The life cycle of money
I'll answer but avoiding discussion of M1, M2 etc, too pedantic. I don't believe you are asking about the lifetime of either coins or paper money. I think you are referencing the fractional reserve system, and how a good portion of the total money supply is created by the banks lending out their deposits in effect 'creating' money. My answer to you is that if all loans were simply paid off, no mortgages, no car loans, etc, the total money in the system would collapse to some reasonable fraction of what it is today, 10% or a bit less. This comes from the fact that the reserve requirement for most large banks is 10%.  I'm referencing money, but not bills or coins. Think about what you make in a year. How much do you touch as paper money? For my wife and me, it's no more than a few percent. Most goes from a direct deposit to online payments. So this would be the subject of a different question altogether.  Let me know if this addresses your question. Echoing JohnF, and assuming you mean the physical, rather than abstract meaning of money?  The abstract concept obviously isn't replaced (unless the currency is discredited, or like the creation of the Euro which saw local currencies abandoned). The actual bits of paper are regularly collected, shredded (into itty-bitty-bits) and destroyed.  Coinage tends to last a lot longer, but it also collected and melted down eventually. Depends on the country, though.  No doubt, many people who took a gap year to go travelling in points diverse came across countries where the money is a sort of brown-grey smudge you hold with care in thick wadges. The more modern economies replace paper money on a dedicated cycle (around three years according to Wikipedia, anyway).
Correct, kept orange demand in a microcosm to simplify.  In the example, ~1 or 2 people would have been highly paid to build the machine, and the house would have created temp jobs for 2 or 3, or the money would have flowed to another tree owner and put into a bigger house.  Point is the new inflow of money hasnt cycled through the economy fast enough to have an effect on consumptive demand. New money has a slower velocity with net effect on inflating asset prices up. "Another important commodity necessary to life is money, which is why when vast sums of it go missing or get locked into long-term investments into which one was grossly misled, it's very upsetting.  One such long-term investment is Zurich Vista, which the OP is intimately familiar with. Another type of fund into which money can strangely disappear, is the now ubiquitous ""off-shore fund"". One should also be very wary of land-banking schemes that boast of high rates of return (15%-20%) and short maturation dates (4-5 years)." what are you talking about, the wealthy are not just tied to money. Alot of it is assets, physical metals, and properties  currency switches happen every 40 years or so btw, which is the case lately in the past couple of centuries. "There's a lot wrong with your explanation and analogy.  I believe you are trying to refute otherwiseyep but you haven't really.  You have described the ""work"" or the ""step in the money-building process,"" that was happening *before* otherwiseyep's scenario.  otherwiseyep's scenario begins at ""the apple farmer wants to get some meat but the orchard hasn't matured yet,"" implying that apples have in fact been traded for meat in real time.  Secondly, I would much prefer a person build their own explanation and analogy than build onto someone else's while thinking it insightful in any way.  Lastly, you went all Paul Krugman on us and used the word ""costs of production"" which I *think* you mean to be ""work"" but you did not build that analogy.  When you went ""Paul Krugman,"" you jumped a HUGE boat.  Krugman talks about very advanced economics and some of his stuff is political in nature.  At no point did you build any specific analogies to Paul Krugman's many theories.  You so completely lost me with that, I almost went into negative integers.  Edit:  otherwiseyep had been misspelled as otherwiseyes.  Slightly laughable." Tulip madness was likely a result of an expansion of money supply. Dutch govt initiated a subsidy program of gold minting before the bubble, attracting a lot of money into country and expanding the money supply(despite being on gold standard). See Doug French's free book on mises.org on this.  Similar stuff happened in Spain when the american gold hauls were imported.  And it matches the idea - banking system getting money first creates illusion of more credit being available than what savers are actually putting aside so the seeds for an unsustainable bubble are sewn. When coming to that conclusion, you only consider half of the facts. Yes, all money is debt.  But what you miss is that there are other values and assets out there, not just money. These actually match each other to some degree. If the value of all these other assets grow at the same pace as the money supply, then there will be a balance.  If one grows faster than the other, there will be inflation or deflation. At least there should be, which is the problem not understood. I don't think that there's a specific  number or index that gives you what you're looking for. I think the closest thing to it would be the velocity of money, which is a measure of how often money changes hands.  