21-01-2003 23:10									#121
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quote: This money that is saved is a drain on the economy and it is also the increase of the financial wealth in the country.

In just about all economic theories, savings = investments. A decently high savings rate is something that is pushed. For example, the only reason why Americans high marginal propensity to consume isn't a problem is because foriegns tend to invest a lot in the US. In other countries (like Japan) a high marginal propensity to save is worthwile because those savings make up a majority of investment (because there was little outside investment).

quote: But I was talking about undeveloped land. Sure you can "invest" your money in raw land, speculating that someone someday will pay you more than you originally paid, but you could make the same "investment" with tulip bulbs or a pile of dog poo.

Raw land has traditionally in the US been used as an investment oppertunity. Many people still do it today (my parents did, for example). Raw land is much better investment than tulip bulbs. To say otherwise is really not understanding the value of land.

	22-01-2003 00:39									#122
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quote: Originally posted by Imran Siddiqui quote: This money that is saved is a drain on the economy and it is also the increase of the financial wealth in the country. In just about all economic theories, savings = investments.

This is just a foolish assumption. No economist will claim to really believe that it is true (not in this century anyway). Foolish assumptions are common place in economics. Savings = Investment even less often than the economy is at full employment, which is another foolish assumption which is made.

quote: Originally posted by Imran Siddiqui A decently high savings rate is something that is pushed.

Only if you are more concerned with increasing peoples wealth than you are in increasing peoples income and the amount of goods and services produced in the nation.

quote: Originally posted by Imran Siddiqui quote: But I was talking about undeveloped land. Sure you can "invest" your money in raw land, speculating that someone someday will pay you more than you originally paid, but you could make the same "investment" with tulip bulbs or a pile of dog poo. Raw land has traditionally in the US been used as an investment oppertunity. Many people still do it today (my parents did, for example). Raw land is much better investment than tulip bulbs. To say otherwise is really not understanding the value of land.

Purchasing land does not increase the production of goods and services unless the new owner is more productive with it. The purchase of raw land itself is only for speculative purposes if you don't develope it.

	22-01-2003 03:14									#123
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quote: This is just a foolish assumption. No economist will claim to really believe that it is true

Economics is all assumption (and most foolish). You actually believe that ceterus parabus can actually occur? In the formulas used in economics classes all over the country, it is taught that Savings = Investment in order to simplify theories.

And really, it makes sense. Like pointed out banks take the money you put in there and make money off of it by investing it.

quote: Only if you are more concerned with increasing peoples wealth than you are in increasing peoples income and the amount of goods and services produced in the nation.

Consumption isn't the only way to increase people's income! You MUST improve technology and that is where investment comes in, and for all intents and purposes savings (which goes into banks) gets invested into the market by the banks that hold the money.

quote: Purchasing land does not increase the production of goods and services unless the new owner is more productive with it. The purchase of raw land itself is only for speculative purposes if you don't develope it.

I'm thinking you don't understand the definition of investment. Investment is, by its nature, speculative. People will always invest in favor of future, speculative profits. It is integral to the idea of investing.

	22-01-2003 03:46									#124
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quote: Originally posted by Imran Siddiqui I'm thinking you don't understand the definition of investment. Investment is, by its nature, speculative. People will always invest in favor of future, speculative profits. It is integral to the idea of investing.

I'm talking about the type of investment that results in the production of goods and services. I've repeated that serveral times in this thread. Your just arguing with me as though I have not made this distiction. This type of investment is the component of GDP that is calculated.

Of course, even the purchase of factories and such are speculative. That is totally beside the point.

Ah, what the hell... You're not trying to understand anything here. You just want to argue that you are right, even when you know otherwise.

	22-01-2003 04:09									#125
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quote: I'm talking about the type of investment that results in the production of goods and services.

Uh huh... that's not true investment, its only a part of it. Its not like making up defintions to established words will get you far . Taking part of the definition and applying it to the whole doesn't work too well.

On the cash flow statement and in economics, investment means spending that results in an increase in assets. This includes capital spending on plant and equipment, i.e. a real increase in the means of production; but it also includes any swelling of unsold inventory, which can indicate a problem with consumer demand.

Residential investment mainly refers to the purchase of homes.

Annual business and residential investment respectively make up about 12% and 4% of the GDP;

http://www.moneychimp.com/glossary/investment.htm

Can you explain to me how swelling of inventory results in the production of goods and services? Hell, since it makes up part of GDP and you assert your definition is the GDP Investment, I want to know how that fits.

Does the purchasing of homes (without any improvements made to it) increase goods and services?

