Quick Q&A

That seems simple enough. So why do we think it’s hard to understand?

Finance! That’s the problem. Macro-economics, inflation, interest rates, financial trading, futures, share prices, exchange rates - these are all about money and finance, and the “science” around them is much disputed and quite complicated. But the real economy is mainly about production, not money. Much wealth can be produced without any money at all.

So how does money fit into economics?

Money is an important tool for producing real, useful wealth. It allows people to obtain what they need in order to be productive themselves. But if we focus exclusively on money then we’re missing the point. Money isn’t wealth. It’s only a tool for producing wealth. 

Maybe only a tool. But still a pretty important one. 

Yes, but would you measure a table top by the size of the saw you used to cut it? That’s what governments do, measuring wealth creation in terms of the movement of money (GDP). And that's why money, rather than real production, plays such a dominant role in economic policy-making.

So what’s the way forward? Seems a big ask to separate money from economics…

Measurement is the key. Like a recipe, a construction project or a sewing pattern, it’s important to measure the right things in the right way. When it comes to the economy, we need to measure how much real useful value we are collectively producing, not the amount of money that is changing hands.