Also, for what it's worth, I believe that this concept is controversial in some circles. But how can you have continued growth? Nothing is perpetual at least not in real life - maybe in theory :)  I'm guessing you're talking about growth in the money supply right? Well how can you keep growing your money supply indefinitely if doing so requires the creation of a larger amount of debt than the amount that already exists?  Think of it in rounds. If each round of debt requires that new debt to the amount of 105% of the old debt is created, how long can you keep that running for? You've essentially got the principle of compound interest working against you.   I'm obviously missing something really big because this seems ridiculous to me... "I'm just trying to visualize the costs of trading. Say I set up an account to trade something (forex, stock, even bitcoin) and I was going to let a random generator determine when I should buy or sell it. If I do this, I would assume I have an equal probability to make a profit or a loss. Your question is what a mathematician would call an ""ill-posed problem.""  It makes it a challenge to answer.  The short answer is ""no.""  We will have to consider three broad cases for types of assets and two time intervals. Let us start with a very short time interval.  The bid-ask spread covers the anticipated cost to the market maker of holding an asset bought in the market equal to the opportunity costs over the half-life of the holding period.  A consequence of this is that you are nearly guaranteed to lose money if your time interval between trades is less than the half-life of the actual portfolio of the market maker.  To use a dice analogy, imagine having to pay a fee per roll before you can gamble.  You can win, but it will be biased toward losing. Now let us go to the extreme opposite time period, which is that you will buy now and sell one minute before you die.  For stocks, you would have received the dividends plus any stocks you sold from mergers.  Conversely, you would have had to pay the dividends on your short sales and received a gain on every short stock that went bankrupt.  Because you have to pay interest on short sales and dividends passed, you will lose money on a net basis to the market maker.  Maybe you are seeing a pattern here.  The phrase ""market maker"" will come up a lot. Now let us look at currencies.  In the long run, if the current fiat money policy regime holds, you will lose a lot of money.  Deflation is not a big deal under a commodity money regime, but it is a problem under fiat money, so central banks avoid it.  So your long currency holdings will depreciate.  Your short would appreciate, except you have to pay interest on them at a rate greater than the rate of inflation to the market maker. Finally, for commodities, no one will allow perpetual holding of short positions in commodities because people want them delivered.  Because insider knowledge is presumed under the commodities trading laws, a random investor would be at a giant disadvantage similar to what a chess player who played randomly would face against a grand master chess player.  There is a very strong information asymmetry in commodity contracts.  There are people who actually do know how much cotton there is in the world, how much is planted in the ground, and what the demand will be and that knowledge is not shared with the world at large.  You would be fleeced. Can I also assume that probabilistically speaking, a trader cannot do   worst than random? Say, if I had to guess the roll of a dice, my   chance of being correct can't be less than 16.667%. A physicist, a con man, a magician and a statistician would tell you that dice rolls and coin tosses are not random.  While we teach ""fair"" coins and ""fair"" dice in introductory college classes to simplify many complex ideas, they also do not exist.  If you want to see a funny version of the dice roll game, watch the 1962 Japanese movie Zatoichi.  It is an action movie, but it begins with a dice game.   Consider adopting a Bayesian perspective on probability as it would be a healthier perspective based on how you are thinking about this problem.  A ""frequency"" approach always assumes the null model is true, which is what you are doing.  Had you tried this will real money, your model would have been falsified, but you still wouldn't know the true model. Yes, you can do much worse than 1/6th of the time.  Even if you are trying to be ""fair,"" you have not accounted for the variance. Extending that logic, then for an inexperienced trader, is it right to   say then that it's equally difficult to purposely make a loss then it   is to purposely make a profit? Because if I can purposely make a loss,   I would purposely just do the opposite of what I'm doing to make a   profit. So in the dice example, if I can somehow lower my chances of   winning below 16.6667%, it means I would simply need to bet on the   other 5 numbers to give myself a better than 83% chance of winning. If the game were ""fair,"" but for things like forex the rules of the game are purposefully changed by the market maker to maximize long-run profitability.  Under US law, forex is not regulated by anything other than common law.  As a result, the market maker can state any price, including prices far from the market, with the intent to make a system used by actors losing systems, such as to trigger margin calls.  