Btw, so do you think Investment Banks don't really invest?

Investment is the use of current income to accumulate capital assets and thereby expand productive capacity for the future. Saving is the deferral of consumption possibilities to the future by spending less than the total income available.

Businesses invest in factories, commercial buildings, machinery, equipment, inventories and some intangible types of capital assets such as corporate knowledge, human capital and customer good will. Consumers invest in housing and financial assets. Governments invest in social infrastructure such as roads, ports, schools, hospitals, museums and defence assets.

Investment is made possible by saving, with banks and other financial institutions facilitating the flow of savings to investors.

http://canadianeconomy.gc.ca/englis...investment.html

Emphasis mine (and this is an economic defintion).

Investment made possible by saving with banks? Hmmm...

	22-01-2003 04:17									#126
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quote: Originally posted by Imran Siddiqui [i]Investment is the use of current income to accumulate capital assets and thereby expand productive capacity for the future.

Ah, so you do know what I'm talking about when I'm talking about investment.

The other type of investment that you are talking about is called speculation by economists, and is considered a leakage of the economy because it reduces the amount of goods and services produced in the economy. Do you understand that?

	22-01-2003 04:19									#127
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I actually asked somebody who does have a B.A. in Economics, who said, "in economics, savings is generally assumed to be equal to investments."

And investment has nothing to do with GDP except insofar as it results in money changing hands.

As you see to be, I'm getting really tired of this argument. Thus, I will source my argument so you have someone else to rant at. I quote: "Total savings are equal to total investment." http://www.j-bradford-delong.net/ma...y_glossary.html - a glossary from a macroeconomics textbook, written by the Chair of Berkeley's Political Economy of Industrial Societies.

Furthermore, any investment that makes you money accumulates more capital for you. If you buy stock in a business, the goal is for that business to grow, and thus for your share of its capital to grow, resulting in capital gains. You don't need to go buy a machine; you can invest in a company that you believe will buy a machine that you will own part of. You are investing by proxy.

Last edited by Goingonit on 22-01-2003 at 04:25

	22-01-2003 04:25									#128
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You definition is incomplete. Savings and Housing do not immediately lead to the production of goods and services, yet the defintion I quotes (which you only took part of) states that savings makes investment possible. WITHOUT savings there is no (or little) investment!

So, we come to the beginning. Savings are important and without it investment does not result, which is WHY economic formula tend to have Savings = Investment.

Do you understand that?

--

Oh, psst: land is a capital asset. By purchasing it you 'expand productive capacity for the future' and thus is investment under the defintion you so loved (and cited).

Last edited by Imran Siddiqui on 22-01-2003 at 04:44

	22-01-2003 04:26									#129
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To add to Imran, I very much hope that you don't disput that you need three things for production: land, labour, and capital.

	22-01-2003 04:28									#130
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quote: I actually asked somebody who does have a B.A. in Economics, who said, "in economics, savings is generally assumed to be equal to investments."

Well I could have told you that, and I DO have a B.A. in Economics (Rutgers University, 2002) as well.

I tire of this as well. Duncan seems to want to ignore all economic theory to try to make his point.

	22-01-2003 04:50									#131
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quote: Originally posted by Goingonit And investment has nothing to do with GDP except insofar as it results in money changing hands.

no no no. I realize you are tired but what you are speaking of is called a transfer payment. Why should a new factory not be included in GDP? In fact it is.

	22-01-2003 04:55									#132
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quote: Originally posted by Imran Siddiqui Duncan seems to want to ignore all economic theory to try to make his point.

Imran, first let me apologize for being short.

Now, since you have an interest in economic theory that me direct you to the theory of Adam Smith. He wrote a book called "The Wealth of Nations."

You see people used to believe just as you that the best thing to do is increase the amount of wealth (in this case gold) that people held. In his book, Adam Smith argues that only the production of goods and services (the income of a nation) is of any importance to that nation. The gold that nations were trying soooo hard to collect was only really hurting the nation.

	22-01-2003 05:14									#133
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quote: Originally posted by DuncanK no no no. I realize you are tired but what you are speaking of is called a transfer payment. Why should a new factory not be included in GDP? In fact it is.

Form the same source I used before, GDP is "The total amount of final goods and services produced. By the circular flow principle, equal to the total income earned through domestically-located production."

Thus, the building of a factory, because it is the production of a good/serivce, is part of GDP. But the point I was trying to make is that investment is not special in GDP, it's just in GDP because it involves production of goods and services.

