How does the economy “grow”? Where does the new money comes from?
In: 398
Because money is simply a medium, not actual wealth.
It represents *time.* I am willing to give 1 hour of my time, for your widget. This is reprsented by X monies.
Now, one way this can “grow” is how our time is spent.
Lets take two products, a bowl and a hammer. Both things I need. It takes me 1 hour to make a bowl, and 2 hours to make a hammer. So after 3 hours I have everything I need.
You, however, are able to make a bowl in 2 hours and a hammer in 1 hour. The opposite of me. Either due to your skill, or location and access to resources, or whatever.
In 3 hours you have everything you need.
Working alone we need 6 hours of time to make everything we both need to get along.
But we talk to eachother.. and come to a deal. I’ll work for 2 hours only, and so will you. But we’ll both have everything we need. I’ll make 2 bowls (1 per hour), you’ll make 2 hammers (1 per hour) and were’ done.
So now it only takes 4 hours for us to get everything we need. Our economy has “grown”. We have 2 extra hours of free time now.
By specializing my hour is now worth more, able to do more. I can’t do this alone, as I have to coordinate with others, but that’s how it works.
Lets throw money into the mix:
Lets say 1hr work = $1
Alone I spend $3. $1 for the bowl, $2 for the hammer.
Working with you, My $1, can actually buy a hammer.. leaving me with $1 extra that I can spend on something else entirely. I could trade that $1 for another bowl, or go to a third party and get an entirely different item.
The purchasing power of my 1 hour of labor has increased, due to trade.
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