Web of Wealth - Latest Forum Posts

RE: The real cause of the current global financial chaos - Trevor E Hilder

Fri, 07 Oct 2011 18:15:22 +0100

Dear Barry,

It seems that the system doesn't do what it is supposed to do.

My simple understanding is that the purpose of financial services is to efficiently allocate surplus capital to productive enterprises, such that new wealth is created, some of which is returned to the investors in those enterprises. The "middle men" are supposed to earn their rewards for their expertise in this process of efficient allocation of resources.

But the system allocates vast amount of capital to enterprises which don't need any. For example, Apple now has more cash on hand than the US government and just keeps accumulating more. Microsoft brings in about a billion dollars of cash every month. The same applies to many other technology companies, hardly any of which pay dividends to their investors.

Meanwhile, Chinese workers get paid about 10% of what people in Western Europe or the USA get paid, but save about 40% of their income. Those savings get recycled into lending money to people like us, who are unlikely to ever pay it back, so that we can get into more debt to buy the products manufactured by these Chinese workers.

It certainly looks like a very weird system!

RE: The real cause of the current global financial chaos - Barry Clemson

Fri, 07 Oct 2011 17:58:47 +0100

Trevor, I am no expert on the financial system, but it seems to me that your analysis is right on. The entire structure of Wall Street / stock markets seems to me to be a bit of a shell game. Given POSIWID, then the purpose of the finance system seems to me to be largely to make bankers and brokers obscenely wealthy. It also seems to me to have little to do with the actual production of real wealth, i.e., stuff that people need. Now, I understand that businesses need capital to expand, but again I don't see that the current system is necessary (or even very helpful) in that regard. The Mondragon worker coops in Spain do very nicely with their own bank and they start new businesses all the time and hardly ever have a business fail. The current system seems to me to have only two things going for it: 1) most of us still believe in it and 2) huge numbers of us have our money and retirement funds tied up in it.

RE: The real cause of the current global financial chaos - Trevor E Hilder

Fri, 07 Oct 2011 10:12:02 +0100

Here's my take on this subject:

Whenever something unpleasant happens to stock prices or the banking system blows up, lots of people ask "What effect will this have on the Real Economy?".

But what is the Real Economy? The Financial Times Lexicon says "The part of the economy that is concerned with actually producing goods and services, as opposed to the part of the economy that is concerned with buying and selling on the financial markets."

Being a simple-minded soul, I did the obvious thing and looked up Unreal Economy in the same place. I received the answer "There were no results for your search. Please try again.".

So there is no such thing as the Unreal Economy, according to the experts at the Financial Times. But actually there is, and its unreality is the cause of our current distress.

Basically, the whole financial system is nothing but a bunch of symbols which are supposed to reflect the underlying reality of wealth creation. During reasonably stable times, this works pretty well, but when a disruptive change to the processes that create wealth happens, the symbolic system becomes detached from the underlying Real Economy. This can have catastrophic consequences.

The global economic system underwent massive disruption during the 1920s as a result of the spread of the techniques of mass production pioneered by Henry Ford and the consequent development of the Consumer Society. The resulting leap in productivity led to a delusional bubble in US stock prices which crashed in 1929, leading to the Great Depression. Ten years of agony only concluded with the outbreak of the Second World War, the deaths of 55 million people and the creation of a new world order.

The Bretton-Woods financial system was built to manage that new world order and it worked pretty well until Richard Nixon started dismantling it in 1971, when he closed the Gold Window, detaching the US dollar from the price of gold. Since then, there has been a concerted campaign to dismantle controls on the free flow of capital, based in the bizarre belief that markets don't need to be regulated. To add to the resulting instability, China has rejoined the global trading system, the Soviet Union has collapsed and the internet has been invented.

The Japanese stock market crashed and burned in 1990 and has never recovered. The "experts" of the Western World decided that the Japanese are weird and incapable of running their financial system and that "it could never happen here". But perhaps the Japanese were just pioneers, after all - 20 years ahead of us?

