Velocity of Money

[Backyard economics, for thought exercise only.] There was a meme going around a few weeks back that went roughly like this:

  • A guest pays a hotelier $1000 (as a room deposit)
  • The hotelier uses the money to pay his baker (outstanding invoice)
  • Ditto, the baker to the flour wholesaler
  • The wholesaler to his accountant
  • The accountant to her landlord
  • The landlord in turn pays the hotelier (owed for a staff dinner)
  • The hotelier returns the money to the guest (deposit refund)

  • No money was 'used up', it was circulated
  • The circulation of money cleared the debts of five parties
  • Here, money acts as a tool, like a a screwdriver being passed around
  • Vs if the hotelier stashed the money or spent it on imported cigars

  • Money can have mass, velocity and distance
  • Mass is the amount of money
  • Velocity is how fast it changes hands
  • Distance is how many times it changes hands

  • Ideally, stimulus money should travel fast and far
  • One way to do this is via a digital currency (or similar)
  • Which can't be held on for too long or be used for frills
  • And thus must be circulated, like in the meme above