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Credit Where Its Due Exploration The Industrial Revolution What is Money For?

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Presentation on theme: "Credit Where Its Due Exploration The Industrial Revolution What is Money For?"— Presentation transcript:

1 Credit Where Its Due Exploration The Industrial Revolution What is Money For?

2 The Unifying Theme: Money And What To Do With It Ancient world had a static concept of wealth: gold, land, slaves Modern world defines wealth as investment and production New Institutions to Manage Wealth in New Ways New Routes to Power and Status

3 How the Universe Changed Nature of wealth Static vs. Dynamic Views of Interest Exploitation vs. Shared Risk Routes to status Nobility or Clergy vs. Trade and Industry Nature of Work Ad Hoc vs. Scheduled

4 New Institutions Joint Stock Companies Limited Liability Corporations National Banks Insurance

5 Limited Liability Corporations Corp. or Inc. (US) Ltd. (Limited – Great Britain) GmbH (Gemeinschaft mit beschraenkter Haftung – Germany) S.A. (Sociedad Anonima –Spanish countries)

6 Econ 101

7 Econ 101 (Continued)

8 About Insurance You can insure your car against fire, theft, and collision You cant insure your car against wearing out Why Not?

9 About Insurance Most cars will not be burned, stolen, or wrecked Every car will wear out Therefore everyone would have to pay premiums sufficient to cover the cost of a new car Why not just save instead?

10 About Insurance Insurance is for rare but catastrophic events –A large number of people pay a small amount –A small number of unlucky people collect a large amount Insurance cannot cover routine problems Example: Dental Insurance - expensive –Most dental expenses are routine –Large expenses often foreseeable (crowns, etc.)

11 Health Insurance Health insurance ca –Deliver babies –Minor operations (appendix, tonsils) –Terminal Care Win-win proposition –Relatively inexpensive for employer –Highly valued by employees

12 Health Care in 1950 No open-heart surgery No organ transplants No bone-marrow transplants No joint replacements No MRI, CAT, PET Blood storage very recent Leukemia invariably fatal No AIDS or Alzheimers

13 What Nobody Wants to Hear: If an average patient needs $10,000 in lifetime health care –Over a 25-year working career = $400/year –Comes to $33/month –Split with employer = $17/month –The healthy subsidize the sick If an average patient needs $1,000,000 in lifetime health care…..

14 Interest Forbidden by Classical world, Bible Jews could lend at interest to Gentiles but not Jews New view: repayment for shared risk Conceals some real costs –Costs about 50 cents to clear a check –It costs money to keep money in the bank

15 A New View of Wealth Unlike matter and energy, wealth is not conserved Wealth can be created (within limits) Wealth can be destroyed –Physical Destruction (War, Disaster) –Death –Government Policy –Change in Culture, Taste, Interests, Confidence

16 Power is the Ultimate Aphrodisiac -Henry Kissinger The Name of the Game is Power, Privilege, Status, Comfort, not money per se Examples –Nomenklatura, former Soviet Union –Khmer Rouge Cambodia –Anti-Monopoly


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