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Profits in the Market



Do the financial markets create wealth?


The general perception is that the markets are a source of wealth, but is this true? Let's explore this question. Let's assume that we live in an economy that produces the same number of cars, houses, shoes, and loaves of bread, etc., year after year, and that the money supply remains the same with which society purchases the produced goods. The end result would be that the prices remain the same. We would have an economy with zero inflation and constant prosperity.

Now let us further assume that the efficiency of this economy is such that only one member of a family of four is required to work to produce these goods. Such an economy leaves society ample time left for its cultural and scientific self-development, and to create productive infrastructures. The end result would be that the ongoing scientific and infrastructural development would open the door to improved technologies. With these technologies applied, an advanced economy would produce a greater amount of goods in a shorter period of time so that end result is that more goods are made available which may therefore be purchased for a lower price if the money supply remains the same. In this case we would experience a price deflation and an increase in prosperity.

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