The Problem of Money

The problem people are having with Greece and the world economic situation is that politicians, some economists and lots of others persist in thinking about economies and economics in terms only of the flow of money.

This is wrong in the sense that it is not useful to think of economies in this way unless all you want to do is abstract analysis. Thinking of the money gets you no where when things go wrong. The money has no will, the money has no purpose of its own, and the money can’t be fixed because it is simply an abstraction of what is really going on.

Economies are not made of money, or the flow of money. Economies are made up of people exchanging goods and services. When you get your head around that you can see that paying too much attention to the money is like watching the ripple patterns on the top of a tsunami. The patterns money makes moving around are indicative of some of the activity that is actually going on but — they aren’t the activity itself.

What’s the problem in Greece? Greece can’t pay its debts. Is that a money problem or an economic problem? The finance ministers of the EuroZone are treating it as a money problem; Greece doesn’t have enough money to pay its debts so loan it some money and restrict its activity to conserve money to pay future debts. It ain’t working and it won’t work and the finance ministers own analysts have told them so.

What’s the problem in Greece? Greece’s economy is in such a sad state that it can’t produce enough money to pay its debts. The economy is the problem, not the lack of money. Remember, the economy is made up of people exchanging goods and services. How do we get more people to exchange more goods and services then, in order to improve Greece’s economy? Once you ask the right question in the right terms, you have a chance of finding a solution to the problem.

2 thoughts on “The Problem of Money

  1. Yep. Paul Krugman wrote today:

    Yep, slashing spending in a depressed economy depresses the economy even more, and if you don’t have to, you shouldn’t do it — you should wait until the economy is stronger. Don’t take my word for it — just ask Mitt Romney. It’s a Keynesian world.

    But nobody listens to Krugman either.

  2. A Keynesian world? Is that like the guy who found his car keys in his beard? And his wife asked him, “But what did you do with the car, honey?”

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