Can greed be good?
Why economic growth is the only thing that keeps our society alive
Money is a moody friend but we can always rely on him. Because money has this unique attribute to exchange everything into everything. I mean it seems very obvious but if we just go a few hundred years back in history this wasn’t the case.
printed paper can be exchanged into everything
Imagine you are a farmer and you have chickens. So you can go to a marketplace and trade a chicken for two breads. Or you can trade two chicken for a new scoop or one chicken for a new pair of shoes because winter is coming. And this works without having to use money. But trading without money has it’s natural limitations because you need to know all the exchange rates for all the goods and there must be a demand for the goods you are offering and so on. Therefore we invented money because money can be exchanged into everything. Our printed paper just can do this because we trust in the banks and the banks trust in the laws and the courts trusts in the government and the governments trusts other governments.
money doesn’t exist
You can eat money but it doesn’t taste good and it is very low-calorie. You can wrap it around your naked feet when its cold but i don’t think it keeps you warm besides you exchange money into a warm shoe. Money isn’t very helpful until you use it to exchange everything into everything. This little fact is the foundation of our modern lives and it has enabled the huge growth in economy in the last centuries. But to be clear money is nothing real! It is just painted paper with a magic function.
You don’t believe me? Here is an example: Mr. Penny founds a bank. Bob the constructor just finished a huge project and received 1 million$ and puts it all in his account at Mr. Pennys bank. Genie dreams of building a huge bakery and she tells Mr. Penny of her dream to raise the best bakery in town. Mr. Penny loans her 1 million$. Genie is so happy and contracts Bob the constructor to build the bakery for 1 million$ and pays him upfront. Bob brings the money to the bank and his account is now worth 2 million$. But how much money is actually at the bank? You got it: just 1 million$.
if you have 10$ in your savings it is just worth 1$
Now as always with construction works things get more expensive and Bob tells Genie that she will need another million$. So she asks Mr. Penny and get’s another million$ giving it straight to Bob and he puts it again to his account. Yes you counted correct still just 1 real million$ at the bank. Regulated by actual laws banks are allowed to do this another 7 times until Bob would have 10 million$ on his account but in reality it would be just 1 real million$. If every customers would now withdraw his whole money …
So is it all just a big fake? Our whole economic system is build on our fantasy, our ability to imagine the future. In our case the difference between the bank statement of Bob and the amount of money in the safe is covered by the imagination of Genies bakery which doesn’t yet exists. In a year from now the bakery of course will be opened and will sell thousands of cookies and breads every day and will grow and pay back the debts. If not …
money equals just the size of your imagination
With the concept of the credit we changed everything because until then money was so useful because it could exchange two chicken into a pair of warm shoes and both really existed the chickens and the shoes but today we exchange money into something that is just real in our imagination. And the reason for this is to finance economic growth. Without a credit Genie couldn’t build a bakery, no bakery no bread, no bread no construction work, no construction work no money and so on.
The concept of economic growth builds on top of the assumption that we will always consume more goods in the future than today. One reason for this growth was the growing population on our planet. In the year 1500 we traded goods worth 250 billion$, today we trade 60 trillion$ way more than we grew in population at the same time. Our trade volume is growing constantly because we are able to grow the existing cake. We invest in research and technology which let us invent things that we never had before and by this we grow the cake piece by piece. We have done this with cars when everybody just used horses, we have done this with PCs and Smartphones. Look at the stock price of companies, some are underrated and some are highly overrated compared to their real assets. Tesla for example is worth more than Ford but produces a fraction of cars compared to Ford. But Tesla invested in technology that every investor believes will grow our demand in the future. The difference between stock price and the real worth of Tesla is just based on our imagination of the future and Elon Musk is a master of imagination.
But Tesla employs thousands of people and pays them monthly salaries which they spend at Genies bakery (she expanded in the meanwhile all over north america with new credits from Mr. Penny). As long as Elon Musk is reinvesting every penny he earns from producing cars in solar panels and hyperloops and keeps his focus on research this will employ thousands of more people. The economy will finally grow. So can greed be good? Can egoism be altruism? As long as money is reinvested again and again and not parked in the accounts of some few mega rich billionaires it keeps everything alive.
your money is save … almost
So breathe deeply your money is save! At least as long as our network of trust remain stable. Hate them or not but we need financial institutions and we need at least predictable political systems like the USA or the EU. And to keep them both in the game we need economic growth … i think you can see the pattern.
Finally my two advices for you: buying goods is a great contribution to all of us because it keeps other people employed. But if you have some savings left after buying stuff always keep in mind 10$ at your account is just worth 1$ effective. So investing the other fictive 9$ in a business that has a imagination of the future doesn’t make you a penny poorer!
Thanks to Bill Gates and his reading list which is not always my taste but led me to the books of the fabulous Yuval Noah Harari.