It seems to me that the experts on the Great Depression such as Ben Bernanke actually haven't a clue what caused it, because their eyes are fixed on the symbolic system while they studiously ignore the underlying reality. As Jalaluddin Rumi said in the 13th century, they are like men watching the movements of a sleeve, not realising that the sleeve moves only because there is an arm inside it. They pay no attention to the existence of the arm, and imagine that rearrangements to the sleeve will obtain the outcomes they desire.

When the Real Economy has changed as dramatically as it has since the 1970s, the symbolic system that is supposed to mirror and manage it needs to be re-designed. Deliberately dismantling the old system without bothering to build a new one just creates massive instability and chaos. The experts in the old system are not qualified to do this and don't even recognise the need to do so.

We need to rethink what wealth is and design new systems that accurately measure it. That means we need to design new forms of money.

In a world where we all have powerful interconnected computers in our pockets, that money needs to work through them. Lots of the work on this new financial architecture has already been done. Mobile money is normal in places like Kenya and Turkey, while the "developed" world pays no attention to it.

If we devoted a fraction of the resources squandered on bailing out defunct banks to the matter, we could have built a viable new financial system already. it isn't that hard, if we start by asking the right questions, instead of tinkering with a clapped out system that makes no sense.

Please join the debate by registering as a user here and responding to this rant!

The real cause of the current global financial chaos - Trevor E Hilder

Fri, 07 Oct 2011 09:23:42 +0100

What caused the Great Depression of the 1930s, Japan's Lost Decade and the current chaos in the global financial system?

Should We Love Hedge Funds? - Trevor E Hilder

Tue, 23 Mar 2010 05:24:56 +0000

Hugh Hendry, the manager of Eclectica Asset Management thinks we should love hedge funds. In an interview in today's London Independent (see http://bit.ly/cV8izk ), he says:

"Say I buy insurance on your house burning down. I don't live in your house, so why on earth would I want to have anything to do with any future outcome there? Well, I'm not dumb. I give great consideration to spending mine and my client's money. So if I'm buying insurance that pays out on your house burning down, then there's a strong probability there's a fire hazard. I suggest you do something about it. You would perhaps discover that your wiring was faulty and replace it. If you do, my curiosity and information has helped to prevent a catastrophe."

I was astonished to read this. Dear Hugh is supposed to be a very intelligent man, but he seems to have missed a few important points here:

1) If I heard that someone had done this with regard to my house, I would instantly recognise that he was either a criminal or mentally ill. Any normal person who realised there was a fire hazard would tell me about it, so that I could take necessary action. Only a deranged person would instead take out insurance, betting that my house was going to burn down.

2) No insurance company would allow someone who has no material interest in my house to insure it against burning down. This is because they recognise that to allow this would encourage people to take out such insurance, then burn my house down.

So, we are left with the following possibilities with regard to Hugh Hendry:

1) He is stupid.

2) He is mentally ill.

3) He is ignorant of elementary facts about how insurance works.

4) He is a criminal.

Maybe there are other ways to interpret this, but I can't see what they could be. If you can, please help me out!

Whatever is the case, I certainly would not wish to invest in a fund managed by this chap.

RE: Needs Vs Wants - John Smith

Thu, 18 Mar 2010 10:23:28 +0000

It's not always the case that life is cheap. Sometimes it's the exact opposite and life's too expensive.
Check this out: http://www.commondreams.org/view/2010/03/18-0
Once you stop buying you are useless in America. As one blog respondent succinctly put it.

