Bank of England How Money is created

[SirGalahad]

How is money created?

Most of the money in the economy is created by banks when they provide loans.

www.bankofengland.co.uk

Most of the money in the economy is created by banks when they provide loans.

Banks create around 80% of money in the economy as electronic deposits in this way. In comparison, banknotes and coins only make up 3%. Finally, most banks have accounts with us at the Bank of England, allowing them to transfer money back and forth. This is called electronic central bank money, or reserves.

 

[Nozzle]

Are "money" and "value" the same thing?

And a development of this. Are "value" and "wealth" the same?

 

[Odds]

Are "money" and "value" the same thing?

And a development of this. Are "value" and "wealth" the same?

That's a good question.
I wonder about that when you see folk buy something, a painting for instance, and pay £300. They take it to auction where someone pays £500. Which is the true value of the painting?
The element that always bumps up the price are the middlemen, taking their cut at whatever percentage they think the market can sustain.

 

[SirGalahad]

Are "money" and "value" the same thing?

And a development of this. Are "value" and "wealth" the same?

Wealth in simple terms consider it as your assets.

Money explained - Economics Help

Definition and explanation of what money is, the functions of money and what counts as money. Intrinsic and fiat money. Money supply and link with inflation.

www.economicshelp.org

Before we get too complex into M0, M1, M2 money

 

[motorbiking]

That's a good question.
I wonder about that when you see folk buy something, a painting for instance, and pay £300. They take it to auction where someone pays £500. Which is the true value of the painting?
The element that always bumps up the price are the middlemen, taking their cut at whatever percentage they think the market can sustain.

It’s the price someone is willing to pay.

The middlemen are just part of the supply chain.

If you look at Silicon Valley vs European industrialist their strategies are very different.

The Silicon Valley model tries to own the whole supply chain (E.g Tesla). In Europe we like to specialise and outsource to specialists. If you have the capital to turn raw material in to sold product it’s obviously the better model. But specialisation means you can be more agile if someone new or better comes along.

 

[Brigadier]

The element that always bumps up the price are the middlemen,

Sometimes, the "middlemen" don't exist as separate entities, but as aspects of the seller and/or buyer.

 

[SirGalahad]

It’s the price someone is willing to pay.

The middlemen are just part of the supply chain.

If you look at Silicon Valley vs European industrialist their strategies are very different.

The Silicon Valley model tries to own the whole supply chain (E.g Tesla). In Europe we like to specialise and outsource to specialists. If you have the capital to turn raw material in to sold product it’s obviously the better model. But specialisation means you can be more agile if someone new or better comes along.

Look up Coase and the theory of the firm - why do firms exist - what became influential were management gurus and their thrust for outsourcing - focus on your competitive advantage.

Looks like we are coming full circle. Moving up and down the supply chain.

 

[Odds]

Sometimes, the "middlemen" don't exist as separate entities, but as aspects of the seller and/or buyer.

w00t?

 

[Brigadier]

w00t?

"I want to buy your lawnmower".

"£100 to you."

"Nah, too much".

"Alright, I didn't want to sell anyway".

"Ok then, a ton it is!"




No middleman.

 

[Odds]

So the value is what you think its worth and the wealth is what you're willing to pay?

 

[Nozzle]

That's a good question.
I wonder about that when you see folk buy something, a painting for instance, and pay £300. They take it to auction where someone pays £500. Which is the true value of the painting?
The element that always bumps up the price are the middlemen, taking their cut at whatever percentage they think the market can sustain.

An auction is the 'ultimate' market. The price is determined by demand and supply is obviously limited. - "it's only worth what someone will pay for it". It could easily have sold for £300 or £250 as opposed to your example of £500. Here, the "price" and the "value" are the same. Sell it again 10 years later at a price of £700 - has the value gone up, down, or stayed the same? That can only be determined when compared to the buying power of the £ over the 10 years

 

[SirGalahad]

It depends on what function the middleman is performing and what you consider to be a middleman.

If there is a market for buyers and sellers - then how does the seller inform the buyer that they have a product to sell?

Are supermarkets middlemen?

 

[SirGalahad]

An auction is the 'ultimate' market. The price is determined by demand and supply is obviously limited. - "it's only worth what someone will pay for it". It could easily have sold for £300 or £250 as opposed to your example of £500. Here, the "price" and the "value" are the same. Sell it again 10 years later at a price of £700 - has the value gone up, down, or stayed the same? That can only be determined when compared to the buying power of the £ over the 10 years

Best way to describe an auction is price discovery. You could have sold that painting for £50 at a car boot sale, but at an auction it could go for triple that - why? You may have different buyers at an auction and at a car boot sale you offer a price rather than let the buyers compete against each other in an auction format.

Most people are acquainted to the English Auction where you bid prices up, but there are many types of auctions such as Dutch auctions, Vickrey auction.

 

[Nozzle]

Best way to describe an auction is price discovery. You could have sold that painting for £50 at a car boot sale, but at an auction it could go for triple that - why? You may have different buyers at an auction and at a car boot sale you offer a price rather than let the buyers compete against each other in an auction format.

Most people are acquainted to the English Auction where you bid prices up, but there are many types of auctions such as Dutch auctions, Vickrey auction.

Most people are familiar that an auction price starts low to attract more bidders, it climbs as high as it needs.

 

[SirGalahad]

Most people are familiar that an auction price starts low to attract more bidders, it climbs as high as it needs.

Say you are bidding against me in an auction - you have a max price of £400 and I have a max price of £500 - I would win the auction by paying the second highest bid price ie £400 even though I was willing to pay £500.

Then you can have sealed bid auctions but what all the theory assumes is that you are a rational bidder - you do not bid above a set price you have determined beforehand but in English auctions that can sometimes go out of the window in a flurry of bid exuberance and you end up paying more than you budgeted or valued the item for then suffer buyers remorse (brexxers regretting their decision)