How do nations make money?

[RusskiSoldat]

This question has been bothering me for some time.
Before, everything was clear. First they had colonies, which they exploited for raw materials. Then they got industry. But now, in the post industrial era, how do the first world nations make a living?
It seems that manufacturing is no longer the backbone of economies, but then what is?

[Khosson]

Taxes.

[morteduzionism]

This question has been bothering me for some time.
Before, everything was clear. First they had colonies, which they exploited for raw materials. Then they got industry. But now, in the post industrial era, how do the first world nations make a living?
It seems that manufacturing is no longer the backbone of economies, but then what is?

It's not taxes.

It's a name for it...not services......I can't remember

It's like: if the US can produce (x) amount of widgets then they(US) are worth a certain amount.

So one country can borrow 'money' because it'll one day be able to produce/export an equivalent value of goods/services...

Do you get it?

Another attempt to explain: if a phone could be sold for $1/US and the US can produce 1000 phones that means the US is worth $1000...which means they can also borrow $1000...eventhough there'll never be an exchange of actual currency...

I hope I didn't confuse you more than you already were

[The Knight 2100]

Do you mean GDP maybe?

[Aristophanes]

This question has been bothering me for some time.

The simple answer is that nations don't 'make money'. Reserve banks may print money or engage in other activities to increase the money supply, and national governments may tax individuals in order to make purchases in legal tender, but there is no monolithic nation entity out there 'making money'.

Money is simply a record of value, and value is created by using the resources at our disposal as efficiently as possible to generate benefits/resources. I can generate value, for example, by creating, as a Chartered Accountant, processes with controls which limit bad economic decision-making by individuals in a department of our company. An engineer generates value when he designs a transistor which requires less energy to produce the same output. A scientist generates value when he makes a discovery which provides us with knowledge useful to the functioning of any process associated with that knowledge, and also by creating useful new information which can be utilized to generate even better information.

Here's a list of concepts you should look into:

Money: money is usually a generally accepted medium of exchange. As such, it only has value because it is perceived to have value (for example, you can't eat or wash with money), and is designed to carry information about actual value.

Capital: Capital is anything that confers the ability to affect one's environment. As such, there are many types of capital, from human capital, to knowledge, to technology, fixed assets, money, etc... When positive value is generated, the store of capital increases. I would say that capital is information harnessed for productive enterprise.

Trade: Process by which any good is exchanged for any other good. Usually performed using a medium such as money. Two people can gain from trade because each good has a variable utility for each person. When a person is said to 'profit' from a trade(involving money), they have a net economic benefit registered as as the monetary difference between the value they gave up, versus the value they got.(or capital they gave up vs got)

Productivity: productivity describes relative ability to turn inputs into desired outputs. Processes have varying efficiency, depending on how they were designed, and the ability to design processes well is hinged on ability to generate and derive maximal utility from information. Economies which are efficient at producing, analyzing and harnessing information achieve higher productivity than those which aren't good at those activities.

Opportunity Cost: due to the finite nature of resources (human, knowledge or otherwise), how resources are used is instrumental in determining what benefits are received from them. The opportunity cost of any action is the value that would have been gained from foregone alternatives. For example, when assets are destroyed, an opportunity cost exists for replacing them, such that a society where assets are destroyed is poorer by whatever value the resources used to replace assets could have provided. Every decision imposes an opportunity cost, and money is a very useful means through which we can calculate foregone benefits of a decision. Because money is convertible, many things can be measured in terms of $, and, when we engage in trade, money can tell us what value we will gain from an exchange vs what we will be giving up: this, in itself, is a great efficiency. Without money it would be near impossible to determine this. Modern financial analysis and valuation methods such as net present value, net realizable value, discount rates, discounted cash flow valuation, etc... provide yet further detail to the analysis.

Value: could be termed the difference between the benefits conferred by a choice and its opportunity cost. Value is created by efficient use of resources, trade being one of the chief methods.

Before, everything was clear. First they had colonies, which they exploited for raw materials.

Do you ever wonder what it cost those societies to build those colonies, or how some societies were able to colonize, and why some were colonized?
Do you ever wonder why countries with such apparent raw material wealth were colonized, rather than colonizing others?

