Tuesday, July 30, 2013

Wealth - How Do We "Hold" It?

Some of the confusion re appropriate monetary policy can be traced to difficulties in deciphering what wealth actually represents. What is most important - the "action" itself or the environments where economic activity take place? Today, different strategies also reflect differing societal opinions as to the purpose of the GDP measure in this regard. Where credit, savings and their associated interest rates tend to emphasize passive aspects of the environment, the corresponding nominal targeting efforts of central banking emphasize active and ongoing components of the economy. When finance takes too much of ongoing economic activity into its own domain, the delicate balance between environment and activity of the environment becomes disrupted and nominal targeting tends to take the hardest hit.

A fortunate aspect of the (recent) twentieth century definition of money measurement (GDP) is the philosophical intent behind it, in spite of distortions in capital formation which can stand in the way of its actual dynamic purpose. In fact, a primary problem whenever economic activity becomes centralized, is the degree to which centralization takes away the experience that money measurement attempts to capture in time between economic actors. Centralization - especially where it is not actually needed for economies of scale, takes away from the processes of diffusion which are most capable of creating monetary velocity.

Mass production allowed extensive economic diffusion through a significant portion of society - until recently - in developed countries. In other words, peak forms of production created their own positive forms of decentralization, when a majority of society could participate in the most active parts of the economic experience. However, increased services associated with greater production, gradually became bogged down in static and centralized wealth formations. Unfortunately, too many knowledge based components inadvertently became "sticky" by definition.

In other words, knowledge use over time lost some of its capacity to be used as flexible and interchangeable components in dialogue, mediation and formulation settings between disciplines. What's more, knowledge use has increasingly been limited within specific disciplines themselves. By way of comparison, components of resource use in factory and other production settings were not really as limited by definitional status of use until more recently, as components gradually came to involve more knowledge use elements.  Earlier divisions of labor in factory settings were somewhat misread as not being of a free nature in terms of choice. But in a sense, it was divisions of labor in knowledge use settings which actually suffered the greatest loss of economic freedoms, a loss which has also translated into the economic gridlock of patent issues in the present.

Previous peaks - for mass production utilization in developed countries - gave us active elements of the monetary base representative of individual capacity. The problem for us now is that because of growing issues with knowledge use limitations and services definitions, diffusion has become more centralized and dependent on passive wealth holdings. Sufficient activity may appear measurable, but the lack of velocity indicates a lack of participation from the same wide range of actors on monetary terms. Because we have previously funded and purchased services primarily through more concrete forms of wealth definition, the first impulse is to continue doing so. The effect however, means we are still trying to get at greater diffusion by way of the path that created less diffusion we have already taken which had already centralized more monetary activity .

In a sense, losing our "religion" for economic dynamism in the present is a return to full circle, where present day thoughts of a gold standard are more associated with static formations of wealth holdings, and less associated with the experiential spark of daily economic activity. What, then, of the market fluctuations of Wall Street? Yes there is still an experiential element which represents ongoing and active economic activity, that continues to create new ideas of product. On Main Street, there is still of course a circumscribed quantity of retail that reflects this. In the midst of it all, people struggle to overcome regulatory hurdles for even the most basic elements of daily provisions.

Even though much of today's passive wealth holdings can be at times discouraging, at least they serve to protect the definition of measure which is really built for more active and direct forms of economic activity. One of the primary problems of these passive holdings is the fact they don't create the same kind of economic diffusion and monetary velocity into overall populations that recently existed. While these measures show up as extreme variances in income, they are also brought on to a large degree by the fact that many services cannot be tapped into efficiently and directly. Thus multiple savings devices are intended for additional services expenses at some point in the future, rather than providing additional investment for active use now.

The ways in which we think about services and skills use in the near future will also have a big effect on how we think about the definition of money itself - a definition which is by no means static. Whether or not we have access greatly depends on how we think about holding wealth as well. The definitions society attaches to economic access ultimately translate into the systems we use to accommodate and direct money use.

Economic dynamism can in fact be recaptured, but new definitions of value in use need to be incorporated, in order for that to happen. In other words we could create new highways for knowledge and skills use, with new points of economic entry and departure that are organized for maximum participation. Much about nominal targeting growth levels also depends on the degree to which services are diffused through society, and whether decentralization is allowed to once again be an important element of wealth creation.

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