Economic Crisis and Capital Expansion
All economic crises originate from consumption failing to cover production. Without changing the existing rules of economic operation, no measure can do more than temporarily delay or conceal an economic crisis; none can eliminate it.
From this perspective, any means of borrowing or flooding the system with liquidity in an attempt to revive the economy—whether spending money to dig out trash pits or laying infrastructure—are essentially the same.
Investment, in a nutshell, is always for profit: putting out one hundred today into the economic cycle, with the expectation that next year two hundred, principal plus interest, will come back.
As for how the conversion from one hundred to two hundred is achieved—whether by producing necessities for life, tearing down and rebuilding, building and tearing down, or even buying weapons to beat up smaller countries, or outright scams that make money out of thin air—as long as the funds arrive, nobody cares.
But even if no one cares about each detail, whether the cycle of expansion can actually operate as desired is a question that cannot be avoided.
The full process from investment to return can be very complex, but from the perspective of the economic cycle, it all comes down to one thing: capital expansion. Put simply, it is the process of one hundred becoming two hundred, of one hundred invested summoning a similar amount back.
So the fundamental premise of this process is that there really does exist in the world a counterpart to that one hundred, and that it can be summoned here and dutifully recorded as income.
Under the economic laws of the present era, this major premise is highly questionable.
If we observe the entire economic cycle, from the injection of investment to the collection of sales proceeds, every step is in fact a process of fund transfer: investors purchase resources, labor, and services in order to complete their own capital-expansion plans, thereby creating profits for other economic entities.
All of these expenditures must ultimately be offset by product sales and collected payments, with something left over, in order for capital to expand.
Up to this point, everything seems smooth. But on closer thought, the strange part emerges: since all organizations within the economic cycle want to make money, and at times even everyone is making money, where exactly does their profit come from? From the standpoint of all investors, capital expansion, or “money making money,” is a rather baffling process.
In the economic cycle, investors as a whole put in one hundred and expect to recover two hundred. To that end, highly complex economic activities may take place; but no matter what, one hundred does not double out of thin air. When the cycle ends, if the investors’ settlement accounts really do show two hundred, then the extra one hundred must surely have come from outside the entire economic cycle.
Extra money—where does such a thing exist? Ordinary people generally think, “The government turns on the printing press, and the central bank just changes account balances.” But imagining money as cash or as digits does not help with understanding.
In fact, to complete the economic cycle smoothly and make capital expand, what is needed is simply an injection of outside currency to serve as profit. The source of this injected currency can be the national wealth of other countries or regions, can be productivity gains brought by technological progress, or can be a simple opening of the floodgates and expansion of credit. In short, it must either come from other economic entities, from the derivative effects of technological progress, or from the future targeted by credit.
No matter how things change, in the end, without extra money it simply cannot be done.
In every economic stimulus throughout history, the source of money—or, more precisely, of “profit”—has never fallen outside the scope of the above categories.
If none of these channels can provide a capital injection, what then? An extremely typical super-crisis will arrive.
All economic crises originate from consumption failing to cover production. Without changing the existing rules of economic operation, no measure can do more than temporarily delay or conceal an economic crisis; none can eliminate it.
From this perspective, any means of borrowing or flooding the system with liquidity in an attempt to revive the economy—whether spending money to dig out trash pits or laying infrastructure—are essentially the same.
Investment, in a nutshell, is always for profit: putting out one hundred today into the economic cycle, with the expectation that next year two hundred, principal plus interest, will come back.
As for how the conversion from one hundred to two hundred is achieved—whether by producing necessities for life, tearing down and rebuilding, building and tearing down, or even buying weapons to beat up smaller countries, or outright scams that make money out of thin air—as long as the funds arrive, nobody cares.
But even if no one cares about each detail, whether the cycle of expansion can actually operate as desired is a question that cannot be avoided.
The full process from investment to return can be very complex, but from the perspective of the economic cycle, it all comes down to one thing: capital expansion. Put simply, it is the process of one hundred becoming two hundred, of one hundred invested summoning a similar amount back.
So the fundamental premise of this process is that there really does exist in the world a counterpart to that one hundred, and that it can be summoned here and dutifully recorded as income.
Under the economic laws of the present era, this major premise is highly questionable.
If we observe the entire economic cycle, from the injection of investment to the collection of sales proceeds, every step is in fact a process of fund transfer: investors purchase resources, labor, and services in order to complete their own capital-expansion plans, thereby creating profits for other economic entities.
All of these expenditures must ultimately be offset by product sales and collected payments, with something left over, in order for capital to expand.
Up to this point, everything seems smooth. But on closer thought, the strange part emerges: since all organizations within the economic cycle want to make money, and at times even everyone is making money, where exactly does their profit come from? From the standpoint of all investors, capital expansion, or “money making money,” is a rather baffling process.
In the economic cycle, investors as a whole put in one hundred and expect to recover two hundred. To that end, highly complex economic activities may take place; but no matter what, one hundred does not double out of thin air. When the cycle ends, if the investors’ settlement accounts really do show two hundred, then the extra one hundred must surely have come from outside the entire economic cycle.
Extra money—where does such a thing exist? Ordinary people generally think, “The government turns on the printing press, and the central bank just changes account balances.” But imagining money as cash or as digits does not help with understanding.
In fact, to complete the economic cycle smoothly and make capital expand, what is needed is simply an injection of outside currency to serve as profit. The source of this injected currency can be the national wealth of other countries or regions, can be productivity gains brought by technological progress, or can be a simple opening of the floodgates and expansion of credit. In short, it must either come from other economic entities, from the derivative effects of technological progress, or from the future targeted by credit.
No matter how things change, in the end, without extra money it simply cannot be done.
In every economic stimulus throughout history, the source of money—or, more precisely, of “profit”—has never fallen outside the scope of the above categories.
If none of these channels can provide a capital injection, what then? An extremely typical super-crisis will arrive.