HMRC warning..

[JohnW2]

That is the most idiotic misunderstanding of economics that i have ever heard. .... An electrician will creat wealth by what ever they earn, due to their marginal propensity to consume. some will be spent at "chez julien" or the "harvester" Oh my god!! some people get employed and then can spend it on ipods or electricians. Electricians might have a good year and spend it on a holiday. OMG, travel agents get commision and spend it on blacberry apps and plumbers. Elecricians might have 3 good years and decide to move house and the estate agent s will employ people and the kitchen fitters and plumbers will benefit from improvements. the removal men get a job too.

I still don't understand what definition of 'wealth' is being used here. What you describe is simply the movement of a certain amount of money (which many people would regard as 'wealth') from the electrician's customers to be split amongst a host of other people - the electrician him/herself, the restaurant prioprieters, estate agents, kitchen fitters, plumbers the suppliers of holidays, blackberries etc. (and not to mention the tax man!). If the customer pays the electrician £x (i.e. in lay terms, their wealth decreases by £x), then the sum of the amounts received by all those other people would also be £x (i.e. in lay terms, their combined wealth increases by £x) - hence, in terms of an everyday definition of 'wealth', there is no net change (no creation or destruction of wealth), merely a redistribution.

It's perhaps worth noting that the more (and more rapid) steps of money movement there is, the more the tax man will tend to become one of the major beneficiaries, since most of the movements will potentially attracting a tax liability of one sort or another.

I completely understand that such money movements are absolutely essential to the running of a society and economy - since, without them, no-one would have any income or spending ability. What I don't understand is the definition of 'wealth' being used when we are told that this process represents 'wealth creation'. As I've said, despite extensive education, some in numerate discliplines, economics has always largely remained a mystery to me - so I look forward to being eductaed!

Kind Regards, John.

 

[JohnW2]

What do we think this warning/threat will do do the current operation of Part P notifications and then electrical safety as a whole? More hard done to sparks coffing up more money and being less inclined to stay on the radar? An increase in non-registered (and possibly) cowboy installs on a cash only nod'n'wink basis?

Except in relation to those who are daft as well as criminal, I doubt it will make much difference. Anyone, in any walk of life, with anything between their ears who intends to evade tax by doing 'cash-in-hand' work understands the need to avoid any documentation or paper trail which leads back to themselves. I would therefore assume that it's only the daft who will be undertaking work which they don't declare for tax purposes, yet document the fact that they've done the work by notifying it to LABC.

Kind Regards, John.

 

[riveralt]

I still don't understand what definition of 'wealth' is being used here. What you describe is simply the movement of a certain amount of money (which many people would regard as 'wealth') from the electrician's customers to be split amongst a host of other people - the electrician him/herself, the restaurant prioprieters, estate agents, kitchen fitters, plumbers the suppliers of holidays, blackberries etc. (and not to mention the tax man!). If the customer pays the electrician £x (i.e. in lay terms, their wealth decreases by £x), then the sum of the amounts received by all those other people would also be £x (i.e. in lay terms, their combined wealth increases by £x) - hence, in terms of an everyday definition of 'wealth', there is no net change (no creation or destruction of wealth), merely a redistribution.

In the first part of your statement you appear to be defining wealth in solely monetary terms - when in actual fact wealth comprises a hole host of different variables that affect people in many different ways. In its narrowest definition monetary wealth (M1 to M whatever we are up to now) is simply a value placed on products or services that acts as a lubricant for the economy. Your idea that wealth is somehow a zero sum game fails to reflect these variables.

Your evidence for the zero sum game as reflected in the second part of the statement simply demonstrates how wrong you are. From your perception wealth = money and this cannot be created or destroyed merely redistributed. Yet your example demonstrates quite the opposite. Your example demonstrates four economic principles of consumption.
The Marginal Propensity to consume - already alluded to.
The Marginal Propensity to Save.
The Velocity of Money.
The Paradox of Thrift.

A persons decision to consume products is determined by two variables MPC (which can be broken down into many sub variables) and MPS (again with many sub variables) who sum to 1. MPC and MPS also bring with it a problem called the paradox of Thrift - look at wikipedia for explanation.
The ratio between MPC and MPS is different for every single individual and will change over time dependant on those wealth missing variables I mentioned earlier.
In broad terms the richer you are the lower your MPC and correspondingly the higher your MPS. And vice versa the poorer you are. So in this stage of the economic cycle (Ignore Gordon Brown's no more boom and bust rubbish) it makes economic sense to the tax the poor less and the rich more since the poor will correspondingly spend more of their money on goods and services which move the economy forward.
The problem with this approach is another paradox that the rich will not invest because they feel they are getting poorer - thus holding back supply which puts up the price of goods and services.

So back to your example which demonstrates the velocity of money but with the wrong result. If the MPC of a person is 0.9 then for every £100 he gets he spends £90 on an electrician whose MPC is also 0.9 and he spends £81 on consumption etc. In broad terms in this country at this time of the economic cycle £100 will turn into say £580 of products or services consumed.

