There's a pretty common complaint about "traditional" finance and the banking system from the pro-crypto crowd that it lets "special" private parties "create money" in addition to central banks. The sort who will say things like "why do banks get to create money, why can't I??" That's the specific bit I thought was being hinted at.
> Creating a successful company creates value. Creating value often results in creating movement of money. The velocity of money in the economy is a loose proxy for the overall health of the economy.
It creates money in the same way a loan does. There are no new dollar bills printed, and yet people behave as if those dollars are in more places at once. People pull forward future (expected) company revenue to put a current value number on the company and then they exchange money for parts of that company, and adjust their spending habits based on that present value. Like how in a loan they pull forward a future value of the sum of their expected payments on the loan, in order to increase the velocity of those dollars that were loaned out vs them sitting in a mattress.
I suppose my quibble is that the concepts of "creating value" vs "creating money" distinction is largely meaningless in a world where we have so many mechanisms for exchanging money for the expectations of future money or value. Or even for the derivatives of those expectations!
Okay, that's a more interesting take on this. Let me try to unravel it.
Firstly, I don't think the 'shadow economy' of horse-trading on projected value/cashflows (Which is what investment is, if we reduce it to absurdity) is particularly relevant to the actual act of creating value. It can certainly accelerate/deccelerate it (Speculative investment, versus tightening investment), but it can also operate entirely disjointly from it (Most of the crypto ICO craze.)
> There are no new dollar bills printed, and yet people behave as if those dollars are in more places at once.
They are in more places! Not at once, but they change hands more frequently. You've then gone on to describe ownership of capital, but you've missed the most relevant part - consumer behaviour. Consumers don't exchange money for parts of the company, they don't look at the firm's financials, they exchange money for what the company produces! And the company behaves in the same way towards its suppliers.
Consider a closed village of subsistence farmers who don't buy anything, and make everything they consume with their own hands.
How much value does a peasant create? As much as he consumes.
Now, consider that same closed village, where half the people are growing all the food, and half the people are making all the household goods, and they trade with eachother.
How much value does a peasant create? About as much as in case #1.
What's different about these cases is that money changes hands in the latter. That money can be taxed. That money creates opportunities for employment (Which is very relevant in a modern economy, because most people make their living by working for someone else, as opposed to themselves.)
Is all this a confidence trick? To an extent, yes, but it's a confidence trick that a 'jobs' based society requires to keep functioning.
> I suppose my quibble is that the concepts of "creating value" vs "creating money" distinction is largely meaningless in a world where we have so many mechanisms for exchanging money for the expectations of future money or value.
I largely agree with you in the sphere of 'investment', but strongly disagree with you in the sphere of 'consumption'.
I think the biggest difference in how we're approaching this is around the "value creation" aspect. I was being intentionally short-term-focused, but I don't think I made that clear.
I agree completely about the valuation of circulation, I think I was just getting at it differently when talking about creating a sucessful company "creating money." Thinking about consumer behavior of the founder, investors, and any other employees of that company. They're gonna spend their "actual dollars" much more freely because they have that new asset of ownership of the company in their back pocket. Which increases circulation, taxable receipts, etc etc.
Value is ultimately necessary, yeah, I think that's what you're getting about re: the consumption sphere. Because I believe that most companies produce more real value than crypto, say, I do think real companies are a much better long-term way to go since sooner or later people will notice that gap and start selling their stakes in things not actually bringing in real revenue in exchange for real value with corresponding bad effects on consumption. A company and a crypto token can both give a bunch of early parties a bunch of "new spending power" overnight - but for long-term health, you need something that will continue to reward the next several generations of investors, vs just a greater fool scam.
> Creating a successful company creates value. Creating value often results in creating movement of money. The velocity of money in the economy is a loose proxy for the overall health of the economy.
It creates money in the same way a loan does. There are no new dollar bills printed, and yet people behave as if those dollars are in more places at once. People pull forward future (expected) company revenue to put a current value number on the company and then they exchange money for parts of that company, and adjust their spending habits based on that present value. Like how in a loan they pull forward a future value of the sum of their expected payments on the loan, in order to increase the velocity of those dollars that were loaned out vs them sitting in a mattress.
I suppose my quibble is that the concepts of "creating value" vs "creating money" distinction is largely meaningless in a world where we have so many mechanisms for exchanging money for the expectations of future money or value. Or even for the derivatives of those expectations!