The Three Ways to Spend Money

Originally posted by Wajoma
We can go round and round in circles on which is most effcient, (some other time unfortunately) but in each case when money changes hands the exchange can be put into one of those four catergories.

It can also be noted that when choosing #1, pleasing one's self doesn't rule out the pleasure one gets from benevolent activity.

Originally posted by Wajoma
1. Spend your money on yourself.
2. Spend your money on someone else.
3. Spend someone elses' money on someone else.

Which of these three generally results in the most efficient way to spend money and which is the worst, can they be applied to everyday examples.

In this connection, know that the economist Joel Waldfogel has entertainingly expounded upon the pitfalls of spending one's one money on others. His sobering contention is that billions are wasted each holiday season simply because one does not know as well as others do what others want.

http://press.princeton.edu/titles/8972.html

At least, in buying gifts, one is spending one's own money. Hence, one will tend to do so relatively prudently. The problem of spending money that belongs to others is that one will tend to do less prudently.

http://www.iimahd.ernet.in/publications/data/2005-08-04sujoy.pdf

Notoriously, the government, having no money of its own, spends other people's money on other people. Hence, it will tend to waste money through a combination of ignorance and imprudence, which is probably worse than merely ignorance or imprudence in isolation. It will spend more on what is needed less, on average.

Pedants among you may also be interested to learn that the original taxonomy of four ways to spend money was derived, or at least popularized, by the inimitable Milton Friedman. Here he is, still hale and hearty, describing the taxonomy in his own words:

YouTube&feature=related

Originally posted by IshDaGegg
In this connection, know that the economist Joel Waldfogel has entertainingly expounded upon the pitfalls of spending one's one money on others. His sobering contention is that billions are wasted each holiday season simply because one does not know as well as others do what others want.

http://press.princeton.edu/titles/8972.html

At least, in buying ...[text shortened]... the taxonomy in his own words:

http://www.youtube.com/watch?v=Un4-eI1T71E&feature=related

That is exactly why the government should only be involved in the manufacturing of collective goods, and it's a bad idea to have government meddling in private goods by e.g. having the government run or subsidize farms or manufacturing industries or by imposing tariffs etc.