Calling All Hackers: How money works (2024)

I understand there's a reason why accountants do things the way they do. But hacking is about looking at things differently. To use your analogy, one can definitely gain insight into planetary motion from a geocentric model even if it's not the best model for all purposes.

CPA here again, You're poking and some very interesting concepts! There is a lot to explore. Some thoughts:

- Yes money is in many ways best thought of as an abstraction. A socially agreed upon store of value that is easily exchangeable for other things of value. There is a tension (and a spectrum) between commodities that have use value and money commodities that have exchange value. In nascent market economies, commodities with use value can emerge as money commodities through consensus, that is, they emerge as socially agreed upon exchange value commodities. Think cigarettes in prison or precious metals like gold. Money commodities emerge naturally once there is enough stable volume of market activity which ensures liquidity. It's all contingent on constant market activity to keep it liquid as well as a sustained social consensus that is represents a store of exchange value. This is a lot of what Marx's Das Capital explores.

- Things like vehicle depreciation are not just so the books "work" nor is the intent for it to perfectly represent how an asset depreciates. Consider a milk delivery business. I buy a delivery vehicle year 1 for $40,000 and I expect it to last me 10 years approximately. Let's say I earn $10,000 a year for the delivery business and I pay a driver $7,000 a year to deliver milk using my delivery vehicle. If i don't include depreciation of the delivery vehicle my net income is $3,000 annually or 30%. Pretty darn good! However, we know the vehicle asset was used in service of earning all that revenue, so we should include something to ensure all revenues are netted against all known expenses whether they are wages or capital assets deployed in service of earning said revenues. Otherwise we have an incomplete picture of the business performance in our annual income statement. If I include $4,000 of annual depreciation on the vehicle suddenly I am no longer profitable to the tune of $1,000 a year. This is the matching principle. Profitability needs to ensure all revenues netted against all expenses associated with earning those revenues regardless of cash flow timing.

- But your point stands... The specific amount of depreciation annually is made up mostly, maybe the asset depreciates slower or faster. But there is enormous value in a rule consistently applied. Let's say you're an expert in delivery trucks and you know that the asset will last 20 years not 10... You could purchase the business at a cheap valuation because on paper it loses money annually, but you know the depreciation should only really be 2,000 and therefore the business is actually profitable all other things being equal. You leverage a widely recognized and understood standard applied very consistently as being imperfect, and you use that as a stepping stone to back into what you believe is the true value. This is where things like EBITDA come from that start with GAAP measures and back into what are believed to be better representations of business value, but it hinges on widely understood accounting standards being applied very consistently to create financial information that can be modified for other uses.

> a bit more neoliberalism (stochastically) gives you a bit more prosperity in the long run. You don't need the whole thing 100% to reap partial benefits.

Except in practice it always fail to materialize, neoliberalism has repeatedly been tried everywhere in the western world, resulting in decline instead of prosperity. And people blame the fact that not enough regulations were removed to justify why it failed. So exactly like Communists.

The reality is that the real world is too complex for simplistic ideologies to have positive effects. No matter what kind of ideology.

> And in this case at hand: Canada had much lighter and more sensible regulation in this sector, and they did better. As expected.

As if the only difference was regulations, and not the fact that Canada was at that point part of the British Empire

It's like the commies in the 30s saying that Communism was indeed better, as the USSR had by far the highest growth among industrial nations by then. Forgetting that this growth was mostly due to the fact that Tsarist Russia was lagging far behind before that, and that catching up is always going to cause higher growth.

> But they promise [the creation of wealth] to the society.

It feels like you're trying to describe the "social contract" between private banks and the rest of society, but putting the full responsibility of "wealth creation" only on one party in the contract: The bank.

The other party, Society, is given access to capital when they borrow. The rate they're charged should be competitive since there is presumably more than one lender. By borrowing money they try to "create wealth", then to repay the loan principal along with a bit of the new wealth in the form of interest.

Agreed. Note that the question was directed to someone who “would encourage people doing their own accounts to think of it like this”.