And remember this is just one of the more easily quantifiable variables that you might consider to be part of the definition of wealth. The majority are qualitative variables - which is why economic courses are classed as an arts subject rather than a science subject. Though that didn't stop my university requiring A level maths before being accepted on an Economic and Computer Science degree course - and I used very little of the maths on the Computer Science.

 

[JohnW2]

In the first part of your statement you appear to be defining wealth in solely monetary terms - when in actual fact wealth comprises a hole host of different variables that affect people in many different ways. In its narrowest definition monetary wealth (M1 to M whatever we are up to now) is simply a value placed on products or services that acts as a lubricant for the economy.

Thanks. As I said, I'm trying to ascertain what economics definition of 'wealth' we are talking about and, in the meantime, have been talking about the general public's conception of wealth equating to money+assets (albeit complicated by expenditure on non-assets, like services, holidays and entertainment etc.). What you say goes at least part of the way to explaining that - but I'd still be interested to understand what is/are the formal economics definition(s) of 'wealth'.

And remember this is just one of the more easily quantifiable variables that you might consider to be part of the definition of wealth. The majority are qualitative variables - which is why economic courses are classed as an arts subject rather than a science subject. Though that didn't stop my university requiring A level maths before being accepted on an Economic and Computer Science degree course - and I used very little of the maths on the Computer Science.

I suppose my experience is almost the opposite of that but, ironically, with a similar bottom line. As part of one of my dusty degrees, I undertook a module on econometrics - highly mathematical, and obviously essentially restricted to the quantifiable (or, at least, semi-quantifiable), but without my ever really gaining any true understanding of the actual economic concepts involved (and, since it was not a field of any great interest to me at the time, I didn't go out of my way to try to educate myself - parties had a far higher priority!)!

Kind Regards, John.

 

[ban-all-sheds]

That is the most idiotic misunderstanding of economics that i have ever heard.

Then you must have your fingers pressed very firmly into your ears whenever you open your mouth.

Do you not understand without it, that there would be an ever decreasing circle

Do you not understand what the word "create" means?

An electrician will creat wealth by what ever they earn

No they won't.

They may move some around - take some from others, give some to others, but they don't create any.

 

[ban-all-sheds]

will the uneducated ever understand that the movement of money is wealth creation by definition.

Like I said - fingers pressed firmly into the ears while you utter some of the most outrageously braindead b*ll*cks known to man.

 

[ban-all-sheds]

In broad terms in this country at this time of the economic cycle £100 will turn into say £580 of products or services consumed.

No - in broad terms that is more complete b*ll*cks which says that because £100 has passed through many uses, with each user counting it on the way, that somehow it has become £580.

It has not.

There is still only £100.

Nothing has been created.

 

[JohnW2]

No - in broad terms that is more complete b*ll*cks which says that because £100 has passed through many uses, with each user counting it on the way, that somehow it has become £580. It has not. There is still only £100. Nothing has been created.

You and I are obviously saying exactly the same thing, based on an everyday understanding of the meaning of 'wealth' and the application of very basic mathematics. I can but presume that those who are arguing that money movement 'creates wealth' are using a definition of wealth (maybe recognised by economists, but rather alien to most others!) which somehow includes receipts/income, as well as 'what one has' - on that basis, £100 could obviously turn into as large an amount as one wanted if it passed through enough hands, even though you and I would say that there had been no change in total wealth (everyday meaning).

However, although it may serve some purpose for economists, such a definition is bound to produce endless confusion in the eyes of the general public (including you and I!). For example, if someone with no assets or savings received £50,000 (salary or anything else) every month, but always blew the whole lot on the roulette table the same day that he received it, would it really make any (everyday) sense to regard him/her as 'very wealthy'?

Kind Regards, John.

 

[riveralt]

In broad terms in this country at this time of the economic cycle £100 will turn into say £580 of products or services consumed.

No - in broad terms that is more complete b*ll*cks which says that because £100 has passed through many uses, with each user counting it on the way, that somehow it has become £580.
It has not.
There is still only £100.
Nothing has been created.

Oh dear, with you BAS it is so predictable that when you don't understand something you lash out invariably swearing to try and get your misunderstood point across. Perhaps you should look out from you ivory tower and see how the real world works in practice and not how you think it does. Do you ever listen to what you are saying?

Velocity of money is determined by the Gross Domestic Product divided by the Money Supply. This is one example which explains it in action.

This is very basic, and for those of you who will complain that I am being too simple, wait a few pages, please. Let's assume an island economy with ten businesses and a money supply of $1,000,000. If each business does approximately $100,000 of business a quarter, then the Gross Domestic Product for the island would be $4,000,000 (4 times the $1,000,000 quarterly production). The velocity of money in that economy is 4.

But what if our businesses got more productive? We introduce all sorts of interesting financial instruments, banking, new production capacity, computers, etc., and now everyone is doing $100,000 per month. Now our GDP is $12,000,000 and the velocity of money is 12. But we have not increased the money supply. Again, we assume that all businesses are static. They buy and sell the same amount every month. There are no winners and losers as of yet.

