I was recently thinking about this same basic concept 'how is wealth created?' or 'does wealth just change hands?'. What occurred to me is that a man could create wealth out of work. For example he could spend his time building a kickass computer table out of felled oak. Obviously that table would have some value and could be sold. As an exercise take a small economy...starting with zero wealth. Nobody has anything that anyone else wants. If everyone spends their time producing something of value and worth...now you start to build wealth and the door opens to trade and eventually a monetary system to trade more efficiently. So in my simple mind, wealth is built/created when people spend their time being productive.
this is not true at all. see my example above: if a major earthquake hit california and caused RE prices to fall, then a lot of wealth is lost. but the money supply didn't contract by the same amount. thus wealth is not necessarily related to money supply.
I think the point of confusion is a lack of distinction between real wealth and claims on wealth. Lets say there is a fixed amount of real wealth in society and 100 purchase credits (money). If the state handed out 5 extra purchase credits (claims on wealth), it would benefit the person who originally gets the purchase credits, however this new purchasing power would be at the expense of the other holders of purchase credits. On the other hand if the real wealth in society increased by 5%, (increase in physical goods and services) this would represent a real increase in wealth. It could be concentrated among certain people, or it could be spread around society, regardless it represents a real total gain in wealth. Now when the big banks set up a big casino and create reserves to gamble with, they create a game where they can "win" lots of the purchase credits (money) that they "poofed" out of thin air. This does not represent an increase in real wealth, but rather is just a fancy way of benefiting from targeting inflation. If you have not noticed, many of the brightest americans now are in careers that would be best thought of as "inflation capturing" rather than actual productivity. The fractional reserve and fiat money system makes the issue more complicated that it should be, and I do not think this is unintentional.
good points. I think you could simplify that this is a basic problem with the US. Everybody's unemployed and getting paid with newly created money. Further and further we fall into the abyss...or maybe a better analogy is the 'event horizon' as it relates to a black hole. that is the point at which there is no turning back...the gravitational pull is too strong
Wow, what a straight-forward explanation of wealth and money. I enjoyed that article. Thanks for posting it.
I also get pissed off at all of the bullshit that gets sold in the US. I'm talking about all of the useless crap that gets hawked on infomercials ...get rich quick schemes, trading systems that get sold for thousands of dollars that don't perform, magic pills purported to do whatever it is you need done. I should sell a pill on late night tv 'guaranteed to mow your lawn or your money back!'. It's no less effective than any number of other useless products out there. Am I foolish in thinking this is a major flaw with our economy? ...that we reward A-holes for coming up with useless shit? I mean there's bullshit for sale everywhere you look. To me it looks like the biggest growth sector of our economy. When money changes hands there should be something of value exchanged. It benefits all of society that way. When wealth is transferred in exchange for useless shit it is a drain on the whole economy.
Olias those are some good points. The problem is, who gets to judge which crap is useless? It seems to me most of what people buy and own is useless clutter. It is not just "informercials". TV? I have not watched it in years. High tech sound system? I could care less. Why does every surface have to be covered with nick-nacks? Why is there a need for so much furniture that is never used? Who needs 20 kitchen appliances? 20 varieties of knifes? 3 different sets of plates, glasses, etc? 100 types of soaps and other "bath" products? It is all a bunch of junk, basically. When I was a teen I fixed up and restored two old cars. I realized at that time (mid nineties) that old cars had all I really cared about, in fact I prefer(ed) the simplicity. I have come to believe most of the economy no longer serves any purpose. The one good i care at all about is land. Buying more land is really the only reason I care to increase my wealth. If I could make enough to have a fractional jet timeshare, that would be worth it too. Other than that I can't think of anything I want. Consumer culture seems to be one big hoax.
Good article except he is missing a few things, since he focusses on physical items, such as the wealth encapsulated by a skill. If you are a surgeon, people will pay you big money for your service. The knowledge and skill you have, and your performances, is wealth. Knowledge and skill can be wealth, but it is more subjective and faster changing than physical items like land. Certain products of skill, like entertainment, can command enormous payments from others one day and be worthless the next. The nice thing about information and services is that there are no physical limits on them.
Maybe I'm splitting hairs, but knowledge and skills are potential not wealth. Similar to a field and a bag of seed vs. sacks of harvested wheat. Knowledge certainly has value, people are willing to spend money and time to acquire it. But to convert it into tangible wealth still takes the addition of human labor.