[bawolff]

> An economy can usually make more of stuff, or substitutes, and/or consume relatively painlessly. The pain kicks in when the financial sector feels pain. The real economy reshuffles if it's financed adequately

Isn't money just an abstraction over resources? In essence i think you're saying that creating goods is not a problem assuming there are sufficient resources to make the goods and sufficient resources to compensate the people making the goods.

While i don't disagree, doesn't that kind of go without saying?

[dalbasal]

"Isn't money just an abstraction over resources?"

I think the economics of money tends to compete on which common sense, to follow. Taken to the extreme, you could say that money doesn't matter. Only resources and the real economy matter.

That, IMO, is negated by the history of money economics affecting the real economy. Money shortage is a thing. If the economy hadn't been funded, the resource shuffling wouldn't have been possible... or more painful. People don't get compensated for resources and labour in exchange for goods and labour. They get compensated in money, which is at some point down the cascade, credit. If money is short, it doesn't matter what the productive capacity. That reshuffling doesn't happen smoothly.

So, no... I think. At least, not in a sense that commons sense implications can be applied. Money isn't just an abstraction over resources. It's a thing unto itself. Money supply issues, hyperinflation, financial shocks, credit shocks and have been more likely to affect major real economy problems than supply of actual stuff like oil. Oil shock is a thing. There definitely are real examples of crippling resource shortages. More often though, money supply is the issue.

[bawolff]

> Money supply issues, hyperinflation, financial shocks, credit shocks and have been more likely to affect major real economy problems than supply of actual stuff like oil

Yeah, but all those things describe situations where money and resources got out of whack.

[alistairSH]

Yes and no. Money is an abstraction over resources. However, it's not quite that simple once you add credit/borrowing into the mix. We no longer trade sheep for lumber; we no longer buy lumber with cash from our wallet. Instead, we borrow from the bank, buy more lumber than we could otherwise afford, on the assumption we can turn around and sell finished houses before the loan comes due.

If the bank stops lending, we can no longer buy enough lumber to build the houses. The market slows significantly - instead of building 100 houses at a time, we have to build them one at a time. The demand for 100 houses hasn't changed (all else being equal), but the supply has. Prices probably go up, but until the bank starts loaning, the pace of the economy doesn't return to previous levels.

Or something like that. Way too complicated to distill into a single post.

[nostrademons]

Credit is an abstraction over future resources. When you take out a loan, you're basically saying "I am betting that I can produce enough in the future to pay back the resources that I am using now." And if you don't, you're on the hook for it, and potentially go bankrupt.

That's why the financial sector is the weak link, and also why it's very well-compensated. Finance is a future-prediction problem: you do well if you successfully predict which investments will pay off, and you go bankrupt if you fail. Predicting the future has always been hard.

The reason we get these boom/bust crises is because instead of using their own judgment, many people, when faced with a hard problem, will just do what everyone else is doing. So the whole financial industry lemming-trains into bad investments, and then when they bust, they all go bankrupt and there's no resources to go around until the wreckage has been cleared away and placed in more independent manager's hands.

[dalbasal]

Credit is an abstraction over future resources from the perspective of either party. To the economy, there is no future. If everyone saves all their money, the economy ceases to produce. It doesn't hold that production in reserve.