Saturday, November 2, 2013

The Money Illusion

In the previous post I continued the thread that where there are people, there should be industry. However, in a global economy, even an activity that's as basic as diaper manufacture, is conducted on global scale. Diapers are made in China using raw materials imported from around the world and the finished product is shipped world wide. This is possible because there are global shipping systems, and because free trade laws allow free flow of goods and money.

The main reason industry flowed from the United States to China or Mexico is that the money that would have gone into local factories went to build factories in China or Mexico. At the same time, those factories reach markets through global retailers, like Wal Mart. The net result of this arrangement is that the benefits of the factory workers' labor flows to global investors, likewise, the profits from retailing those goods flow to global investors. It's easy to conclude that global manufacturing destroys local wealth creation because so many cities like Cleveland or Detroit were ruined by it.

However, obviously because people remain in those cities, the ability to create wealth, to make and invent things is not lost. The thing that disappeared was the ability to organize people based on money, i.e. symbols, and numbers that represent their time, energy, and creativity. A precondition for that organizing principle, was that people were trained to only accept those symbols in exchange for their time, energy, and creativity--they accepted the money illusion.

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