RE: Needs Vs Wants - John Smith

Sun, 14 Mar 2010 08:24:00 +0000

I've just re-read what I wrote about WHIP.
I think I'm on to something that's at the heart of our social inequality. So watch this space. In the mean time check this out:
http://www.guardian.co.uk/business/2010/mar/14/wealth-warning-money-bad-society

RE: Needs Vs Wants - John Smith

Thu, 11 Mar 2010 02:21:25 +0000

I'll try, Frank.
RHIP is a first-day lesson I learned when I joined the air force when I was fifteen - Rank Has Its Privileges. It's the well-understood basis of 'one law for us, one for them' . And it's essential in maintaining the 'good order and discipline' that's so close to the military heart.
Wealth too has its privileges - the same rules apply - and, as an acronym, WHIP would pretty-much sum it up. WHIP is to empire as RHIP is to the army.
The difference between this country - even back then, some fifty-some-odd years ago, and Africa, a decade ago when I was last there, is what WHIP lets us take for granted. By 'take for granted' I mean things that we miss when they aren't there or when they aren't done properly. Things that effect our lives - food, shelter, clean water, utilities - all the ordinary everyday stuff that we do, in fact, take for granted.
More centrally to my point here, WHIP lets us (more or less) take for granted the rule of law, the highway code, the NHS, uncorrupt officialdom, MOT tests, elected politicians, Health and Safety considerations, and expected levels of both physical and psychological maintenance right across society. And lots more besides.
WHIP also engenders personal expectations in us. To some extent leaving us free to 'follow our dreams' while at the same time being safe in the knowledge that the rule of law and due process apply right across the piece. Shared by all, WHIP is the basis of the level playing field of myth.
However we might feel about these things, however unsatisfactory we might think them, they nonetheless exist and function. If you get murdered in your bed you can be pretty sure something will be done about it, that the law will have its day. It's my experience that this wasn't always the case in Africa.
Imagine the outcry if a crack equivalent to the Grand Canyon developed across the carriageway of your local bypass. Imagine the outcry if an old, unmaintained, overloaded mini-bus kills upwards of a dozen people when it plunges into it. Imagine the outcry when the first people on the scene, powerless to help, can only relieve the dead of what pitiful possessions they had. Imagine the outcry if everyone was no more than a resource.
For me, WHIP in Africa was rather like being in a mobile gated community. As well as my white face, my wealth and my European-ness being a first-line defence, WHIP carried the deeply psychological understanding that I was an individual. That I was, unlike most of my African colleagues, not fungible. And that, if anything happened to me, someone more powerful even than the local big man would be on the case and there would be trouble. And I was just an ordinary bloke. Plain John Smith.
WHIP is a different world.

RE: Needs Vs Wants - Frank Wood

Sat, 06 Mar 2010 17:55:44 +0000

Hi John,
Could you expand on what you mean when you say that life in Africa is pretty cheap?

Transparency between systems - Richard Veryard

Mon, 15 Feb 2010 16:46:02 +0000

Aidan defines transparency as "the accurate understanding by all parties to a transaction, or a set of transactions, of the degree to which people’s wants and needs were met". http://www.webofwealth.org/forum/topic/13511

I can see how this makes sense if we have a single flat global economic system. However, if we have a complex and diverse system-of-systems, then transparency within one system doesn't necessarily entail transparency between systems, either ethically or practically.

For example, suppose a postgraduate student ("Belle de Jour") wishes to finance her PhD studies by prostitution. Should the source of her "ill-gotten gains" be visible to the university when she hands over her tuition fees, or is she entitled to some privacy / discretion about this? Similarly, a Sherlock Holmes story ("The Man with the Twisted Lip") features an actor who earns a fortune by begging, but doesn't wish his family to know.

There are transactions in the prostitution system that lack transparency - presumably the clients don't know Belle de Jour's real identity - and she can transfer her share of the wealth created in the prostitution system into other systems without the money being visibly tainted. (Unless perhaps Tesco can infer her secret profession from her purchasing patterns.)

We might say that there is something untrustworthy about such underhand ways of earning money. On the other hand, we might think it a good thing that the economic system-of-systems provides discreet and anonymous space for people to generate wealth in ways that lack "social respectability".

On the other hand, if a con artist or merchant banker offers to invest an old lady's life savings, and uses her money to purchase a parcel of dodgy debt, some kind of transparency is the very least of our demands.

What's the difference here? In the one case, we have a private citizen engaging anonymously as a principal in wealth creation. In the other case, the con artist is supposedly acting as an agent of the old lady. So is the demand for transparency consequent on the agent/principal relationship?

