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Additive, multiplicative, and exponential economics – Andart II

aleph.se · 868 words · saved by 1 readers

A simple, and hardly unique economic observation: when you are poor, money is additive. As you get more, it becomes multiplicative. And eventually exponential. To a kid or a very poor person every coin is a treasure, worth something just by being itself. When you get a few coins they instead sum into fungible numbers. These are additive – you add or subtract to your wallet or account, and if the inflow is larger than the outflow your number will get bigger. You dream of finding the big pile of gold. Saving makes sense. Then loans, investment, and interest show up. You can buy something and sell it for more, and the more you can buy and resell it the more profit. You can use existing money as security to borrow more. Good quality things you can now afford save money. It is multiplicative. Eventually you get into the exponential domain where the money keeps on growing since it is being invested and the time horizon is long. A short horizon means that compound interest or reinvestment has

(Based on this Twitter thread . Epistemic status: fairly plausible, I would teach this to kids) A simple, and hardly unique economic observation: when you are poor, money is additive. As you get more, it becomes multiplicative. And eventually exponential. To a kid or a very poor person every coin is a treasure, worth something just by being itself. When you get a few coins they instead sum into fungible numbers. These are additive – you add or subtract to your wallet or account, and if the inflow is larger than the outflow your number will get bigger. You dream of finding the big pile of

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