Now let's complicate matters. Two of the kids of the owners of the businesses decide to go into business for themselves. Having learned from their parents, they immediately become successful and start doing $100,000 a month themselves. GDP potentially goes to $14,000,000. In order for everyone to stay at the same level of gross income, the velocity of money must increase to 14.

I could give you more detailed examples of how the velocity of money is directly linked and therefore ebbs and flows to supply and demand, but since you seem to be incapable of any lateral thought it doesn't appear worth it.

 

[JohnW2]

Velocity of money is determined by the Gross Domestic Product divided by the Money Supply. This is one example which explains it in action.

That is just very basic mathematics, with which no numerate person could really disagree. For a given money supply, the faster one moves money around, the greater will (or, at least, can) be GDP.

But we have been talking about wealth, not GDP, and the suggestion that money movement 'creates wealth'. Are saying that, in the mind of an economist, 'wealth' and GDP are the same thing (a suggestion pretty alien and confusing to non-economists)?

Kind Regards, John.

 

[ban-all-sheds]

You and I are obviously saying exactly the same thing, based on an everyday understanding of the meaning of 'wealth' and the application of very basic mathematics.

The meaning of "wealth" can be as sophisticated as you like.

It's the idea that moving it around is an act of creation which is wrong-headed.

I can but presume that those who are arguing that money movement 'creates wealth' are using a definition of wealth (maybe recognised by economists, but rather alien to most others!)

They are.

And have recent events shown that this is:

a) very perceptive of them

or

b) utter b*ll*cks

?

which somehow includes receipts/income, as well as 'what one has' - on that basis, £100 could obviously turn into as large an amount as one wanted if it passed through enough hands, even though you and I would say that there had been no change in total wealth (everyday meaning).

And there's the problem.

The everyday meaning of wealth is the only one which is sustainable.

You could (in theory) have an entirely self contained economic system - a society entirely self-sufficient in natural resources, food and energy production etc, where everybody worked, consumed, spent, saved etc, and where money lubricated the wheels.

Some people, by dint of luck, or talent, or application, might end up owning or controlling more of the money or resources than others - they could usefully be said to be more wealthy.

But no matter how much the money, or the ownership or control of resources moved around, no matter how fast or slow, no matter what the ebbs and flows were, there would never be any more created.

However, although it may serve some purpose for economists, such a definition is bound to produce endless confusion in the eyes of the general public (including you and I!).

The problem with that definition is not the confusion it creates in the eyes of the general public.

It's the confusion it creates in the minds of the economists.

 

[ban-all-sheds]

I could give you more detailed examples of how the velocity of money is directly linked and therefore ebbs and flows to supply and demand, but since you seem to be incapable of any lateral thought it doesn't appear worth it.

I'm sure you could.

But I doubt you could explain to anybody who doesn't think that utter b*ll*cks is the new astute how making something move faster means that you've made more of it.

 

[JohnW2]

The meaning of "wealth" can be as sophisticated as you like. It's the idea that moving it around is an act of creation which is wrong-headed.

No, you're being unfair. If economists work with their own appropriately-chosen definition of 'wealth', then there might not be anything wrong-headed about the notion that moving money could 'create it'. For example, money movement creates turnover (as riveralt has said, including a rise in GDP) - so, if economists work with a definition of wealth that equates to, or is related to, turnover, then it would be perfectly level-headed of them to talk, amongst themselves, about money movement creating wealth. The problem would be that such a definition would seriously frustrate any attempts on the part of economists tocommunicate sensibly with non-economists - which is perhaps what we're seeing here!

Kind Regards, John

 

[ban-all-sheds]

It would also seriously frustrate (but nowhere near fast enough) attempts by people to increase their consumption by giving more of their wealth to producers because they thought they had more of it.

 

[EFLImpudence]

Either your example is too simple or I am.

Let's assume an island economy with ten businesses and a money supply of $1,000,000. If each business does approximately $100,000 of business a quarter, then the Gross Domestic Product for the island would be $4,000,000 (4 times the $1,000,000 quarterly production). The velocity of money in that economy is 4.

Why state quarterly figures and multiply by four?
Why not quote the annual turnover of each business as $400,000?

But what if our businesses got more productive? We introduce all sorts of interesting financial instruments, banking, new production capacity, computers, etc., and now everyone is doing $100,000 per month.

$1,200,000 pa. and if more productive then profits are being made.
That is, some of the money is not being returned..

Now our GDP is $12,000,000 and the velocity of money is 12. But we have not increased the money supply. Again, we assume that all businesses are static. They buy and sell the same amount every month. There are no winners and losers as of yet.

However, you said they were more productive.

Now let's complicate matters. Two of the kids of the owners of the businesses decide to go into business for themselves. Having learned from their parents, they immediately become successful and start doing $100,000 a month themselves. GDP potentially goes to $14,000,000. In order for everyone to stay at the same level of gross income, the velocity of money must increase to 14. [/i]

Why introduce kids?
Just say two of the businesses start doing twice as much.

Surely, with $14M turnover, wouldn't a 7% profit margin transfer all of the money supply to the businesses leaving the customers with none?