How is money created?

2017-03-20 23:42:25

This might seem like a really simple question, but I am really troubled by it on a macro scale. The money has to come from somewhere. Someone might start up a business that creates things or takes things from the Earth. You could say this is "creating" money, but I argue it isn't, or I am missing something.

Here is how I see it. In order for that company to work, they have to make a profit which means they have to take more money than they are giving. This is the way all companies work. In the end logically, this money becomes concentrated in a few people. If this is the case, on the broadest level, how is it that standards of living increase? Isn't it inevitable that the rich get richer and the poor get poorer, with money being concentrated in fewer and fewer people over time? And if that is the case, won't capitalism eventually fall apart, with fewer and fewer people being able to purchase goods? If not, how is this corrected? Is there a way the rich can get richer wit

  • I understand your dilemma. Ill try to solve it simply with an example. I tutor students every day at a price of 25 dollars per hour. After the lesson, both me and my student are better off than we were before. This is because in my view, the 25 dollars are worth more than the hour i used and in my students view, the knowledge gained from my one hour was worth more than his 25dollars (otherwise, he would not schedule any more lessons). We both leave winners and better off than we were before. He is better off by the amount (value of the knowledge-25 dollars)and i am better off by the amount (25 dollars-value of my hour spent elsewhere). The economy as a whole is better off by the amount ( value of the knowledge gained- value of my hour spent elsewhere) (this value is obviously positive or the transaction would not have taken place). In short, value was created. Notice also how the dollar amount in the economy did not change (25dollars just changed hands), and the economy is not bette

    2017-03-20 23:44:13