The prices quoted by forex dealers in the US move loosely with the global rates, but vary enough that only the dealer should make money systematically.  A fixed strategy would promote loss. You are assuming that only you know the odds and they would let you profit from your 83.33 percentage chance of winning. So then, is the costs of trading from a purely probabilistic point of   view simply the transaction costs? No matter what, my chances cannot   be worse than random and if my trading system has an edge that is   greater than the percentage of the transaction that is transaction   cost, then I am probabilistically likely to make a profit? No, the cost of trading is the opportunity cost of the money.  The transaction costs are explicit costs, but you have ignored the implicit costs of foregone interest and foregone happiness using the money for other things. You will want to be careful here in understanding probability because the distribution of returns for all of these assets lack a first moment and so there cannot be a ""mean return.""  A modal return would be an intellectually more consistent perspective, implying you should use an ""all-or-nothing"" cost function to evaluate your methodology." I'm not sure, but I think the monetary system of Second Life or World of Warcraft would correspond to what you are looking for. I don't think they are independent of the dollar though, since acquiring liquidity in those games can be done through exchange for real dollars. But there can be more closed systems, maybe Sim type games where this is not the case. I hope this helps. "It's like the lady said, ""It's not the size that counts, honey -- it's the wiggle behind it.""  Or to be more precise in application of metaphor, it's not the amount of money but *where it goes* that matters. Currency is like blood: It's supposed to circulate, but when it pools into large pockets, well, that's a good sign you're dead." "No, it's not a closed loop. Most currency in circulation is bank credit, meaning money that originates from loans that originated from a bank. Once the loans are repaid, the ""money"" that was created by the loan disappears - freeing up the bank to make more loans. This is how fractional reserve banking works. [Check this out](http://www.youtube.com/watch?v=W3hLKpKv3ME) for more info (it's really interesting actually).  Not to say that the rich aren't ""sopping up"" too much cash. It definitely is a problem..." "The Ponzi/Madoff schemes were closed loops, so the only source of the so-called ""interest"" on the money was the contributions of future investors. The economy is more like a living thing, and the availability of capital allows people to develop new ways to do things in a more productive way. Agriculture is a great example -- for most of human history the overwhelming majority of human labor was dedicated to producing food. Now that proportion is dramatically smaller -- the descendants of farmers 100 years ago are doctors and computer programmers... professions that could not exist. Fractional reserve banking makes the economy more efficient by putting capital that would otherwise be hoarded in circulation. Money is a medium of exchange, so the more it turns over, the better it is. Genoa and Britain pioneered this concept centuries ago, and were able to defeat larger rivals in large part because of the economic advantages that the practice brought to bear.  That's not to say that banking doesn't come with its warts as well. I'd suggest reading ""A Free Nation Deep in Debt"", which does a good job of explaining how we got to where we are today." "**Cycle of poverty**  In economics, the cycle of poverty is the ""set of factors or events by which poverty, once started, is likely to continue unless there is outside intervention"".  The cycle of poverty has been defined as a phenomenon where poor families become impoverished for at least three generations, i.e. for enough time that the family includes no surviving ancestors who possess and can transmit the intellectual, social, and cultural capital necessary to stay out of or change their impoverished condition. In calculations of expected generation length and ancestor lifespan, the lower median age of parents in these families is offset by the shorter lifespans in many of these groups.  ***  ^[ [^PM](https://www.reddit.com/message/compose?to=kittens_from_space) ^| [^Exclude ^me](https://reddit.com/message/compose?to=WikiTextBot&amp;message=Excludeme&amp;subject=Excludeme) ^| [^Exclude ^from ^subreddit](https://np.reddit.com/r/economy/about/banned) ^| [^FAQ ^/ ^Information](https://np.reddit.com/r/WikiTextBot/wiki/index) ^| [^Source](https://github.com/kittenswolf/WikiTextBot)   ^] ^Downvote ^to ^remove ^| ^v0.27" The value of money is not only in the earning and saving of it but also in the discipline in spending it.  Any approach to teaching children about money must ensure a balance between the two otherwise they will either become fearful of spending (and so never actually learn that money is but a tool and can be enjoyed) or irresponsible (spending with abandon with all that concomitant misery): Teaching kids about money is a wonderful opportunity to instil discipline and values.  Any strategy must be structured to suite the child's age and abilities as well.  Trying to teach compound interest to too young a child will just become needlessly confusing and worrying for them.  Hope this gives a few ideas.