Clearly there are many risks in financial transactions and in economic relationships more generally. However, I am uneasy about a universal demand for transparency as a blanket mechanism for all sorts of different risks, particularly as it seems in some cases to run counter to demands for privacy.

RE: Needs Vs Wants - John Smith

Wed, 03 Feb 2010 11:54:08 +0000

Over the years I've spent a long time working in Africa where, compared to Beighton, where I live now, life is pretty cheap. Always, though, whatever the African context, it was transparent that my life wasn't as cheap as one of my African colleague's. Reflecting again on the lot of ordinary people in Haiti I can see the same equation at work. Are we westerners worth more because we're wealthier? Or are we wealthier because we're worth more?

RE: Measuring wealth in practice - Aidan Ward

Tue, 02 Feb 2010 03:18:51 +0000

Transparency, wellbeing and economy

Transparency is fundamental to the functioning of an economy. We should understand transparency as the accurate understanding by all parties to a transaction, or a set of transactions, of the degree to which people’s wants and needs were met. Why can we only have a successful economy if people know what is going on?

It appears that it is universal in human history that people need to get things wrong before they can understand the way things really work. As Joni Mitchell would have it, “you don’t know what you’ve got till it’s gone”. The Greek root of the word economics means the care of the household, the way a noble family and all their relatives, workers and slaves depend on each other in complex ways so that everyone’s needs get met: a system of duty more than a system of exchange. The notion that economy is about care we have lost, to replace it with a monster that dominates our lives and which cannot be appeased. We need to realise that this is a monster of our own creation, that we have imagined it into being.

An economy is, and always was, a system. As such we need to study how it works systemically. We cannot simply analyse it because that is to break it into parts that no longer work as an economy. For instance, economics as a discipline long used an abstraction called economic man to stand in for people in the system. Or it looks at supply side and demand side as though producers and consumers were not the same people. But the system does work, inasmuch as it is allowed to work at all, by some people creating goods and services that other people want, and in return having their own wants and needs met to a degree. There is a system of arbitrarily high complexity that somehow connects people together. It is a social system, and as such has a complexity higher than we can ever fully understand. Hence the need for models, and hence the need to reclaim the streets from the economists and their monster.

The first key insight for this note is this: if we look at how well people in the system can signal their needs and wants we will be able to understand the scale of the system, both in terms of the number of potential transactions and in terms of the degree of satisfaction people are able to obtain from the system. The more needs that can be signalled, the greater the fecundity of the economic system. The more I can distinguish what I really need from some generalisation or assumption on someone else’s part the better my needs can be met.

If we do a little historical excursion, we can see a bit how this works. The Greek household met the needs of its chief citizens rather well, and probably its slaves were well off compared to the under-classes in today’s societies: they had security at least. The system between economies was less caring: one economy was wont to raid another for women and metals that could not be sourced elsewhere. Economic systems became more pervasive and integrated as trade expanded though we should remember that this was patchy. In the Middle Ages global trade coexisted with societies including England where local barter was the only exchange and money restricted to the nobility. Economic expansion (increased fecundity) is generally associated with opening up new markets, for instance by empire, and economic decline by losing them. The trick of understanding that the market inside an existing economy can be expanded by increasing transparency is generally precluded by the politics of self-interest and class.

Traditionally economic development has been thought to be restricted either by the availability of markets, as above, or by the availability of capital. In some parts of the world micro-finance can release huge economic potential. Other experiments include de Soto’s work on legal property rights which can also release huge potential. Here we are interested in a less noted deficit, in the transparency needed to signal needs and the transparency needed to understand how the system works to fulfil them. Most past and present economies have been corrupted to favour the interests of classes or corporations. It the economic mechanisms, largely the system of money and finance that allow this to be done, and of course it is done at the price of transparency. People may not know how, but they know that their economic contribution is undermined and exploited in ways they have no control over.