Then they got industry. But now, in the post industrial era, how do the first world nations make a living?
It seems that manufacturing is no longer the backbone of economies, but then what is?

It's the same as it has always been: the most efficient use of resources possible.
For example,a recent issue of the Economist showed the amount of value several prominent economies produced per liter of oil: the US led the pack. Less advanced economies used 4 times as much(or more) oil to produce the same value as American firms!

[Mig el Pig]

This question has been bothering me for some time.
Before, everything was clear. First they had colonies, which they exploited for raw materials. Then they got industry. But now, in the post industrial era, how do the first world nations make a living?
It seems that manufacturing is no longer the backbone of economies, but then what is?

Your wrong, Industrialisation happened before Europeon countries could exploit their colonies for raw materials(except silver, gold and spices)
It's only after the decolonisation that there were enough massive ships to ship loads of all kinds of resources to 1st world nations.

The most successful economies today(Japan, Germany, USA and the Scandinavian countries) are not known for their colonies.

While the 2 european nations who where first in the race of colonisation (Portugal and Spain) only regained their wealth after they lost their colonies and joined the EU.

It is thanks to Industrialisation that Europeans colonised the world, not the other way around because except for gold, silver and spices it wasn't worth it.

you should read War and Anti-War. Survival at the dawn of the first century by Alvin&Heidi Toffler

In there the theory is formulated that the way we generate our wealth is the same way we fight our wars.

In that theory there are 3 waves

first wave is agriculture

Agriculture made war possible and it also determined the limitations of war.

will come back later.

[Rush Limbaugh]

Now days they just print more

[morteduzionism]

He's asking about how nations gain...revenue. He's not asking about the development of an economic system or the history of anything...

When...money...was based on gold it was easy...a nation was worth how much gold they had but that ended...70ish years ago(IIRC)

Now, it's like I tried to explain...money/revenue is based on...produceable goods/services(whatever the word is)...

[Rush Limbaugh]

Now, it's like I tried to explain...money/revenue is based on...produceable goods/services(whatever the word is)...

How about Voodoo-economics?

[Justice and Mercy]

How about Voodoo-economics?

That sound you hear is the nail screaming in agony.

[morteduzionism]

How about Voodoo-economics?

That's actually a good way to put it. When it was explained to me...it sounded...like...fuzzy economics too...

[Aristophanes]

He's asking about how nations gain...revenue. He's not asking about the development of an economic system or the history of anything...

I'm afraid both you and he will have to be clear. Do you mean tax revenue, or do you mean domestic product, the aggregate of everything produced by everyone in the country.

When...money...was based on gold it was easy...a nation was worth how much gold they had but that ended...70ish years ago(IIRC)

No. Gold was the basis/underpinning for some nation's financial systems under the Gold Standard, but, considering gold was a convertible monetary standard, the assertion that the nation was 'worth how much gold they had' is ridiculous. Even with the gold standard, for example, the money supply was multiples of gold reserves held by banks--gold wasn't a measure of wealth of the society, but of liquidity, something entirely different.

Simply put, worth and money supply are not the same things.

Now, it's like I tried to explain...money/revenue is based on...produceable goods/services(whatever the word is)...

No, there's been no change. Money is backed by a different asset class, but nothing changes the fact that money is still backed by assets. The reason I explained the conception of money in my last post is because you seem to be confusing the monetary system with a fiscal system with the product of an economic system. A huge level of confusion seems to reign, and it was my attempt to inform, rather than to obfuscate.

[Chlodwig I.]

The most successful economies today(Japan, Germany, USA and the Scandinavian countries) are not known for their colonies.

Sorry
you have forgotten the Biggest Player in Worldeconomy

PR CHINA

they are already Nr.3 and by the end of this decade they are at least Nr.2

Let me be more precise: what do the nations of the first world produce today so as to gain revenue?

They get it by getting Investors to invest into thier economy and create some Companies it that country
And Companies get thier profit by creating and selling goods or services in that nation or worldwide

they pay wages to thier employes and dividend to thier shareholders
The Country taxes this wages, dividends and company profits and so the country gets a revenue


And nations normaly don't "produce" anything they offer public services that are paid with this tax revenue
like healthcare, police, firefighters, schools, judges/laws, utilities, streets and transportation, Army etc.


