My five-year-old daughter (now in Kindergarten) inquired this evening as to how money is made. She was clearly not asking about how people get jobs, or where money comes from, but how people (or companies, as she is familiar with them) actually cause wealth (in an abstract sense) to be increased in the world around them. And she clarified that she was not specifically interested in how I make money.

Perhaps there are thoughts on how to answer this question? Besides people having jobs, she knows that I trade things, and that kids her age have been known to set up lemonade stands, and she often grasps quickly all sorts of complex ideas about people's behavior as well as simple economics.

Sam Humbert remarks:

When my younger son was five, he offered this bit of economic analysis after tagging along with Mom on a series of shopping errands, and noticing that at every stop she gave the cashier some money, then the cashier handed her back some change: "It's good that you get change! That way, you never run out of money!"

Rod Fitzsimmons Frey writes:

Wealth was created from imagination and energy. Since there is no limit to the way creative and energetic people can increase the value of the things around them, there is no limit to wealth. It is literally created by the human spirit. 





Speak your mind

4 Comments so far

  1. Adam Nelson on April 4, 2007 8:12 am

    I don’t think anyone reads these, but you might try explaining it to her in a simple sense (like farming). Work is added to land and seed creating a return. They you could add the miller and baker creating a loaf of bread. People trade their efforts (through money) for the loaf of bread and both sides of the trade are enriched.

  2. Anonymous on April 4, 2007 12:26 pm

    An unemployed friend of mine told his young son he couldn’t buy him something: “It costs money, Alexander!”
    “Why don’t buy some money then, daddy?”

  3. vic on April 4, 2007 5:12 pm

    Yes. people like me and even some good people read these. And I’ll share your remarks for sure with all my kids and grandchildren rite now. thanks much. very fruitful. vic niederhoffer

  4. Gary Rogan on April 4, 2007 8:43 pm

    Here’s something that might work:

    There once was a city in which there were two rich people and 1000 poor people. One of the rich people had $10,000,000 and didn’t do anything. The other one had the only factory in town that made all the things the people needed and where 500 of the people worked. They didn’t have cars or horses in this town, so people had to walk to the factory, 4 hours one way, 4 hours the other, so they only could work 4 hours per day. For that they only got paid $5000 per year which they spent on the goods from the factory. The other 500 people stayed at home as there were no work for them. They were very poor and hardly had anything to eat.

    One day the guy with $10,000,000 invented a car. He hired the 500 people who had nothing to do, and had them build a car factory. He spent $1,000,000. Then he started producing cars employing these same people. He lent $5000 to every working person in town to buy his car which cost him $2500 to make. Since they now had cars, they could work for 8 hours a day thus making $10000 per year. In a year they paid off their loans. The rich person made $2,500,000 profit and also recouped his investment in the factory. He kept selling cars every four years after they wore out, making more profit. Twice as many people worked as before, and each one made twice as much as in the old times. After they paid off their loan, they just kept raking new money in. They guy who owned the original factory sold twice as much stuff as before and made twice as much profit, since there were twice as many people working for a higher wage than before. All this came from someone inventing the car, building the factory, employing the people, making them more efficient, and lending money to them. They all got richer and lived happily ever after.

    Gary Rogan


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