Mechanisms for transparency

We need to rehearse some basics. If we have an economic system (imagine a small one) where money is used as a medium of exchange, then so long as there is enough money in the system for all the potential exchanges to take place, then the economy works in those terms. The things people want to exchange can be exchanged, with money making the matching and circulation of transactions simpler. (If there is not enough money then the introduction of arbitrary tokens as money can release economic potential: this has been demonstrated many times in many places.)

To a degree in this system we can use the money that people are prepared to pay as a system for signalling the value people are prepared to put on having their needs met. This is Adam Smith saying that this signalling is better than systems of central planning of production. Consumers compete for supply thus affecting price and suppliers do so too. However, this is not the system anyone would design to allow all the players in a system to understand other people’s needs! Neither is it the system that you would design as a clearing house to make sure that basic needs were met. For some reason we have not gone back to redesign the basics for our age, preferring to mumble mantras about markets and regulation.

The central issue that has become counter-intuitive to us is that money as a medium of exchange is not a cost. If all the relevant exchanges in an economy are transacted, people’s needs are met by those exchanges, by definition. The money plays the role of a catalyst, allowing something to happen yet itself being the same afterwards as it was before. So if we can signal and fulfil the relevant exchanges, then the job is done. It is just this catalysis that is missing in the economies that we know, and it is missing because of the corruption of our systems and because of the role of money in social control. No-one is measuring the lost economic productivity that occurs because we misuse the money mechanism.

If we want to signal our wants and needs, we need a way of doing so. We have a range of wants and needs that are actually incommensurate, so we probably want different signals for different things. Suppose for example that top of my list is job satisfaction, a clean environment, and access to real education. We notice immediately that we have no way of saying this. Suppliers, particularly corporate suppliers and government, amplify their signals of what they would like to supply with endless advertising. So dominant is this mode that it tends to corrupt people’s authentic sense of what they need and want. This corruption makes the system more opaque: we cannot tell what people need and want. The corruption also reduces people’s sense of participation in the system, their voluntary engagement in meeting other people’s needs.

If we want to know at the end of a “cycle” which needs are not being met we also have no way of knowing, because needs have not been signalled. For an economy to deepen and become more fecund it needs to engage with unmet need. In a timebank system, people exchange an hour for an hour: maybe an hour walking someone’s dog for an hour’s help with homework. These systems show clearly that there are unmet mutually advantageous transactions, and that they don’t need to be supported by money. Indeed, money seems to be in the way. My expectation is that in practice there are many shades of grey between “commercial” transactions and determinedly altruistic transactions. From where we stand now it is impossible to estimate how many economic transactions are there solely because of the need to hustle in a corrupt system to survive. If we focus on the true economy, the meeting of everyone’s needs by everyone else, then the picture will shift dramatically.

First steps

We have a widespread need to sample other people’s needs and wants. Just about any business relationship can be monitored by any simple mechanism to ascertain how they are reacting to that relationship on a regular basis. The graph of such samples has a shape that contains information different in kind from piecemeal satisfaction surveys. So the basic first step is to identify an ongoing need and arrange to monitor its changing level. Correlating those changes with changes in the wider system starts to reveal how that corner of the real economy actually works.

We are also getting close to having multiple currencies by default. Carbon trading and other international regulatory schemes show the need to track multiple indicators of the state of the economy separately. When the Dollar collapses we can expect these trends to come to the fore. There is absolutely nothing preventing local economies from starting to sample and track separate aspects of their operation and performance. If these schemes can cross over into local LETS schemes and other alternative currency schemes then they will give a much better picture of local economic potential.

The experience of local alternative currency schemes is that it is necessary to encourage them by getting currency to circulate faster. People who end up tending to accumulate currency are encouraged to put it to good use to keep the circulation going. These schemes do contain lots of information about the working of the real economy and its potential that is completely hidden by the opaque money system. The education for a local community of running such scheme is precisely that needed for them to become responsible economic citizens: not rational economic man but someone capable of making sure the system works to everyone’s advantage.

