Understand economics from scratch

Chapter 6 If you don't understand economics, you can't understand this era - 10 key terms in the economic world (3)
In the above example, the young man stole other people's things, which not only destroyed the simple folk customs of the village, but also deteriorated the image in people's minds.For the person who lent him money, even if he repays the money, no one else will lend him money in the future. This is the price paid for credit and broken credit.

From the perspective of pure economics, the definition of credit is: credit sales activities due to the lag of value exchange are economic transactions under different time intervals guaranteed by agreements and contracts.If you want to maintain the self-consciousness of economic order, you need legal protection.If there is no legal protection, the economic order will be destroyed.

The loss of personal reputation can lead to such serious consequences, for a business, credit is more important.The reason why an enterprise can develop sustainably is not only to continuously develop products, but more importantly, to establish a long-term, stable and good relationship with other enterprises, so that the products of the enterprise will be marketable.Someone once said: "Integrity is the life and soul of an enterprise. Without integrity, an enterprise is like suffering from schizophrenia. Without cohesion and appeal, it is like a walking dead."

The emergence and development of credit cards is the best example of the application of credit to commercial activities.Nowadays, credit cards are widely used in daily life.It is not only convenient and fast, but also has a high safety factor.There is such an interesting story about the creation of credit cards:
One day, American businessman McNamara was entertaining guests at a restaurant in New York. When he arrived at the checkout, he found that he did not bring his wallet. He was deeply embarrassed and had to call his wife to bring cash to pay the bill.This incident gave him the idea of ​​​​creating a credit card company, so in 1920 he and his friends co-founded the "Diners Club".This club provides members with a card to prove their identity and payment ability, and members can use the card to record consumption.Later, with the intervention of bank credit, this commercial credit card gradually transformed into a credit card characterized by bank credit.Once the credit card came out, it quickly became popular.

It seems that the original intention of the emergence of credit cards is to provide people with a credit certificate, so that people can get a certain line of credit from banks by virtue of their economic income and credit.Therefore, a real credit card can provide people with a certain limit of consumer credit.And this is a fundamental symbol of credit cards, and it is precisely because of such a function that credit cards have the real meaning of "credit".

Even if the enterprise is like this, integrity in the national economy is even more indispensable.Integrity is the standard to measure the development status of a country.If the integrity of the people is low, the economic behavior will be uncertain and unpredictable, the opportunity cost of investment and the transaction cost of goods will be very high, the efficiency of economic operation will be low, and the waste of social and human resources will be more serious. .In the national economy, the fundamental reason for the decline of honesty is that people pursue unjust enrichment and the opportunity cost of being discovered and punished for pursuing unjust enrichment is very small.How to reduce and eliminate the adverse impact on the social economy caused by national dishonesty, and then improve the economic efficiency of the entire society?This requires the government to establish a credit mechanism compatible with the modern market economy, especially to set scientific credit standards.

In real life, the standard of honesty mainly includes two aspects: one is the moral standard of honesty.It mainly refers to the code of conduct for people to be honest and trustworthy in their dealings with others. It mainly includes business ethics in business, teacher ethics in teaching, medical ethics in medicine, social morality in common people, and official ethics in officials.The second is the rules and standards of integrity.It mainly refers to a series of policies and regulations formulated to allow people to abide by the principle of good faith in social, political and economic activities, which mainly includes political, economic and legal rules.

In the past, the society was relatively closed, and people always looked up and down, and the consequence of stealing a melon once was to be called a "thief" for the rest of their lives.The cost of stealing is so high that no one dares to do it.In modern society, there is a lot of mobility, and some people just want to take advantage of the loopholes to do "one-hammer sales", and the social credit system is no longer safe.Low credit causes enterprises to behave like walking on eggshells, which affects the normal operation of market economy entities and is very unfavorable to the development of market economy.

Banks: Transit stations for currency circulation

The earliest banking industry originated from the currency exchange industry in the ancient society of Western Europe.At first, money changers only exchanged currency for merchants, and later developed to keep currency for merchants, receive and pay cash, handle settlement and remittance, but did not pay interest, and charged storage and handling fees.With the development of industry and commerce, the business of money changers further developed, and they accumulated a large amount of capital in their hands.The money changer industry developed into a bank when money changers, in order to make more profits, used their accumulated currency to make loans at interest.

The Babylonian temples in 2000 BC and the Greek temples in 500 BC already had institutions that manage and store gold and silver, collect and pay interest, and issue loans.Modern banks originated in Italy in the Middle Ages. Due to its special geographical location, Venice became a trade center at that time. In 1171, the Bank of Venice was established, which was the earliest bank in the world, and then other cities in Italy, as well as some cities in Germany and the Netherlands also successively established banks.

At that time, the main lending object of these banks was the government, and it was usury in nature, so they could not meet the requirements of the development of capitalist industry and commerce.The earliest joint-stock bank organized on capitalist principles was the Bank of England established in 1694.

