How does money work?

The_blue · 16 Oct 2006 at 16:17

Was wondering today how money worked. I know the basics but stuff like imports, surly we buy in more than we sell, so where does the extra money come from?

Also inflation. Each year we get a pay rise, prices go up etc but where does the extra come from?

think i need to do econimics at night school

( |-| |2 ][ $ · 16 Oct 2006 at 16:20

I always wondered, why doesn't the government just print some more? I guess then it would lose it's value?

Welshy · 16 Oct 2006 at 16:21

( |-| |2 ][ $ said:
I always wondered, why doesn't the government just print some more? I guess then it would lose it's value?

Go read up about hyper inflation in Germany during the second world war, then you'll learn why printing more money is a bad idea

wizardmaxx · 16 Oct 2006 at 16:21

Afaik its got to do with the amount you own in the country as to the number of bills you can have (ie gold reserve, etc)

Visage · 16 Oct 2006 at 16:22

( |-| |2 ][ $ said:
I always wondered, why doesn't the government just print some more? I guess then it would lose it's value?

Thats exactly it.

One could say, for example, that if the government wanted to build a hospital for 100m, they could just phone up the royal mint and tell them to print off 5 million crisp 20's and hand it over. But for the reason you've expressed this would, in turn, make every orher pound worth less.

Admiral Huddy · 16 Oct 2006 at 16:24

It's a massive subject you are asking.. Home work by any chance?

Many things affect inflation.. House prices, fuel, greed are just a few.. For eaxmple, when fuel goes up, so do transport costs.. This has a knock on affect to the retailer who now has to rise his prices to make the same amount of profit margin. The consumer if then left with less money in his pocket and therefore wages are increased to allow for the difference in the cost living etc..

Loki · 16 Oct 2006 at 16:25

A somewhat biased analysis of the situation but good reading on who controlls the money and the history of banking going back a couple of hundred years.

Linkage

G-MAN2004 · 16 Oct 2006 at 16:25

Welshy said:
Go read up about hyper inflation in Germany during the second world war, then you'll learn why printing more money is a bad idea

Lol something like 200 million marks for some bread

I don't understand though why you can't just print more :confused:

Visage said:
Thats exactly it.

One could say, for example, that if the government wanted to build a hospital for 100m, they could just phone up the royal mint and tell them to print off 5 million crisp 20's and hand it over. But for the reason you've expressed this would, in turn, make every orher pound worth less.

But why?

Admiral Huddy · 16 Oct 2006 at 16:26

( |-| |2 ][ $ said:
I always wondered, why doesn't the government just print some more? I guess then it would lose it's value?

aha if they did that, we wouldn't have to pay taxes..

There is only a certain amount of money in circulation and this is monitored by the Bank of England.

Serj · 16 Oct 2006 at 16:26

Welshy said:
Go read up about hyper inflation in Germany during the second world war, then you'll learn why printing more money is a bad idea

Whilst he's doing that why don't you go read a history book?

Supercow · 16 Oct 2006 at 16:28

Diamonds are expensive, coz they aren't as common as rocks.
If you print loads of money, then it's the same thing I suppose

The_blue · 16 Oct 2006 at 16:28

Admiral Huddy said:
It's a massive subject you are asking.. Home work by any chance?

Many things affect inflation.. House prices, fuel, greed are just a few.. For eaxmple, when fuel goes up, so do transport costs.. This has a knock on affect to the retailer who now has to rise his prices to make the same amount of profit margin. The consumer if then left with less money in his pocket and therefore wages are increased to allow for the difference in the cost living etc..

I'm 31 and in a full time job, thus the hours of thinking up questions for you lot

Admiral Huddy · 16 Oct 2006 at 16:29

Physical cash, like electonic cash is worthless as it's only like having a promise note to pay the bearer in gold., so it's the amount of gold afik that the state bank possesses. In this case, the Bank of England.

Sp00n · 16 Oct 2006 at 16:30

Doesn't the amount of cash in circulation represent how much a country has in its gold reserve? Maybe i wasn't quite listening in history

wizardmaxx · 16 Oct 2006 at 16:30

wizardmaxx said:
Afaik its got to do with the amount you own in the country as to the number of bills you can have (ie gold reserve, etc)

Admiral Huddy · 16 Oct 2006 at 16:30

The_blue said:
I'm 31 and in a full time job, thus the hours of thinking up questions for you lot

haha sorry about that

The_blue · 16 Oct 2006 at 16:36

Admiral Huddy said:
aha if they did that, we wouldn't have to pay taxes..

There is only a certain amount of money in circulation and this is monitored by the Bank of England.

yes i know but as wages go up and costs as well then more money is needed.

made up example with silly amounts:-

say in 1900 the net wealth of the UK was 100,000,000

now in 2006 it was 500,000,000

where did the rest come from?

The_KiD · 16 Oct 2006 at 16:40

The_blue said:
yes i know but as wages go up and costs as well then more money is needed.

made up example with silly amounts:-

say in 1900 the net wealth of the UK was 100,000,000

now in 2006 it was 500,000,000

where did the rest come from?

I think it's called invading iraq and stealing their oil and Saddam's bullion!

Admiral Huddy · 16 Oct 2006 at 16:41

The_blue said:
yes i know but as wages go up and costs as well then more money is needed.

made up example with silly amounts:-

say in 1900 the net wealth of the UK was 100,000,000

now in 2006 it was 500,000,000

where did the rest come from?

gold increases in value. However, if more money is needed, they have to borrow from abroad.. This incures interest and is known as the national debt.. if i'm not mistaken. This was one of the causes of the last recession.. Massive inflation.. big overseas borrowing.. big debt!!

Shoseki · 16 Oct 2006 at 16:42

Money is simply an interface that allows the barter and trade between people for their goods and services. The way it works is, everyone works (lets not turn this into a dole scrounger political thread) and, in order to trade off the produce/service, money acts as measure (for those who play in large guilds, its similar to DKP).

If each person was an individual isolated unit, we would simply need food/water/shelter to survive. But the beauty of society is that some people are better at doing some things than others, so we elect to use the best people to do what they are best at, and everyone else mucks in, and the total produce/service is distributed internally according to what their activity is worth.

So if Bob is an apple producer, Jane is a water filtering specialist and Francis is a builder, by working and trading with each other, they all get apples, water and shelter. Most of business is about maximising on the *demand* for their goods or service, minimising their internal inefficiencies, and therefore becoming higher in overall *profit* that in turn can be traded off against the goods and needs of those who earnt the profit to live and enjoy life as they see fit.

Now, someone can correct me if I am wrong, but things like gold stock etc only came into meaning when countries started bartering with each other, and needed a measure for how to compare the closed economic systems with each other. Money therefore became a standardised way to not only trade internally within the system of a local and national level, but also internationally, by means of currency exchange. Currency exchanges enable the local man, who picks apples for a living, uses the money to buy local water and local shelter, to spend *relatively* the same amount of money on his needs than someone in another country, as long as the efficiencies of his and the other countries businesses were the same.

Perhaps someone who has actually studied some type of business studies can elaborate, I didn't even study it at GCSE