Measuring wealth in practice - Aidan Ward

Tue, 02 Feb 2010 03:17:28 +0000

RE: Needs Vs Wants - John Smith

Thu, 28 Jan 2010 14:43:15 +0000

It's surely a measure of our individual and collective wealth that so many of us want to do whatever we can to address the needs of the earthquake-hit people of Haiti. It's a better measure of our wealth that we have the power actually to do something. It's an even better measure of our wealth to suppose that, in the face some similar natural catastrophe - earthquakes of Haitian magnitude are pretty much out of the question round here but, seeing how New Orleans was trashed, we shouldn't discount anything - we aren't as likely as Haiti to have to depend on the kindness of foreigners for our deliverance.
Wealth is power to address both wants and needs. If we so choose.

RE: Needs Vs Wants - Frank Wood

Wed, 02 Dec 2009 18:37:02 +0000

I know it sounds a cop out to say that it's all relative but it er is!

I remember my Grandmother hooting with laughter when a lady who she was doing some charring for said to her "My sister is so poor that she can only afford one maid!" That became a family joke. And yet the lady actually meant it and we can smile indulgently at her foolishness.

Yet we are no better than her because if we took a dip in our standard of living we would complain that we were poor.

For me my health is my wealth. After that enough food in my belly, a roof over my head and clothes to keep me warm. Ok a bit like Maslow's hierarchies.

All other needs after that are for me wants in varying degrees.

I remember my Dad saying to me "When you get to a certain age, not much matters a damn" and I'm beginning to understand what he meant :-) He didn't mean it in a negative way cos he kept himself busy in various ways.

In any case why do we want to measure wealth? Is it for the benefit of those that don't come up to some sort of benchmark and if that is so wouldn't that make them very unhappy?

This reminds me of a story about a woman who wasn't unhappy until someone pointed out her wretched condition. Can't remember the details of the story though.

RE: Needs Vs Wants - Trevor E Hilder

Tue, 01 Dec 2009 13:02:39 +0000

Hi Frank. Thanks for joining in!

This is a somewhat big question, but I will make some observations which I hope will provoke further thoughts:

We are all aware of the difference between our needs and our wants, even if we are pretty vague about what our needs actually are. We tend to be pretty precise about what we want though! :-)

Every smoker in the world knows they want a cigarette, but very few now believe that they need one (although it is not that long since that distinction was not generally made).

Likewise, plenty of people know they are overweight because they eat too much, but they can't control their desire for food.

Information changes our ideas of what our needs are. So smokers know they don't need a cigarette, because they know nicotine is addictive and that smoking will probably make them ill if they keep doing it.

Maslow said there is a hierarchy of needs, with basic stuff near the bottom and more subtle things higher up. He had something called "self-actualization" at the top, but what this means clearly depends on what "the self" is. I don't think he had a lot to say about that (although I do not profess to be expert on his work).

If people are starving, it is easy for anyone to understand what they need, as well as what they want. Before the Second World War, the majority of people in Western Europe didn't have enough to eat, whereas just about everyone in the USA has had enough to eat since before the War if Independence.

Now that our standard of living has risen, it gets harder to identify what our needs are. This difficulty obviously means that measurements of our standard of living are extremely hard to do meaningfully. I must confess that it baffles me that anyone seriously believes that Gross Domestic Product (GDP) is a useful measure, given that it can easily be seen to rise as a result of degradation of the environment.

For instance, if my car gets vandalised, the processing of the insurance claim and the repair of the car cause money to circulate which would otherwise not have done so, so GDP goes up. If I were to divorce my wife, sell the house and borrow money to buy another one, this would be measured as an increase in GDP too.

The fact that conventional economics just chooses to ignore this is downright weird.

It seems to me that we need to study what real wealth is before we can claim to be measuring anything useful. But most economists just don't want to think about it.

In order to understand wealth, we need to examine the question of the distinction between needs and wants. In order to do that, we have to look at our models of who we are. I think this study needs a new name, since it currently doesn't exist, except scattered across dozens of different existing disciplines.

Maybe it ought to be called Eudemonics - the study of well-being?

Needs Vs Wants - Frank Wood

Sat, 21 Nov 2009 09:16:37 +0000

There is a problem in defining "needs" and "wants".

