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Comment by jswinghammer | Hacker News Reader

Ford and a lot of other thinkers thought this way but a basic understanding of how things are actually produced and paid for would tell us that high wages are not what causes prosperity but rather high wages are a sign of prosperity. In a world without continual non-stop inflation higher wages aren't necessary to raise your standard living because falling prices would do it.

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Actually, they do. The classical economist's understanding is that money is created exogeneously, meaning a central bank prints it and it trinkles down into the mainstream by virtue of banks having excess reserves.

What happens in practice is that banks extend loans first and worry about their reserves later. By virtue of that, the enterpreneur gets a buck to invest in whatever he's doing, and part of that buck lands as extra pay (and thus economic activity) in the hands of workers who will spend every last bit of it for all intents and purposes.

Say would tell us something else-that supply is paid for with supply. Ultimately math cannot make you richer-you need to produce more to consume more.

You're misunderstanding money creation:

Classical economist's explanation: bank has 100, lends you 90 so as to keep 10 in reserves. 90 gets spent and part of it lands in the bank. Rinse, repeat.

What actually happens: bank has 10, lends you 100. It gets spent and part of it lands back in the bank. If it's not enough to post proper reserves, bank begs central bank for a buck or two to make things work. Rinse, repeat.

It's not an opinion by the way: it's by the own admittance of the SEC. See Steve Keen's research for more details.

I'm not misunderstanding the nature of how credit works. I'm well aware that reserves follow loans and not the other way around. That money creation cycle is what leads to the business cycle in my opinion (see Austrian business cycle theory for more). The problem is that it creates a pyramiding of debt that eventually will collapse as inflation gets out of hand and interest rates rise.

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