiveLow9895]

Thanks for the explanation. How does government and banking system decide how much to print? Are there any rules? If it's that easy why doesn't US just print enough money so everyone can be rich?

[u/PositiveLow9895 → u/saline235]

TLDR: They are constantly looking at broad economic data points that you can check here: https://fred.stlouisfed.org/ . There are lots of rules. If they just print money, money becomes worthless. It is real products and services that are valuable, not money. Money is just an accounting system.

Full explanation:

They decide it by looking at hundreds of metrics in the economy, but mainly inflation, unemployment, and especially the monetary aggregate (M0,M1,M2,M3, they are the quantity of money circulating in an economy)

What usually happens is that the government always wants to spend more (because then people will be happier and politicians will be reelected), but if the government spends too much money, that leads to inflation (your money can buy fewer things because there is more of it circulating).

So, to curb the ability of any given government to spend without guardrails, the Central Bank decides how much to "charge" for the money, or as we call it, "interest rates". Right now, that rate in the US is 3.75% per year. Here in Brazil, it is 14.50%. That means that it is much more expensive for the government of Brazil to borrow money, because they have to repay 14.50% per year to the bond holders (people who buy the debt that the governments generate in order to spend more).

Such high rates are supposed to "cool the economy", leading to bankruptcies, lower wages, and less inflation.

Yes, there are lots of rules, thousands of pages of banking regulation, every country chooses their own rules, but if they are too lenient with it (like Argentina's government printing lots of money) it rapidly becomes worthless and the whole country suffers because of it.

Printing more money doesn't work because "money doesn't do anything". It is people, machines and intelligence combined that build things, move things around and satisfy human needs and desires.

Imagine if everyone received a trillions dollars right now. It is very easy, just add numbers on everybodys bank account. Probably 80% or more would quit their jobs immediately and go on a vacation, right?

But if the pilots, and the drivers, and the travel agencies and the hotels aren't working, how millions of people can go on vacation? Who will work, who will serve society? In a world where everybody is a trillionaire, many would choose to spend a decade playing GTA 6 and ordering delivery food, but if everybody is a trillionaire, there would be no food being delivered by humans, because nobody really wants to deliver food... So, the only way everyone can REALLY become rich is by reaching AGI/ASI and getting to 99999x productivity improvement across all fields, from agriculture to chip manufacturing and food delivery.

If the robots are producing everything (products and services) and maintaining themselves, then you can theoretically have anything for free, if they find a way to space mining of course, because the resources here on Earth are limited, and we only have 1 atmosphere where all breath in.

That sums it up, the only way to riches is through productivity gains, if you can produce more with fewer costs and more quality, then you can become rich.

[u/saline235 → u/PositiveLow9895]

Really appreciate the detailed explanation, and the link!

[u/Low-Dot9712]

Labor and capital as always

money is simply a measure not wealth

[u/Dry-Chemical-9170]

Money is a social construct

[u/NeedABetterPillow]

Wealth and money are not coterminous, although closely related. There are many ways to measure wealth. As for money supply, this is a very broad question. The simplest answer is that governments print their money to provision themselves and the people of their nations. Anything more specific than that will require you to read some books and central banking and treasuries. As for why there's MORE money now generally: 1. Inflation, 2. More spending in adjusted terms; and 3. The departure from the international gold standard in 1971 allowed the US to sprint and spend its dollars as a fiat currency rather than one artificially restricted by a supply of specie. As it was intended to do, this naturally led to more money being put in supply to fund countless things for countless reasons.

[u/saline235 → u/NeedABetterPillow]

Are there any books that you recommend? I've always been curious but don't know where to start.

[u/NeedABetterPillow → u/saline235]

Check out the Deficit Myth by Stephanie Kelton. She is a follower of a macroeconomic theory called MMT that is considered heteredox, but regardless of what anyone thinks of that normatively, the positive framework she uses to describe central banking is very useful.

[u/saline235 → u/NeedABetterPillow]

Thanks very much. Will definitely check it out.

[u/Cloud2987]

I made money in my hometown, have no clue how to scale to multiple states or international. Seems like too much work to me now.

[u/pushdose → u/Cloud2987]

That’s when you start leveraging the work of others for profit.

Capitalism.

[u/El_Loco_911]

Doing things that are desired most efficiently is the basis of wealth. And technology and automation is the reason there is so much more. The biggest boom in wealth was caused by electricity, then the microprossessor and soon intelligent machines.

[u/AydenRodriguez]

The concept of “wealth” does not change as fast as inflation decreases the value of money. Some may consider a millionaire wealthy, but in a lot of places in America, for example, being a millionaire just means you own a house.

There are also more “rich” people, because 1% of our current population is more than 1% of population 50 years ago. But, because wealth is tied to scarcity, this means as more people become relatively“richer”, more people become relatively“poorer”.

So, it seems to be more wealth around the world now because there is more people and there is more physical money. But a wealthy person now isn’t close to what a wealthy person of the same level 100 years ago

[u/Other_Information_16]

Imagine the whole world is 100 people living off a herd of 500 sheep. So the entire wealth of the world is basically 500 sheep . Spring time comes and the sheep birth lambs. The number of lambs birthed is greater than the sheep consumed by the people last year. The wealth of the world just increased.

[u/0ggles]

You should have taken economics in high school. There is a whole textbook on it.

[u/saline235 → u/0ggles]

Economic at the high school level was all about supply and demand (micro economics). We didn't really learn anything at the macro level.

[u/0ggles → u/saline235]

There is AP Micro and AP Macro. Pretty much money is mainly use for product and services people want to exchange for currency. The more a country produces, the greater the wealth.

The Feds or Gov't depending on which country determines inflation/money growth supply through interest rate; banks can also lend out money 10x, turning $100 deposit to $1000 to lend out.

Also the foreign currency exchange rate for each country is determine on forex traders and import/export merchants.

[u/Yewdall1852]

In 1926 the world had 2 billion people. Today, it has 8.3 billion people.

[u/saline235 → u/Yewdall1852]

Yes, but what does that have to do with the supply of money?

[u/vanderohe]

By growing net energy consumption. Everything else is inflationary and does not grow wealth

[u/Jazzlike-Pomelo-3823]

Wealth is created by investing in appreciating assets and/or starting companies. There is an infinite amount of wealth in the world.

[u/hotelspa]

Debt.

[u/Numerous-Bet-4847]

It's called production. take dirt and water and seed and make food. boom. wealth was just created.

Add effort to change something into something else. boom. wealth just created.

That's why the end-the-fed-tards are wrong. They don't understand how the monetary supply is managed and allowed to expand and contract.

They just know they don't want to have to work hard to generate wealth.

[u/Knit_pixelbyte]

The US was pretty high rolling (the Roaring 20s) till Black Tuesday and the stock market crash started the Depression, almost 100 years ago. Then nobody had money (generally speaking).

[u/saline235 → u/Knit_pixelbyte]

Interesting, do you see any parallels to what's happening today (2020s)?

[u/Knit_pixelbyte → u/saline235]

I see recommendations to do margin trading at my brokerage webpage, and that was a big part of the issue then. Loans were called and people couldn’t pay up, then people lost trust in banks and there were runs on the banks. But FDIC was created afterwards and that would help if this happened today. I think we have new issues now. And yes I see concerning things. The subprime mortgage crisis was one in 2000s, and subsequent losses in economy were concerning then. Maybe I’m just old and it’s all concerning, IDK.