*Unfortunately it'll do that through something called a depression. I don't know about you, but I'd rather avoid such a situation.*

I think you are jumping the gun a bit. There will be winners and
losers, sure, there always are. Those who overborrowed and overspeculated,
will have to sell assets cheaply to those who wisely avoided speculation
and saved their pennies. The Americans stand to
lose heaps, the Chinese and Arabs will be waiting with their cash.

Col is correct, money is nothing but another commodity. In money
terms, the US $ used to be considered the default currency, thats
now changing. In commodity terms, money is simply the default
commodity that we all can use, as we exchange goods and services.

The thing is, our perceptions of what things are worth will change
over time. That is refelected in a marketplace and where there is
a marketplace, there will be speculation with winners and losers.

As Arjay notes, there is huge waste in the system, above all
in the Govt system, for they are the only ones with the luxury of
monopolies.

Our own markets are largely distorted by various Govt regulations.
For that you can't blame the market, but Govts

In an earlier post I meant commend the contribution of Mr Smith to this discussion as I did Desipis. Their contributions and the original article were all excellent.
I have another FDR contribution this time from his 1932 campaign commenting on the situation before the depression.

“A glance at the situation to-day only too clearly indicates that equality of opportunity as we have known it no loner exists… Our economic life was dominated by some six hundred odd corporations who controlled two thirds of American industry. Ten million small business men divided the other third. Clearly, all of this calls for a reappraisal of values…
As I see it, the task of government in its relation to business is to assist the development of an economic declaration of rights an economic constitutional order… Every man has a right to his own property; which means a right to be assured, to the fullest intent attainable, in the safety of his savings… If in accord with this principle we must restrict the operations of the speculator, the manipulator, even the financier. I believe we must accept the restriction as needful, not to hamper the individual but to protect it.”
The concept that all jobs in the economy are valuable is beyond my comprehension, but I am closing on my ninth decade. Desipis's widget example showed that argument fallacious. FDR also is stating that the speculator, the manipulator and even the financier are not all that valuable and are in effect parasitic.

FDR
23 Sept., 1932

Desipis “government intervention never has done and never will.”
The role of government is to regulate, not to participate in any market.

The only time government has owned a commercial interest is when they have operated a monopoly, to the detriment of the consumer

examples,

the two airline policy, where one was owned by government.

Telstra.

Their sale into private hands has produced

Cheaper airfares on domestic routes from an increased number of participants.

More price competitive telecomm services.

The government regulates by organizations like ACCC, who have powers to inspect and prosecute (eg Visiboard).

ACCC does not operate a “commercial division” to sell “specialist consultative services”.

Such an activity would represent a “conflict of interest”.

The eternal conflict which always occurs when the umpire is owned by one of the teams.

The only reason you would manage to sell a widget to your neighbour is because he perceives it have a value to him, either real or intrinsic, which exceeds the price you are offering it for sale.

Your hypothesis fails for the simple reason the increasing price charged by your “neighbours”, even with a specialty insight and skills at selling, will quickly find no one to onsell the widget to.

The only way your hypothesis could possibly work is if it were a form of “pyramid scheme”.

therefore your hypothesis fails because pyramid schemes are illegal (section 65AAC, Trade Practices Act) (as you should know if you wish to preach commerce).

The issue remains “What represents a productive investment”

Defining “Productivity” is very simple,

It is the “satisfaction of a want”.

The satisfaction of any “want”, by form of commercial exchange is a “productive” exchange.

The Resources needed to facilitate such exchanges represent “productive” investments.

Buying a hooker is a productive exchange and Melbourne’s “Daily Planet “ a “productive investment” (immoral but now legal).

Buying a high tech factory which ends up being used for a flea market is both moral and legal but I doubt the investors “return” would class it as a “productive” investment

Col Rouge, two counter examples:

Australia Post
The rise in bank fees and closer of branches after the privatization of the banks.

As for Telstra, anyone with a basic understanding of the telecommunications industry could tell you what an absolute mess that has created.