So if you ask what the privat companies in 1st world countries produce
Buildings (every kind of from a skyscraper to a private Home, Bridges, Streets, Waterdams etc.)
and then go into a supermarket and take a look, go through a city and take a look into the shops
Hair cut, Musik, Movies, Televison, Newspapers, Paper, Shoes, Clothes, Cars, Electronics, Computers, Computer Games, Mobilephones, Food, Planes, Railways and Trains.

[RusskiSoldat]

Let me be more precise: what do the nations of the first world produce today so as to gain revenue?
I realize taxes are a huge part of it, but for those you need income to tax.
The biggest industries I see on an everyday basis are those dedicated to keeping humanity intact (hospitals, grocery stores and the like) and those dedicated to trade (this would include any and all regulatory bodies as well as quite a lot of law practice). Where do products of value actually get made and how does the first world profit from them?

[Aristophanes]

Let me be more precise: what do the nations of the first world produce today so as to gain revenue?
I realize taxes are a huge part of it, but for those you need income to tax.
The biggest industries I see on an everyday basis are those dedicated to keeping humanity intact (hospitals, grocery stores and the like) and those dedicated to trade (this would include any and all regulatory bodies as well as quite a lot of law practice). Where do products of value actually get made and how does the first world profit from them?

Most of what the first world produces could be termed 'efficiencies'. Financial, technology and science services which allow work to be carried out more productively. Not surprisingly, there is a huge demand for that sort of stuff. As well, trade, as I noted, produces a good.

Sure it has. It depends on the time period your speaking of. Not only that we no longer produce goods because we need them but to sustain capitalism. We are like a dog chasing its tail.

Really, I thought we were more to the tune of a society consistently producing better and better technology, which, inevitably, will improve our long-term chances of survival. If you object to the idea that life should be more comfortable, longer, healthier, more enjoyable, less stressful, etc...that's cool, but don't bring me down with you.

I shouldn't have to point this out, but any society, in our rather entropic universe, which isn't making progress is falling behind.

[RusskiSoldat]

So are you saying that even the countries of the first world today still live on manufacturing (albeit of relatively high tech things)?

[Paggers]

So are you saying that even the countries of the first world today still live on manufacturing (albeit of relatively high tech things)?

To a certain limited extent, yes.
However some first world countries such as UK have used their historic wealth to invest abroad as per Chlodwig above.
This brings in dividend income and the likes and this money is reinvested in UK and abroad so it becomes a self-perpetuating cycle.
The initial source of the capital is the private savings of individual citizens.
This last part falls apart if one considers all the investment activity coming out of Iceland.

[RusskiSoldat]

Thanks for helping me get the big picture.
So the nature of the world economy hasn't really changed, it's just that the investor base has been expanded to include the entire first world.

[Rush Limbaugh]

So the nature of the world economy hasn't really changed, it's just that the investor base has been expanded to include the entire first world.

Sure it has. It depends on the time period your speaking of. Not only that we no longer produce goods because we need them but to sustain capitalism. We are like a dog chasing its tail.

[Chlodwig I.]

Sure it has. It depends on the time period your speaking of. Not only that we no longer produce goods because we need them but to sustain capitalism. We are like a dog chasing its tail.

Thats maybe the first time I have the same opinion like Rush

If you take a look into the last 20 years you see that more and more companies move to produce in China
but still sell thier products to prices af they would have to pay 1st world wages.

But the big joke is most companies move to china to produce cheaper products so that more people can buy them
but in the same term they make the possible buyers unemployed,
But to keep the shareprices rising you need to grow and produce more, even if its not usefull

E.g. China
because customers are only willing to pay lets say 5$ for that product
or because the shareholders demand that your make more profit
your company moves to China
to produce the goods cheaper or to sell it to the 1.3 Billion chines customers

But china demands that you make a joint venture with a chinese company
and that you export 30-50% of your produced goods.

So you close one of your 2 plants in the US and you start the JV in china
and you export the Goods from China to the US

Now your Chinese JV partner Copies your Technology
and starts a new venture to produce the same goods with your technology

and then he sells the goods cheaper then you
(because he hadn't had to spend money for product resarch and development because you delieverd him the technology),
and after some years you are out of business