(The question then becomes whether we are more productive or save and invest more to obtain increases in productivity. )
Kamala B Sarup
"True, economy of one nation used to buy and sell economy of another nation in the foreign-exchange market produces neither producer goods and services nor consumer goods and services, but that is a small amount of the tota l money in circulation. Small as it is relative to other economic activity, this speculation is useful in that it keeps the relative values of different moneys accurate in terms of relative purchasing power; that is, governments cannot simply print money willy-nilly and expect it to buy proportionately more goods and services. Increases and decreases in the economy supply must match increases and decreases in the value of goods and services, approximately; otherwise, the relative value of money changes. 'The speculators will see to that', said Stanly recently."
We also should assume that all economy supply is circulated and used to produce something of value to someone. The rich buy more expensive things and invest more than the poor. The poor buy less expensive things and invest less. In fact, there are lots of goods and services from which the rich and poor can satisfy themselves. There are lots of different investments from which the rich and poor can choose. The progressive economy does not sit idle. It always circulates to produce valuable goods and services.
How to develop the economy? Except for the small inventory of economy we must keep it to invest and spend.
"We should invest more money to companies that use it to buy plant and equipment to create additional value. In that process, executives, managers and laborers receive good economy to spend and invest. In return, we receive interest or dividends on our account that we use to buy goods and services and reinvest. The economy doesn't just circulate pointlessly.
"The only bad economy that is useless is that which is hoarded. That happens on a large scale when people and businesses lose confidence that their money will bring a satisfactory return, i.e., more money, so they stop buying and investing. They just hold it. That can cause a recession or depression", he further added.
Another possible problem is created by the imbalance of consumption and investment, but that is another story. The relationship between tax amounts, tax rates and productivity and "prosperity" is not obvious from a priori reasoning. Increases in per-capita GDP depend on increases in productivity.
"If we either do not work harder and smarter, or spend all our earnings on consumption, i.e., save and invest nothing, either on machinery, infrastructure, or social services, then productivity and per-capita GDP will not increase. The question then becomes whether we are more productive or save and invest more to obtain increases in productivity. The answer is determined by trial and error, i.e., experience, and not by theory", Stanly further added.
Some claim, without proof, that all economic activity, including defense and justice, would be more productive if performed by non-government workers. Communists claim that all economic activity would be more productive if performed by government workers. Libertarians and socialists, without proof, make claims somewhere between these polar types.
In the U.S., since its founding, trial and error has resulted in the present mix of government and nongovernment economic activities.
Kamala B Sarup earned a bachelor's degree in economics.