> Money isn’t magical. You can’t create infinite value out of nothing.
It's not 'nothing'. It's something, just sold over and over and over again.
Remember that MV = PQ . Fundamental equation of macroeconomics. The average price of all goods (P) times the total # of goods (Q) is equal to the total amount of money (M) times V, the total number of times a dollar is spent in the time period in question.
You can make the total cost of goods be anything depending on how often that dollar is spent in a year / decade / whatever.
As a reductio ad absurdum, suppose that you and I and a few friends sit down in a circle and sell the same hot dog to each other over and over again. What value have we created? Assuming that the price of the hot dog remains the same each time, and we’re spending the same money over and over, according to your formula we have created an infinite supply of hot dogs. Q can go as high as we want it.
That’s quite a hot dog! Maybe that’s how Jesus fed all those people with just a couple loaves and fishes? The hot dog of infinite bounty. :)
I rather suspect however that Q in that formula is only quantity of goods sold, not quantity of goods produced or consumed. I’m more interested in the actual amount of value produced- the amount of work done.
But this is a contrived example where each person agrees to buy the hot dog for purposes of this experiment.
Fair market value is typically defined as the value you'd get on the market, selling to someone you don't know and without coercion.
So, like if I arrange with a rich guy to sell my house (worth about $700k) to him for $2million, so that he can 'donate' it back to me and take the charitable giving write-off for $2million, this would not fly, because by the definition of fair market value used by the IRS (and other agencies), my arrangement with the guy is not the fair market value. In order to determine that, I'd need to put the house up for sale to general availability and see what others offer 'me'.
So to 'fix' your example, you'd need to sit in a circle with your friends. Say the hot dog you are about to eat is for sale, and see if any of your friends want it from you.
By the way: GDP measures of a country’s economy are measuring the total value of the finished goods produced in a given year, sold to the final user. The intermediate steps you listed don’t count. So the mv=qp formula doesn’t directly translate to gdp growth. It’s just an accounting identity over the intermediate sales of unfinished products.
Then you increase the GDP, the nominal measure of the economy. This is not rocket science.
If person A mines aluminum and sells it to person B for $10.
And person B sells person A wheat for $5.
And then person A sells person B bread for $8, and person B sells a metal box to A for $12.
And this is the entirety of the economic activity in country X, then country X's economy is $35 in size. You can sell the same 'stuff' back and forth.
A more contrived example. Suppose person A makes water bottles. He sells to person b for $10. Then person A goes on vacation. At a concession stand run by person B, person A needs water, which he buys from person B for $4 each. Person B has added value to the same 'stuff' person A sold him simply by moving it. The 'good' being sold by person B is simply the transport of the good sold by person A, which is not subject to the same limitations as number of particles. There are many ways in which things can be moved or repositioned to add value.
If you look up how gdp is measured, you will find that they measure the total of transactions for the final consumer, for exactly the reasons I’ve listed.
From the IMF:
“ Theoretically, GDP can be viewed in three different ways:
The production approach sums the “value-added” at each stage of production, where value-added is defined as total sales less the value of intermediate inputs into the production process. For example, flour would be an intermediate input and bread the final product; or an architect’s services would be an intermediate input and the building the final product.
● The expenditure approach adds up the value of purchases made by final users—for example, the consumption of food, televisions, and medical services by households; the investments in machinery by companies; and the purchases of goods and services by the government and foreigners.
● The income approach sums the incomes generated by production—for example, the compensation employees receive and the operating surplus of companies (roughly sales less costs).”
So, sorry but you are mistaken about this, I’ve been trying to get you to understand this but you’re not paying attention. So in my hot dog example, you’re not supposed to count anything as gdp other than the final sale to the person who ate the hot dog. Or you can measure it one of the other two ways listed but you’ll get the same answer.
What if I need a water bottle for a minute. I buy it for $5, then I resell it for $5 and so does every following person? Surely each transaction shouldn't add $5 for GDP?
What if it is an extremely valuable water bottle. Let's say it costs $10,000 as it's made out of gold. Let's say it gets transferred similarly as everyone needs it for just 1 minute just to use it to fill it and take a sip.
It's not 'nothing'. It's something, just sold over and over and over again.
Remember that MV = PQ . Fundamental equation of macroeconomics. The average price of all goods (P) times the total # of goods (Q) is equal to the total amount of money (M) times V, the total number of times a dollar is spent in the time period in question.
You can make the total cost of goods be anything depending on how often that dollar is spent in a year / decade / whatever.