Welcome back to the NEW Finance column in the Chitchat Newspaper. This column is brought about by a desire to enlighten and educate.
Last Month we kicked off the new financial column, where I focused on two concepts that can be used as a framework to make smart financial decisions.
The first was Henry Hazlitt’s “Economics In One Lesson,” which teaches us that economics isn’t just about the immediate effects of an act or policy; we also need to think about the long term conequences of these actions or policies, and how they affect everyone, not just one particular group.
The second concept was the Hegelian Dialectic, which suggests that sometimes, the people who create problems also offer solutions. They might highlight a problem, create panic, and then propose a solution that helps them… not you.
These two concepts are mentioned to help us understand money and its connection to laws.
Some may be thinking, what the heck has all this got to do with finances?
How do acts and policies make me richer or poorer?
All the rules surrounding money have come about through laws and these laws can separate you from your hard-earned income. For example: the government issues the money, in our case Aussie dollars, and inserts itself in all sorts of common transactions. Think about employee contracts, GST, Pay-as-you-go withholding, overseas imports/exports, inheritance, rentals, property purchases, various fees, levies, and licenses, the list goes on…
Dazed and Confused
Confusion leads people to use their money to pay for things they neither want nor need.
You must pay taxes and debts in Australian dollars, as it is considered ‘LEGAL TENDER’.
Go ahead and try to pay your rates with chickens, corn, iron ore or sea shells…
Using the two concepts mentioned above as a looking glass, you will begin to spot common fallacies that have the potential to separate you from your ability to benefit from your hard-earned money.
We use currency as a way to pay for what we want. In a way you could say you are exchanging bits of plastic for wealth (which is what most people aim for). Wealth is a word that holds many connotations but I like to think of it in terms of quality of life. If you were a multi-millionaire with a large bank account and vast possessions, and through a turn of events became stuck on a desert island, what good would your bank account or possessions be? I would suppose coconuts, fresh water, tools, and shelter would be wealth. Quality of life with family and friends would also be wealth. I would draw a connection between real physical objects and your potential to acquire these objects as wealth.
While on THIS desert island, there are laws to enforce the use of a medium of exchange called the Australian Dollar. There are also acts and policies that have the effect of devaluing the Australian dollars that are currently circulating in the economy. This is called Inflation.
So what is the cause of inflation?
Is it brought about by people buying too many cappuccinos or smashed Avo sandwiches?
Is it due to everyone hoarding toilet paper?
Maybe it’s those price-gouging supermarkets?
Why do we even have this pesky thing called inflation?
I will let you decide for yourself. All I know is that the brightest minds in economics can simply state that inflation is brought about by an increase in the amount of money circulating in the economy and how quickly that money changes hands.
Who do you think is in charge of creating more money? Who has the power to do this?
What excuses do they give for creating more money? What laws might be in place to push people to spend their money faster and offload plastic money for physical items?
What need or panic may arise that necessitates the government to borrow more money from the RBA?
Why does the ‘powerful’ Government even need to borrow money?
Next week I thought I would discuss the first two applied lessons from Henry Hazlitts “Economics In One Lesson” titled The Broken Window, and The Blessings of Destruction. These chapters encourage the reader to develop the art of seeing what is not there.
Until next time.
Written by John E Middleclass.
November 2024