Monday, July 27, 2015

Movement and Life

“The velocity of money (also called the velocity of circulation of money) refers to how fast money passes from one holder to the next. It can refer to the income velocity of money, which is the frequency at which the average unit of currency is used to purchase newly domestically-produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time.”

One of the measures of health in the economy is the velocity of money. When money is on the move, people are happy. The investor puts his money to work in the economy. The businessman is using that money to build factories and hire workers. The workers are getting their paychecks to buy products from businesses that then return their profits to the investor in the form of dividends or capital gains. Savers are adding to their bank accounts. The banks are making loans to people with jobs to buy houses, cars, and educations. When the loans are repaid, the savers get their interest. The banks get their profits. The investors get their dividends. The workers get a new home.

Of course, the velocity of money like the movement of water can get out of control causing inflation or assets bubbles. If there isn’t enough movement the economy stagnates, causing the bifurcation of America that has been a source of a great deal of rather heated political rhetoric over the last few years.

During my morning walk, I thought about the motion of water. From the swirling mists of heaven to the sound of ocean waves in the night, motion is the natural state of water, of money, and of life. In its journey from the sky and the mountains, water seeks to find its natural path until it becomes one with the sea. Man can harness the power of water, but can never ultimately control even this softest of nature’s elements.

Thirty five years ago while I was attending engineering school, I heard civil engineering students discussing the eventual destruction of New Orleans by a hundred year flood on the Mississippi or a category 5 hurricane. Much of the city of New Orleans is located below sea level. There is simply not anything the Army Corp of Engineers can do to stop the flow of water into the city during events of exceptional proportions. Since New Orleans is built on mud, the higher and heavier the levee, the faster it will sink into the sediment.

Individuals and Governments believe they can control the flow of money in every possible situation, although all the evidence is to the contrary. In spite of the best efforts of the Federal Reserve Bank and the Treasury, the business cycle still turns. With the introduction of new technologies, the economy goes through predictable seasons of growth and decay. Consider the effects of low cost steel, the railroads, skyscrapers, automobiles, radio, television, the personal computer and the Internet. Each revolution kicks off cycles of boom and bust.

Consider your own life. In the natural scheme of things a stagnant pond will become a swamp, a place were earth and water are one. For a few centuries or more it will serve as a home for many creatures and plants, ultimately transforming into a piece of prime bottomland intersected by a creek. If your life is stagnant, you are on your way to becoming a home for worms, before you are made one with the earth. That will happen to all of us someday, but hopefully, not today.

Look at your money and your life. Do you like what you see? Are you finding your natural path from the mountain to the sea? Like a great river, are you a source of blessing to those with whom you come in contact? Is your money in motion? Are you making investments in the economy that can benefit others? What percentage of your income are you donating to worthy charitable ventures?

There is often a stench associated with a life that is not in motion, money that is not in motion, or water that is not in motion.

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