I will attempt to teach you some basic rules of economics, concepts, and help you better understand what money is, and some useful knowledge about human nature. I hope to better inform you about how people do business, do transactions, why people want money, and why money is so important.
So, what the fuck is money? Money is just a mere piece of paper, right? A little piece of metal that is nickel, silver or gold? What good is money to you anyways why would I want it? You cannot sleep on it, eat it, it does not keep you warm, so why would anyone want it?
Money is basically a societies debt to the individual. Let me give you an example, let’s say someone is making a pizza and giving the pizza to a person and in return he got a piece of paper worth 20$. Is a pizza worth 20$? You are free to decide what that 20$ is worth, you could only sell pizzas for 30$ or you could think that a pizza is only worth 10$.
But why do we need money? Why can’t everything be free? It is quite simple why every product and service cannot be free because people respond to incentives, not what is morally right. You would not want to make a pizza for everyone on your planet for no reward; what happens if you burn yourself in cooking the pizza? Why should you make everyone a pizza other than it would be very kind? Could you even possibly make billions of pizzas on your own? You could quite easily burn yourself making a pizza, and if you were to make a pizza for everyone on the planet everyone would not even want it the same as some people are vegans, hate pineapples on their pizza and may really want it a particular way. If you were to make everyone in the world a pizza for nothing in return, you get nothing out of it. If you really think about it something as simple as a pizza is really quite complicated. But people are even more complicated than pizzas.
So that is just the basic economics that you should have learned about in school now I will teach you the 10 principals of economics.
- 1) People face trade-offs; if you decide to do one thing you could have decided to do something else. For example, if you decide to see one movie “Godzilla” you could have seen something else instead like “mad max: fury road”. This goes with the American saying that “time is money”.
- 2) The cost of something is what you give up to get it; if you paid 20$ to see “the terminator” you could have spent that money on food, to save to buy land, a car or a house. The word opportunity cost means the value of time you used making money that could have been spent better.
- 3) Rational people think at the margin; in other words, it means to think about your next step forward. Some people are too busy going to Collage and working and have to decide to take time off of work so that they can study more and not waste the money they spent going to collage while they are working to pay it off. Businesses must determine how many products they can sell before they create products.
- 4) People respond to incentives; basically, people respond to the carrot and the stick, People respond to positive incentives if you make a product cheaper or come with a bonus product people will surely buy more, if you make buying a car more convenient just pay for it and the car is all your right now than people will buy more. People also respond to negative incentives if you have to pay extra for a product people tend to buy it less and if you could go to jail for committing a crime people will surely do it less and if you make it more tedious and hard to do something like you can only buy a car if you fill out 15 pages of paperwork, pay for and pass a test, people will buy less cars.
- 4a) People can respond differently to incentives than intended; For example, in the book (Dubner 2005) Freakanomics “Chapter 4 where have all the criminals gone?” “The book talks about how allowing people to take abortion lowers the crime rate more than a state with abortions being illegal and thus having higher crime rates.” There are many issues in the world global warming, poverty, sexually transmitted diseases, crime, lack of freedom and ignorance but sometimes a solution can create another bigger problem, it could not work as you intend it to, and if you don’t have a good idea on how people could respond to positive or negative incentives you’re going to have a bad time and likely not get what you want unless you really think about it.
- 5) Trade can make everyone better off; Without trade you would have to make everything all by yourself, let’s say you wanted a simple loaf of bread and you had nothing but your body. You would have to go find some wheat or plant some wheat and grow it in the right season then you would need a way to crush the wheat into flour then you would need water with the flour to make dough and then you would need a fire hot enough to bake the dough into bread and for it to be a loaf of bread you would need to bake the flower into the right shape. With trade you could do something far simpler like only bake bread, while others only farm wheat and only turn wheat into flour and they work together to produce more bread faster. Why would people work together? For money to buy things that people need and want. When the economy grows, society grows, our knowledge skills and resources improve, you can then add yeast to bread to make it softer and fluffier, you can add sugar to make the bread sweeter, add salt so it doesn’t rot as fast, and you can have it in a bag and buy it pre-sliced and it can still improve and get bread faster easier more quickly if you trade with others in a society. Trade rewards people who have something to offer to meet peoples wants and needs with money for the greater good of humanity.
- 6) Markets are usually a good way to organize economic activity; Markets are defined as places where trade happens. Freedom in markets is a great way to organize economic activity, however the freedom to buy and sell whatever product and service you want would make a great economy where anything you have could be traded, sold or bought, your money would be worth far more than other nations money where the government would restrict what you can and cannot buy and would have taxes on every sale, and if you are a business you would have to follow laws, pay fees and give up your freedom to sell whatever the government does not want you to sell so a free market economy is surely better than a restricted market however a pure free market means that you would be allowed to be free in profiting from crimes and that would then reward people who steal enslave and control others. If you ask me, The market needs some restrictions on free markets in a small government.
- 7) Government can sometimes improve market outcomes; Government absolutely can make things better for the economy, a government could help make things better for the economy by protecting business owners, consumers from criminals or from wars of people from other nations and ideals, however it can also make things worse for the economy by taking away freedom in the market for example probations, taxing, making laws in starting businesses in an industry to help a company have a monopoly. The government can tax business to make people’s lives better fairly based on majority rule to vote for something like the government should spend money on national defense, protecting the environment, making things fairer for the lower classes and people born unequal, and funding good ideas however the government could also vote to repeal laws, kill every billionaire and give that money to the people who voted, tax the rich more, tax the middle class more or to tax the poor more.
- 8) A country standard of living depends on its ability to produce goods and services;
India is a third world country that in 1998 had a per capita yearly average income of 1,700$ while in 1998 the USA had a per capita average of 31,500$. The poor in India have a lower quality of life so lower life span, less freedom, less security, while the poor in the US have a longer lifespan, more freedom, more security than people in India do. The question of why is living in the US objectively better than living in India if we use the average income as a basis? There are various ways to explain why the US is better off than India, you could say environment, political, cultural, population density, education, market freedoms, security, or evil greedy people. I think the correct answer to this question is many things that lead up to it, however economic freedom is what makes a country better off overall.
- 9) Prices rise when the government prints too much money; Vice versa, prices drop when the government prints less money (Shirai 2017) Japanese deflation and German hyper inflation (Arbuckle n.d.) if there is too much money people will be so poor that they will burn money on the street to stay warm but if there is too little money than people will adapt to that as well and think carefully about spending. Most economies have a minimal inflation to adjust for the growing population and to incentivize people to work more.
- 10) Society faces a short run tradeoff between inflation and unemployment;
You can decide between having prices go up slightly or you can have most people being employed, this rule states that both are mutually exclusive So, when inflation is high unemployment is low and when unemployment is low inflation is high. This is known as the Philips curve (Phillips n.d.)