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Alchemy Revisted-The Creation of Wealth in the American Economy

© Glenn Hameroff

Back in the 1950's, America achieved recognition as the world's leading economic power. Our vast industrial base had emerged unscarred by the Second World War and our ability to produce real products was without peer in the world community. A hard working blue-collar worker could expect to own a home and a car. This could be accomplished while his wife stayed home and raised the children. Dreams were fulfilled, cars were made of steel and Robert Young's weekly television show declared that "Father Knew Best."(The Cold War and the 1950's-The Affluent Society- http://us.history.wisc.edu/hist102/lectu... )

Today our world is continually changing and families are being redefined. Cars are no longer made of steel; many families are headed by a single parent and we have achieved the "Medieval Alchemist's dream"-we create wealth from nothing. If you watch the television coverage of the day's activity on Wall Street, you begin to realize the investments are made on rumors of expected mergers, options to buy or sell products that do not exist yet, mutual funds that track stock indexes, hedge funds and derivative funds. People invest in a company for two months and sell not when the company has achieved a new level of efficiency in output, but rather, they unload a stock because of an anticipated change interest rates. Instead of investing in the growth of companies that produce products; some of our society's finest minds are consumed by creating novel ways of re-selling the same wealth.(The Ages of Alchemy- http://members.tripod.com/adm/popup/road... )

As if the system were not already sufficiently confusing, additionally it relies on several paradoxes to guide its waves of buying and selling. In the old days, a low level of unemployment was considered a social good and a sign that the economy was prospering. Today the interpretation is more convoluted. If the economy is working at full employment employers will be forced to compete for new workers driving up wages and releasing the evil genie of inflation from its lamp. So it is good to see the jobless rate increase so that upward pressure on interest rates will not be necessary. Since many large consumer purchases (homes and cars) are funded by loans, the direction of interest rates is crucial. We are living during a consumption driven prosperity- we do not want consumer spending to drop precipitously.(Trying to Understand GDP Growth and Its Connection to the Growth of Wealth- http://www.sintercom.org/sef/wealth.html )

But consumers spend more than they earn in their jobs that used to produce something and now produce nothing. If the public perceives that the economy is producing a healthy abundance of nothing, they will compete to buy shares in the companies that excel in producing nothing. Share prices will rise and investor portfolio values will increase. The public will feel wealthier and this "Wealth Effect" will produce more conspicuous consumption. This increase in spending will multiply through the economy and economic growth will occur. (Does the "Wealth Effect Propel Consumer Spending?

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