Why does this remind me of the famous Henry Ford quote about doubling his employees pay, so they could afford to buy the cars they made?

This reminds me of that time I asked in an economics class how you make money. In the case of Ford he pays his workers who turn around and give it back to him? So you need money coming in from external sources right ie. Other countries.

What I was asking about is the process of taking something that costs x and charging 3x to make the profit. Where does the 2X come from doesn't that result in debt. I understand you're paying for time that you didn't spend/resources. But it's like swishing water around in a bucket right without external input?

Probably a dumb question but also doesn't help my professor barely spoke English and I stuttered over the word "Inevitably" haha

> Where does the 2X come from doesn't that result in debt.

I think you should read Marx's Capital. It is devoted to answering that question: the generation of surplus value and its consequences in society. As you suggest, such system is not stable, explaining capitalism's tendency to crisis.

Can't recall off hand if he was a good or bad guy "marxist" so I'm wondering about that book is that with his bias and if he was bad... I don't know I suppose the system has to make sense right? Like I agree with the doctor charging more for his services versus a janitor sweeping the floor. But yeah the product buying part.

You could probably map this out.

If X is the united states, and Y is another country. All of the money in business/laborers would eventually go to the top (business) because of the "profit" or 2x but then how does the worker not end up in debt. Unless the worker did the same thing you know building services that multiplied their worth instead of hourly rate, even hourly rate though if you had high wage.

I don't know I tried reading Adam Smith's Wealth of Nations man that was a hard book to read.

I'm not at all an economist, and I expect I'll make some mistakes here, but I can think of two things that might be relevant to your question here. First is https://en.wikipedia.org/wiki/Deflation#Scarcity_of_official... which is that as you can produce more value for lower cost, with nothing else compensating, then things become cheaper. It's the value of things that's "made" in Ford's factory, not the money. If, hypothetically, you had a completely fixed money supply, then you wouldn't get money from nowhere; instead the price of everything else in the market just goes down. There are some reasons to not prefer deflation, so to counteract this the government prints more money. For another example (I think?), look at Bitcoin, where there's been massive deflation because the growth in value has far outpaced the rate of new bitcoins added to the economy by mining.

I'm less certain about the second thing, but I think that debt (and banks?) increase the (effective?) money supply. If you borrow money from a bank (or debt directly from a company for goods or services) to build a new house, then you've acquired a valuable new asset, the laborers you paid acquired new currency, so the total economy can exceed the number of bills that have been printed and are physically in circulation.

There's a lot there that I'm not sure about, and there's plenty of further fascinating questions that follow on from there that I don't know anything about, but I hope that helps you understand some things about how production and the money supply work!

From a bank's perspective, a loan is an investment/asset, so should probably be a part of what is called M2 or M3 money.

EDIT: Wikipedia seems to agree: https://en.wikipedia.org/wiki/Money_supply#Fractional-reserv...

> Whenever a bank gives out a loan in a fractional-reserve banking system, a new sum of money is created. This new type of money is what makes up the non-M0 components in the M1-M3 statistics.

Is bitcoin undergoing deflation? (asking because I'm not sure) it's going to be worth $5,000 soon it looks like I thought deflation is the opposite of that where there's so much it's worthless.

I just assume we get money from other countries. And provided we (people in the US) accept dollars from each other then it keeps going.

Yeah it's confusing I'm definitely not an economist myself haha.

edit: thanks

It comes from economic specialization and the benefit of trade.

Whenever you draw a supply and demand graph, traditionally as a big 'X', draw a horizontal line from the left of the intersection of supply and demand. The area above that line and under the demand curve is the consumer benefit of trade. The area below that line and above the supply curve is the producer benefit of trade. That is the surplus produced just by the act of going to the market instead of trying to do everything yourself.

Ford's employees build more cars than they could possibly use themselves. Ford's customers have to bring something to trade. The existence of money lubricates the trade process. One customer may, after following the cash flows, do plumbing repairs in all the houses of all the employees, and in the Ford-owned buildings. It is easier for that plumber to fix a thousand toilets than to build one car. It is easier for the factory employees to build one car than to fix ten toilets. So if the plumber trades 100 toilet repairs for one car, everybody wins. The plumber, wanting the car, gets one with 10% the effort, and the workers get 10x more toilet repairs with the same effort. Ford himself decides the proportion of toilet repairs that go to him, and how many go to each worker.

The money price of goods and services continuously rebalance to reflect the desires of customers and the capabilities of producers.

In modern times, the owners of robotic capital are essentially allocating themselves--by means of adjusting money payments--tens of thousands of toilet repairs per year, and maybe half of one repair per year to each of their human employees. The robots, of course, don't poop. This just doesn't work. The owner can't possibly break that many toilets, and the employees are forced to repair their own toilets in addition to their regular jobs whenever they break more than once every two years, which reduces the amount of surplus produced by trade between specialists. You have to pay people enough for what they do or make to pay for the things they want, or you can't support economic specialization.

Ford paid his employees more because all of his employees were on average more specialized than the rest of the economy. Assembly-line auto production could not exist without specialization.

It isn't like swishing water around a bucket. It's like ten people adding one bucket of vegetables each to a pot and getting twenty buckets of soup out of it. The whole is more than the sum of its parts. Debt is more like a time machine for making trades happen that could not take place otherwise, as though the vegetables in the soup are all fresh when they go in the pot, but are harvested in different seasons.

Thanks for writing this out. The soup analogy is good. I'm probably dymb/not getting it with regard to how it all starts, who owns that fruit initially.

I mean the system is running already and you just join in.

Yeah alright, I'm not arguing over thinking with a bad brain.