Humans have been transforming the Earth, since we first made tools. This transformation is a result of our desire to meet our most urgent Needs and Wants in the most efficient way possible. In this transformation, no material product is lost and the transformation has resulted in a significant increase in human population. Every action or transformation, be it production or consumption, requires time, energy and resources. Every need or material want requires conscious purposeful action for its satisfaction.
Over-production and tools are at the root of wealth creation. Tools permit the production of new materials, which facilitates the production of better tools. Another step towards the greater production of scarce goods is Specialisation. Specialisation Depends on Social Cooperation. As each producer becomes expert in his specialisation and the use of his tools, a productive limit is reached until further specialisation and better tools are created. For a sophisticated “Division of Labour”, an advanced system of Exchange is required. Tools and Capital cannot be produced without savings. The driver of increased productivity is increased savings, not increased consumption.
Every Human action always aims at the most preferred imagined future condition. Each individual has a limited ability on his own to satisfy his needs and wants. We have evolved a social structure to allow us to cooperate and thus increase our ability meet our needs. Our needs are met by the consumption of scarce goods. Because most goods are scarce, we have evolved methods of deciding how to distribute and conserve these scarce goods. Goods which are more scarce and meet more urgent needs, are valued more highly than less scarce and less urgently needed goods. The Consumer is the ultimate economic decision maker and decides what needs to be produced.
Population is always limited by the availability of the necessities of and conveniences life. Many false predictions made in the past about the unsustainability of our society have been made because our ability to transform the planet has been underestimated.
All society benefits from a producer, who can increase his output and thus produce a greater quantity of urgently needed goods. Of course, the producer needs to make a greater profit from increased production otherwise there is no incentive for becoming more efficient A producer will only continue to increase production, if his rewards also continue to increase. Higher Order Goods are essential for the increased production of Lower Order Goods. It must be remembered that each party to an exchange benefits, as each exchanges a product, which he values less, for one which he values more. A producer who fails to produce a product which other people value, will become relatively poorer, and may need to shift his investment into a more productive enterprise or go out of business. In an unhampered market, relatively higher profits are a strong indicator that the company is meeting its customers needs more efficiently than its competitors. Employment, which is not productive, cannot be sustained.
An Entrepreneur who makes profits, may reinvest a portion of those profits back into his business, producing even more goods, new types of products and providing even more employment. Higher Order Goods which meet more sophisticated needs come to market as the abundance of Lower Order goods increases. It is only the production of higher value of Higher Order goods that prevents increasing poverty.
For a human being, there is no measure of absolute objective value for anything, there are only relative fluctuating valuations. There is no limit to the amount of work that needs to be done, but new tools will make certain skills obsolete. Money is derived from the desire to improve the efficiency of the exchange market. Money is unique amongst all the goods in society in that its primary value is related to its value in exchange. The suitability of money is related to how efficiently it can allow a market to function. Money, which fails to adequately meet the needs of the market will replaced by something, which will more adequately meet those needs.
Amongst other functions, the use of money helps market participants to calculate the scarcity and relative value of products in an ever changing world. Increasing money supply is not necessary. Price inflation is caused by an increase in Money Supply or an overall reduction in productivity, and no other reason. Poorer people, with few assets pay most for increases in money supply.
Modern Banks are protected State institutions, they are not true private companies. If governments can no longer raise tax revenues, then the State needs these banks to continue to expand its activities. Attempts to keep interest rates low, favour borrowers over prudent savers, and thus reduce the overall supply of goods and services. Low interest rates are a by-product of increased production and, on their own, cannot stimulate economic growth. The Boom Bust business cycle is caused by manipulation of the money supply. Capital is not uniform and mal-invested Capital cannot be fully recovered. The Central Bank or lender of last resort, does not protect depositors, but rather protects bankers at the expense of depositors. Continuous Government borrowing and inflation cannot be sustained and will lead ultimately lead to the collapse of major currencies. Governments cause financial crises, not financial institutions.
Government cannot accurately value any services (such as education, health and regulation) that they provide, unless those services compete freely on the market. It cannot plan the economy without wasting resources. Stimulating consumption to increase economic activity is counter productive. The government is an irrational investor, producer, speculator and consumer. All government expenditures must ultimately be paid for in taxes. Import tariffs are paid for, by domestic consumers and exports ultimately equal imports.
The effect of minimum wage legislation causes unemployment, and raises the wages of union workers. Union legislation does not protect their members from abusive employers, it protects their members from other workers. The methods of the Unions, the Banks and the Government are very much aligned.
However, there is a limit the improvement in productivity from specialisation alone.