	22-01-2003 05:19									#134
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quote: Originally posted by DuncanK Imran, first let me apologize for being short. Now, since you have an interest in economic theory that me direct you to the theory of Adam Smith. He wrote a book called "The Wealth of Nations." You see people used to believe just as you that the best thing to do is increase the amount of wealth (in this case gold) that people held. In his book, Adam Smith argues that only the production of goods and services (the income of a nation) is of any importance to that nation. The gold that nations were trying soooo hard to collect was only really hurting the nation.

You have just confused currency (in this case, specie) for wealth. WEALTH IS THE SUM OF THE VALUES OF ALL GOODS OWNED. mining gold (or printing currency) neither increases or decreases wealth. The nations were striving after currency, which is bad. BUT CURRENCY IS NOT WEALTH.

Now you have patronized someone who actually does have a BA in economics (Imran), and misinterpreted one of the greatest economists ever.

	22-01-2003 05:19									#135
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quote: Originally posted by Goingonit Form the same source I used before, GDP is "The total amount of final goods and services produced. By the circular flow principle, equal to the total income earned through domestically-located production." Thus, the building of a factory, because it is the production of a good/serivce, is part of GDP. But the point I was trying to make is that investment is not special in GDP, it's just in GDP because it involves production of goods and services.

ok, right

	22-01-2003 05:26									#136
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quote: Originally posted by Goingonit You have just confused currency (in this case, specie) for wealth. WEALTH IS THE SUM OF THE VALUES OF ALL GOODS OWNED. mining gold (or printing currency) neither increases or decreases wealth. The nations were striving after currency, which is bad. BUT CURRENCY IS NOT WEALTH.

Currency is a store of value just like land or stocks. It can be traded later for something else of value. People hold currency just like the do land or stocks, for speculation. Actually currency has many uses. Oh dear, I didn't mean to confuse you more by using currency as an example. Think of gold coins. People speculate with gold coins right.

Now you have patronized someone who actually does have a BA in economics (Imran), and misinterpreted one of the greatest economists ever. [/QUOTE]

If you think that I misinterpreted Adam Smith please demonstrate it instead of just saying it.

	22-01-2003 05:38									#137
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But the total value of all printed (or minted) currency is proportional to the to the total value of all of the rest of the nation's wealth. If you make more money, the value of the money already existing goes down; this is why Spain screwed itself over in the 16th century. Economically, production of goods and services is never a bad thing.

And if you give me a chapter reference, I'll explain how you're misinterpreting Adam Smith.

	22-01-2003 05:48									#138
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quote: You see people used to believe just as you that the best thing to do is increase the amount of wealth (in this case gold) that people held. In his book, Adam Smith argues that only the production of goods and services (the income of a nation) is of any importance to that nation.

An increase in income leads to an increase in wealth (generally), for as Goingonit said, wealth is the sum in value of all goods owned. More income will naturally lead to greater wealth.

	22-01-2003 05:50									#139
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Wait, I found it. "Principle of the mercantile system", Bk. 4 Ch. 1.

quote: "It would be too ridiculous to go about seriously to prove, that wealth does not consist in money, or in gold and silver; but in what money purchases, and is valuable only for purchasing. Money, no doubt, makes always a part of the national capital; but it has already been shown that it generally makes but a small part, and always the most unprofitable part of it."

	22-01-2003 06:17									#140
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quote: Originally posted by Imran Siddiqui quote: You see people used to believe just as you that the best thing to do is increase the amount of wealth (in this case gold) that people held. In his book, Adam Smith argues that only the production of goods and services (the income of a nation) is of any importance to that nation. An increase in income leads to an increase in wealth (generally), for as Goingonit said, wealth is the sum in value of all goods owned. More income will naturally lead to greater wealth.

Great! We agree.

The reverse is not true. Greater national wealth does not make greater national income.

	22-01-2003 06:27									#141
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quote: Originally posted by Goingonit Wait, I found it. "Principle of the mercantile system", Bk. 4 Ch. 1.

I'm agraid you should read the whole book Goingonit. The book is called "The Wealth of Nations." He is arguing as to what is the true wealth of a nation. He is arguing the the true measure of the wealth of a nation is its productive power, not the amount of gold that the nation has. More productive power is created by increases in productivity.

This is unfortunate, because Adam Smith is not helping us here as I had hoped.

You see, people kept gold as a store of value not just as a something to buy things with. I believe you have taken this quote out of context, but I will get the book and look this up. I think we can work from here.

	22-01-2003 06:29									#142
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Not directly. However, since all wealth depreciates, a situation in which wealth is disproportionate with income will not last long. If income does not match consumption, then the amount of wealth will decrease.