In my country, bank-like money houses were formed in the middle of the Ming Dynasty, and bank notes appeared in the Qing Dynasty.The first domestic bank to use the name of a bank was the "China Commercial Bank", which was established on May 1897, 5.The earliest national bank was the "Household Bank" founded in 27, and later called the "Bank of Great Qing". After the Revolution of 1905, the Bank of Great Qing was reorganized into the "Bank of China", which has been in use until now.

So how do banks play the role of a transfer station for currency circulation in commercial activities?If the bank has a deposit of 100 yuan, the bank will lend it to others to earn interest and make money.How do banks make money?Make money from spreads.For example, the bank earns 2% interest through the spread.Banks cannot lend 100%.If ordinary people save 100 yuan and the bank lends all of it, then when someone withdraws money, the bank will have no money to give, which will cause a financial crisis.Therefore, the central bank requires each bank to keep a certain share of deposit reserves, so as to prevent the situation that there is no money when others come to withdraw money.The central bank always requires a certain share of deposit reserves, that is, the bank will lend a part of depositors' deposits, that is, if the deposit reserve ratio is 20%, that is, 20% of the deposits will be kept in the bank for withdrawals by drawers. For cash.In other words, if the bank has a deposit of 100 yuan, he can only lend 80 yuan.This is how banks continuously absorb deposits and issue loans to complete currency circulation and earn profits from currency circulation.

At the end of the 18th century and the beginning of the 19th century, large-scale joint-stock banks were established one after another, and became the main form of capitalist banks.With the further development of the credit economy and the continuous strengthening of the state's intervention in social and economic life, there is an objective requirement for the establishment of a central bank. In 1844, the reorganized Bank of England can be regarded as the originator of the central banks of capitalist countries.By the latter half of the 19th century, Western countries had successively established central banks.The early banks mainly dealt with industrial and commercial enterprise deposits, short-term mortgage loans and discounts.Now, the business of Western countries' banks has expanded to various aspects such as securities investment, gold trading, medium and long-term loans, leasing, trust, insurance, consulting, information services and electronic computer services.

The Golden Partner in Life: Pareto Optimal

During the Spring and Autumn Period, the State of Lu was very weak, and many people from the State of Lu became slaves in other countries.In order to revitalize the country, the king of the state of Lu promulgated such a law: If a person of the state of Lu meets a compatriot who has become a slave in other countries, he can first redeem the slave, and the state will reimburse the ransom after returning home.

Confucius had a student, Zi Gong, whose family was relatively wealthy. He had redeemed Lu people who had been enslaved many times, and he did not seek reimbursement from the king afterwards.Zigong felt that he was practicing the teacher's "benevolence", and he was very proud of it.

Later, when Confucius found out about this, he criticized Zi Gong: "I know that you pursue nobleness and don't lack money to spend, but you must take this compensation. Now you save people with money and are praised by the society. But From now on, when others encounter Lu people who have been reduced to slaves abroad, they will think whether they should redeem them. If they redeemed them, would they go to ask the king for money after returning to China? No. If you go to the king, you will lose a lot of money; if you go to the king, others will use you to laugh at him. In this way, they will pretend not to see the Lu people who are slaves again. Your behavior is just right. It is the root cause of hindering the rescue of the Lu people who have been reduced to slavery!" After hearing what the teacher said, Zigong felt ashamed.

On another occasion, another student of Confucius saw someone fall into a river, so he rescued the victim ashore.In order to express his gratitude, the rescued person gave the student of Confucius a cow, and the student accepted it.Confucius praised this student's behavior greatly, because it will inspire more people to save others.

Confucius' behavior coincides with the principles of economics, and these two events reflect the Pareto efficiency criterion in economics.The Italian economist Pareto once proposed the Pareto efficiency criterion for the optimal allocation of resources: the efficiency of the economy is reflected in the allocation of social resources to improve people's conditions, mainly depends on whether the resources have been fully utilized, if the resources have been fully utilized If you want to use it, you must harm the interests of others if you want to improve it.

Pareto's greatest achievement is the idea of ​​"Pareto optimality".The so-called Pareto optimal refers to an ideal state of resource allocation.Once this ideal has been achieved, to make some people better off, someone else must be made worse off.In other words, what you gain comes at the expense of others.In a sense, we can think that Pareto optimality is an "ideal kingdom" that takes into account both fairness and efficiency.Conversely, if it is also possible to improve one person's situation without harming others, we can say that resources are underutilized and Pareto optimality is not achieved.

According to Pareto, if the allocation of social resources is such that no adjustment can make anyone better off without making others worse off, then the state of this resource allocation is The best is the most efficient.If this state is not reached, that is, any realignment that makes someone better off without making anyone else worse off, then the allocation of resources is suboptimal and inefficient.

The reason why Confucius criticized Zigong was that the original system of the State of Lu had already played a very good role. People began to actively redeem compatriots who had been enslaved, and the changes made by Zigong were likely to destroy this system. This kind of enthusiasm caused problems in the existing system of the State of Lu.

(End of this chapter)