The great virtue of capitalism is that it frequently aligns the interests of the collective with the interests of the individual. The government should maximise the benefits from this by allowing freedom in cases where the interests are aligned and providing mechanisms to deal with the situations where they aren't. Sometimes this mechanism might be regulation, sometimes it might be a baseline competitor and sometimes it might be a government run monopoly. It is necessary to identify where interests are not aligned and determine the best course of action for the collective.

"The only way your hypothesis could possibly work is if it were a form of “pyramid scheme”."

That's pretty much my point, that the asset inflation we're seeing is a result of people buying something because they think they can sell it for more later, not because there's some underlying worth to it.

"The satisfaction of any “want”, by form of commercial exchange is a “productive” exchange."

The converse of this is that: The creation of any "want" by form or commercial exchange is an anti-productive exchange. This is one of the key issues, in that many businesses go out of their way to create "want" or "need" to increase opportunity for profit. This is anti-productive and harmful to society. (e.g. excessive marketing, selling addictive substances)

Another issue is where a business deliberately avoids satisfying "want" because it is more profitable. This is anti-productive and harmful to society also. (e.g. market manipulation, Enron)

Foyle: It's reassuring to have the support of another commentor, it's greatly reassuring to realise that I'm saying the same things as a guy who was elected president 4 times. Of course its not the fact that he got elected that legitimises his policies, but rather the almost 100% increase in real GDP during the 8 years of his pre-war presidency.

Col,

Neither I nor anyone else here is daft enough to fall for that whole “rental supply” ploy.

There is only one way to add to the housing supply and that is by building more houses.

An increased level of investment in established homes merely redistributes ownership among the existing stock.
More specifically it decreases the rate of home ownership.

Conversely, a decreased level of housing investment (ie. lower proportion of tenancies) increases the rate of home ownership.

It's a proportional relationship. There is no separate & distinct “rental supply” there is an overall supply of available homes among which the ownership profile is constantly changing.

Houses, unlike farms factories & other commercial properties don’t produce anything. They are passive assets. Merely changing the ownership of these assets adds nothing to production. Construction does.

As for the broader picture beyond that, while you may be unwilling to differentiate between productive & non-productive industries, economists and finance sector professionals have been making these distinctions for decades.

I was trying to minimise the jargon in my last post but you will no-doubt recognise that” the formal terminology refers to “value-creating” & “value-adding” industries.
While speculation has been exhaustively discussed here, economists recognise that there are a wide variety of ventures that are neither ‘value-adding’ nor ‘creative’:

Monopoly profit, arbitrage, derivatives, short-selling, currency (foreign exchange) dealing, carry trades, asset-stripping, financial engineering etc.

While you may be disposed toward the philosophical notion that any business is just as good as the next - as long as they turn a profit.
There is nothing particularly compelling about that idea from an economic policy point of view. It's a means-justifies-the-end doctrine that requires a certain level of faith on the part of the believer.

Businesses don’t exist in isolation they affect others. Policy is made on a collective level. There will always be plenty of people that will favour the enterprises that create tangible value over those that profit from redistribution & debt.

By way of a practical observation (rather than a moral judgement) the least productive ultimately become the most expendable.

-Mr Smith

Desipis, I remind you that the bank spread on housing loans used
to be around 4% plus, its now around 2.5%. Yes they closed my local
bank branch and I protested. They were right actually. I now do most
banking on the net, the banking facility at the grocery store is
all that I need. Its a win-win all round. As a superannuation
shareholder in banks, as most people are, we all benefit from
their profits, as well as their improved efficencies.

Telstra, when it was a Govt monopoly, used to charge me 9$ an
hour for internet access. It took a tiny ISP and ten of us original
subscribers, to insist that they were too busy feathering their own
nests and did not give a stuff about the customer. Whatever you
may claim about the telecommunications industry, fact is that
consumers have benefitted from lower prices. Competition seems to
be the only way that people who work for monopolies, be they
Govt or private, will get off their little butts and start to think
about the customers, rather then just themselves and their little
feathered nests.

Yes Australia Post now works ok. For the threats were made clear
and they could see all around them, Govt enterprises being flogged
off. If they did not pull their proverbial fingers out, they would
be next. Amazing how that simple threat has transformed AP. The
threat of competition and the real world. Again consumers benefit.