Real Economics involves: 1. Wealth  2. Value  3. Money… assuming Capitalism as our philosophical System!

The real purpose of economics is the creation of real WEALTH for our Nation and the global society. What our Central Bankers are doing today is not helping to create any meaningful REAL ‘wealth’. Punching numbers in the computer (called QE or digit creation) does NOT create any real ‘wealth’. Nor do all the derivative contracts (now some $1.5 quadrillion) create any real ‘wealth’ for our society. Recently, Ben Bernanke and his monetary committee created multi-trillions of digital dollars (some say over 16 trillion) via his monetary policy and loan facilities. Mervyn King of England has created billions of digital pounds via his monetary policy. The Bank of Japan has created trillions of digital yen…and who knows what China and the others have done.

None of these actions produce one unit of real ‘wealth’ for our society. Yes, it may be meant for this result, but what are these policies actually doing within the marketplace? Does trading trillions of units of currencies (daily) via all our HFT computers create any meaningful real ‘wealth’? Are all the newly created units under the QE policies creating any meaningful new ‘wealth’ for the marketplace? Are all the speculations and bets between traders in the options markets creating meaningful new ‘wealth’ and growth for our economy? So what is REAL ‘wealth’ in economics? What is the goal of economics?

1. WEALTH:   We live on a planet with many natural resources (oil, gas, iron, uranium, lumber, etc.) plus all the other basic agricultural seeds, fruit seeds, beef cattle, fibers, and all kinds of similar raw natural resources. To improve our standard of living and eventually to create prosperity we need to constantly develop these natural resources into all kinds of finished goods and creative products for people to enjoy and consume. We now have the technology to be much more productive than in earlier periods of our history. In fact, much of our ‘wealth’ creation today is done via robots and computer aided devices. The potential for creating worldwide prosperity for everyone is available if we understand economics and its processes. Wealth creation from raw natural resources is our starting point. This is the purpose of economics and everyone needs to understand this purpose and goal as the fundamental reality of economics. What additional concepts are necessary to understand to further our goal of ‘wealth’ creation?

2. VALUE:   Under our system of philosophical Capitalism, we own property and the means for the production of real ‘wealth’. Private ownership means that real ‘wealth’ needs to be produced and then traded, exchanged, and distributed to all the people for their consumption. Under Capitalism, units of real ‘wealth’ can be broken down into units of ‘value’. For example: If a field of grain is real ‘wealth’, then bushels of grain (wheat, corn, oats, etc.) could be classified as units of ‘wealth’. Each bushel has ‘value’ in exchange as well as ‘value’ in use. ‘Value’ is a key concept of economics which is derived from the prior concept of ‘wealth’. As we exchange and trade our production to others we do this with the understanding that ‘value’ is being exchanged or traded. How is ‘value’ quantified or denominated in today’s world of Capitalism? What do we need to invent to measure the ‘value’ of our real wealth?

3. MONEY:   The history of economics starts with a barter society. Real ‘wealth’ is created from our natural resources and then this wealth is exchanged, traded, and distributed to the people. To facilitate the trading and exchanging process between people and nations we need to develop a concept which can measure this wealth in units. For example: What is a bushel of wheat worth? What is a pound of butter worth? What is a barrel of oil worth? Etc. We can subjectively exchange items for items but this eventually becomes slow and cumbersome. Wouldn’t it be wise to invent a unit which could be used by everyone to quantify worth or ‘value’? What could we invent?

History shows that people have invented all kinds of ‘things’ for the measurement of ‘value’. Tulip bulbs were used in the Netherlands, nails were used in Scotland, deer skins were used in Tennessee, wampum was used by the Native Americans, silver was used by the Spanish, the British, and the Swedes…and the Colonial Americans used all of the above prior to our formation. Eventually, as math and numbers became the obvious means for calculations of ‘value’, units of numbers were given specific ‘names’. Our ‘dollar’ was a ‘name’ chosen by our founding Fathers of money back in 1785. A ‘name’, however, has no substance or meaning without some definition. What does the ‘name’ DOLLAR mean without a definition? What is a ‘name’ without a definition? Where does a ‘name’ derive from?

Thomas Jefferson, the key founding Father of our monetary units recognized that the ‘name’ DOLLAR needed a specific definition if ‘value’ was to be calculated or measured in the marketplace. So how did Thomas derive a definition for the ‘name’ DOLLAR? What Thomas did was observe what the people were trading and exchanging in the real marketplace. He then concluded that most people viewed the Spanish silver coin as the most desirable ‘thing’ for calculating ‘value’. This gave Thomas the idea to define our unit, the DOLLAR, in terms of the silver content in the Spanish silver dollar. This led to our American dollar being defined as 371.25 grains of silver (the same content of pure silver as was used in the Spanish silver dollar). Why was this definition meaningful to the people in the marketplace?

What now could happen was a minting of new silver coins with the ‘name’ DOLLAR’ and then everyone could use these coins for exchange in the marketplace. Prices could emerge from the trading process for all goods and services via this new MONEY (the American silver dollar). As prices became known and established…VALUES became established for all products, goods, land, machinery, and services. All natural resources could now be ‘valued’ via this new money scheme which Thomas Jefferson and eventually our Congress adopted. As new silver coins were minted and entered the marketplace, prices could adjust and growth could occur. The key psychological ingredient for all this to occur was marketplace CONFIDENCE.

As money and confidence grew over time, more goods and services emerged from the marketplace. As new creativity emerged more products, things, and services emerged. All this gradually led to growth and prosperity for the overall society. As more natural resources were discovered and developed, new items could be created and offered to the marketplace. A growing economy emerged with sound ‘values’ and sound ‘money’. The key ingredients to a growing and prosperous economy were ‘wealth’, ‘value’, and ‘money’. These are the basics of Economics 101.

What we have for economics today is a distortion within all these three categories. Most economists today seem to lack an understanding of WEALTH, an understanding of the concept of VALUE, and an understanding of the concept of MONEY. Today we have units of money called ‘dollars’, ‘pounds’, ‘yen’, ‘euros’, etc. but with no substance or meaning to these NAMES. What is a ‘dollar’ today? What does the ‘name’ DOLLAR denote? Why are units, called ‘dollars’, created OUT OF NOTHING today? Why are all VALUES mostly distorted and purely subjective (many call this ‘price’ discovery)? Why is most WEALTH today viewed as accumulating more digital currency units (virtual units of imagination) rather than real material products? What is now needed is a BACK to BASICS mindset. This missive is just a beginning! Enjoy! http://kingdomecon.wordpress.com.