One persons need is another person's want.

Need is in the eye of the beholder.

And so on.

So is the definition of needs and wants dependent on the individual or the cultural context?

Or is there an absolute definition?

Frank

RE: Where did the money come from ? - Trevor E Hilder

Sun, 01 Nov 2009 07:39:45 +0000

Dear Aidan,

I don't think the value of the painting is a red herring. It is the subject of this topic, and I will come back to that in a moment.

The Spanish repatriation of gold & silver from the New World is a very different matter, worthy of its own topic. It is true that all that gold and silver ruined Spain, but it stimulated real wealth creation in other parts of the world. According to Felipe Fernandez-Armesto in his "Millennium; A History of the Last Thousand Years", half the silver bullion mined in South America ended up in the coffers of the Emperor of China, so it stimulated economic activity right across Eurasia. It also kick-started the development of England and its colonies through the activities of the Elizabethan licensed pirates, such as Drake and Raleigh, who stole from Spanish galleons and invested in more productive enterprises.

So, there might be an interesting parallel between the role of Spain in injecting liquidity into the global economy, and the USA today, which has injected vast amounts of liquidity in the form of dollars, which have kick-started the econonic revival of China and India, which were the two greatest centres of world economic power right up until about 1830. If this is so, it does not bode well for the future of the USA!

Meanwhile, back on topic, the da Vinci painting has value very different from that of the gold and silver plundered from South America. Gold and silver have intrinsic worth to just about anybody offered them in the form of coinage, but an oil painting's value lies in the fact of its uniqueness. The painting only shoots up in value because paintings by da Vinci are so rare.

The monetary value reflects the value system of a handful of wealthy individuals, looking for a home for their excess funds, and a small coterie of art experts, with some overlap between the two groups. We are supposed to believe that there is some sort of spiritual value in a great work of art, but exactly how this connects with its value in the art market is hard to understand.

Try the following thought experiment:

You may have heard recently that a new generation of laser printers has been developed which actually "print" three dimensional objects. So you can draw an object using Computer Aided Design software, then the printer will make the object. There is no technical reason why it should not become possible to scan a da Vinci painting and construct a perfect copy of it by assembling it from atoms and molecules. The cost of doing so for the first time would be massive, but then the cost of the technology would drop exponentially until we could all own such a device. So we could order a copy of the "Profile of the Bella Principessa" from Amazon and our printer would assemble it for us instantly.

So how much would the original painting be worth in such a world?

RE: A Question for Our Time - Aidan Ward

Sat, 24 Oct 2009 09:49:03 +0100

To pick up this thread again, there is a potentially measurable real number that is significant. If a firm makes goods, or trades, there is in general a gap in time between when it acquired what it needs and when it can sell on its added value output. The time over which value is tied up in the process needs to be bridged by finance, otherwise output and value generation is artificially limited.
If we take this process throughout say a national economy, we have a measure of how much money must be in circulation to allow the real economy to function normally. If this stock of money is maintained there is no inflationary pressure from extending the money supply.
As I understand it, the political pressure to count everything anyone does, including civil servants as "adding value" has debased these measures to the point where if you divide the totals by the working population everyone is ridiculously productive. How would a correction happen?

RE: Where did the money come from ? - Aidan Ward

Sat, 24 Oct 2009 09:37:54 +0100

I think the change in value of the painting is a red herring. The classic case of found value that we know about is the Spanish repatriation of gold and silver from the New World. As I understand it, this repatriation essentially bankrupted the Spanish economy by displacing the real economy.
So if enough valuable paintings were found and the excess of supply did not reduce the value of the finds (highly unlikely) then enough money would move out of other things into art to destabilise production. Just like the current little local difficulties. This would essentially be option 3.
One of the interesting and genuinely new issues in economics is the completion of the world economy. Whereas before one could find new markets and even plunder their assets, now there can be no externalising of any aspect of the economy. It may be that the underlying sense of the financial instrument explosion is to find areas of trade where the world economy is not yet complete.