	22-01-2003 06:31									#143
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quote: Originally posted by DuncanK ok, right

Just to make sure things are clear. The investment component in GDP is the production of factories and things like that. Things like a law firm purchasing paper is accounted under consumption because value is added to it in the production of a final service. The price of the final service is counted, but not the paper in addition.

	22-01-2003 06:42									#144
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quote: Originally posted by Goingonit Not directly. However, since all wealth depreciates, a situation in which wealth is disproportionate with income will not last long. If income does not match consumption, then the amount of wealth will decrease.

The value of currency may increase as well as decrease. It's called deflation and is not so uncommon.

Wealth is generally increasing all the time. Income increases and decreases. They are not neccessarily proportional. Wealth is an accumulation of income that is not spent every year.

	22-01-2003 06:46									#145
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I've read the book. The point I was trying to make was that money is very different from wealth. Do you accept that? If so, we can move on. If not, explain why.

The point he makes in that passage is that storing gold doesn't result in any real increase of national purchasing power or wealth. I agree with that. I hope you agree with that.

And BTW, my last post refers to your post about an increase of wealth not leading to an increase in income.

	22-01-2003 06:53									#146
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quote: Originally posted by DuncanK The value of currency may increase as well as decrease. It's called deflation and is not so uncommon. Wealth is generally increasing all the time. Income increases and decreases. They are not neccessarily proportional. Wealth is an accumulation of income that is not spent every year.

I'm not talking about currency, I'm talking about wealth. if there were no production of goods and/or services, Wealth would decrease naturally. Bottles of wine would be drank, chairs would break, houses will age and weather.

The gross national product is a measure of income; the best estimate of real national product, however, is NNP, or net national product. It is equal to income minus depreciation. The reason why wealth always increases is because this value is always positive; however, depreciation is directly proportional to wealth, so the more wealth that exists, the smaller this value will be, assuming constant income. However, since income grows along with wealth, a situation in which wealth will decrease is virtually impossible.

	22-01-2003 07:48									#147
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I think that in this case we should use GDP and not GNP for obvious reasons.

	22-01-2003 08:04									#148
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quote: Originally posted by Goingonit I've read the book. The point I was trying to make was that money is very different from wealth. Do you accept that? If so, we can move on. If not, explain why.

First, I have to say that I may have indeed misrepresented Adam Smith unintentionally. Adam Smith did not consider that the money accumulating within his economy was ever being stored. He considered it all to be in circulation. I made it sound like he considered this money to be wealth (in the terms that I'm talking about wealth in this thread). I'm talking about wealth that is kept purely as a store of value, or for speculative purposes.

I have to say though, that I'm sure that the people during that time did keep money for the purposes of storing value. They did this when they expected an increase in the price of gold or whatever their money was made out of. When they expected the value of their money to decrease all of their money went into circulation I'm sure. Whenever they stored their money it became their wealth. So in that sense money can be wealth.

quote: Originally posted by Goingonit The point he makes in that passage is that storing gold doesn't result in any real increase of national purchasing power or wealth. I agree with that. I hope you agree with that.

Again I say that he did not assume that people were storing their gold. But I would agree that he is saying that as the gold in circulation increases the 'wealth' (to use the term the way that he uses it) of the nation does not increase.

quote: Originally posted by Goingonit And BTW, my last post refers to your post about an increase of wealth not leading to an increase in income.

Ok, I'll look at that again

	22-01-2003 08:15									#149
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quote: Originally posted by Goingonit I'm not talking about currency, I'm talking about wealth. if there were no production of goods and/or services, Wealth would decrease naturally. Bottles of wine would be drank, chairs would break, houses will age and weather.

Tangable items will of course be consumed. I think financial wealth would decrease also. The people who had it would spend it.

quote: Originally posted by Goingonit The gross national product is a measure of income; the best estimate of real national product, however, is NNP, or net national product. It is equal to income minus depreciation. The reason why wealth always increases is because this value is always positive; however, depreciation is directly proportional to wealth, so the more wealth that exists, the smaller this value will be, assuming constant income. However, since income grows along with wealth, a situation in which wealth will decrease is virtually impossible.

Here your only talking about wealth that is stored in tangable items, right?

	22-01-2003 08:19									#150
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btw, I'm also interested in moving on and discussing a wealth tax as opposed to an income tax.

EDIT: I'm not quite sure that we are not on the same page as to what wealth is though.

I will post again on my position of what the different types of wealth are.