"After the abolishment of the Gold Standard it is very hard to define wealth any longer." to an extent. completely irrelevant to the issue, but true. wealth is everything you own. your house, your car, your gold bullion, your stamp collection, your clothes, etc. etc. MOST items are much less easy to immediately value (price define), and much less easy to liquidate. again, irrelevant, but it actually goes against the alleged reason that volente thinks its not zero sum (but is not even an argument against zero sum, so what's the point) the purpose, and nifty benefit of a two way auction market (stocks, futures, options, bonds, etc. are two way auction market) is that price is ALWAYS known (except when the market is closed). it's called "price discovery". if your a seller, the value of what u own in that market, your wealth in that market is IMMEDIATELY defined by the latest bid/ask. of course, it VARIES, just like real estate, the value of the dollar, gold, food, gasoline, etc. however, unlike most markets, there is one agreed upon price at any given moment in time. it doesn't MATTER that if EVERYBODY who owned asset class X (be it a stock, or a maserati) decided to sell at once, that this would drive the price down (one of volente's red herrings). the same is true of ANY asset class. it's called supply/demand. most assets are much less easily defined in terms of current price, than stocks. gasoline varies from station to station (not to mention that it's kind of difficult to sell it back), your house is different from every other house, and you don't know what u can get until you try to sell it. there is no AGREED upon price. in stocks (or futures, etc.) the EXACT price is agreed upon at all times the market is open. and of course, this fluxes with time, as does any asset class. there are ONLY two kinds of systems when it comes to this distinction we are discussing - zero sum or non-zero sum it HAS to be one or the other. no matter how many examples one gives of why it is NOT zero sum (all u need is one), some people can't understand the concept.
among many, the most obvious volente fallacy, is that if you don't REALIZE your wealth in dollars, it is not real. this goes against every economic principle. if you own a house, a hemicuda, 5000 ounces of gold, and 1000 shares of MO, you can measure your wealth obviously, it is easier to value the gold and MO than the hemicuda or house, but the point is they all have a part in your wealth. if gold doubles overnight, your wealth has significantly increased. the "thin air" concept of volente is a fallacy. the value of any asset (including a stock) is what somebody is willing to pay for it. stocks, and two way capital auction amrkets in general, offer the CLEAREST and best defined price of almost any others (vs. say real estate etc.). every time an asset is bought or sold, money is transferred. that doesn't make it zero sum. if gold doubles overnight, every single person who owns gold has realized an increase of wealth. if you want to think of that as "created out of thin air", it's nice - but still irrelevant. wealth just increased. same with stocks whether or not a transaction takes place. a transaction merely transfers wealth from one form to another. but when the price of the asset increases, regardless of the transactions, the wealth changes (of the system) since there are people who own it (and some are short it). that is a change in wealth. that is all that is necessary for a nonzero sum system - that wealth can change in the system. can't happen in futures, cause if gold FUTURES increase in price, every single gain in a person who is long, has a corresponding loss in a person who is short. regardless of when, if ever, gains/losses are realized. "And there are some who still do not understand the simple concept that WEALTH is not created out of thin air in the stock market. It has to come from outside sources such as the govt, FED or consumers. The fact remains that EVERY dollar made in the stock market has 2 come out of somebody elses pocket. There is no wealth tree that buys the stock from you, it is another enitity using their money and transferring it to you in exchange for the stock.If you really fail to understand this then I find it hard to believe you actually participate daily in trading any market. "
Here we go again, I never said wealth can't increase or decrease. I said it is not created as you claim, it has to be transferred from one person to another. For every dollar coming into the market, there is one dollar coming out of somewhere to offset it. What part of this don't you understand ? You trade YM. Say I decide to trade ym so I sell my boat for $5000 and open an account. You sell 1 YM to me at 11005. YM then falls to 11000. I have lost $25. You have gained $25. But the $25 was not created, it came from the proceeds of my boat. You can plug in stocks, corn, oil or what ever else you want instead of YM and the fact still remains that zero wealth was created between the trade. It was only transferred from one person to another.
Exactly but wealth is not created in the transaction. It does not matter if you are buying/selling stocks/ cars/ futures/ options. For every dollar spent one is made by someone.
Transfer of ownership It doesn't appear to me that transfer of ownership has anything to do with or is a requirement of wealth creation. Consider the concept of inflation adjusted EQUITY. Nutsneal
I agree. But there is a fundamental value that may not be known at the time of the transaction. You hear of "underpriced stocks" all the times. It seems it is more of a matter of how one defines the game than anything else. Any game can be made zero sum when itsparameters are properly adjusted. Ron
Stock trading is a zero sum. The expression "the stock market is zero sum" has no meaning in this context. Ron
Labor, capital and new ideas creates wealth. Wealth is stuff or physical property. Most often wealth creation occurs within a company. Consumers and often Government consume wealth, which is to destroy wealth. For every Pizza eaten there is one less pizza in the world, but consumers have earned their right to destroy wealth since they have also produced wealth with their use of capital or labor. As real GDP grows the flow of stuff coming out from companies increases. The flow of stuff coming out of companies is consumers buying power, they receive their buying power as money profit or money wages, but in reality a computer engineer pays for his pizza with software. The stuff flowing out from companies can also buy stocks, so naturally as the flow of stuff coming out from companies increases as GDP increases there is more stuff (wealth) to bid up the price of stocks. Yes every dollar made in the stock market has to come from somebody elseâs pockets, but the engineer has more and more software in his pockets as the economy grows. If one assume for simplicity that the amount of shares available for trading is held constant itâs easy to see that more and more wealth can be taken out from the stock market, because the economy produces more and more real wealth to back up ever-growing stock prices.
stock trading is an activity not a system. it is somewhat "weird" (to use technical jargon) to say that stock trading is or isn't zero sum. i know what u mean. i said it several posts ago, that EFFECTIVELY speaking, for short term traders (vs. investors) trading ANY asset may seem to be zero sum. but zero sum is a definition of a system, not an activity, so to speak. but it is a good point (and it confuses many people) that the activity of day trading is essentially a SEEMINGLY zero sum thing, because even though one is operating (if trading stocks) within a nonzero sum system, one is not really trading a stock anyways. one is trading other traders. i think this is where a lot of the confusion is
"Yes every dollar made in the stock market has to come from somebody elseâs pockets" volente et al seem to have difficulty with the fact that when ANY asset increases in value (and you own it) your wealth increases. it's not "magic" as he says. if you don't SELL the asset, the money does not come from anybody else's pocket. realized gains in ANY system (zero sum or nonzero sum) of course COME FROM SOMEBODY ELSE. what distinguishes zero from nonzero sum systems is that if i sell an asset in a nonzero sum sytem (like my house), it does not follow that somebody else LOST what i gained. they GAINED a house. that is now worth 500k. despite the fact that when i bought it, it was worth 300k assume a market of ONE house nice and simple i buy the house for 300k my wealth (it's all i own) is now 300k the systems wealth is 300k my area suddenly becomes desirable to live, and my house is now worth much more i have GAINED wealth. but its NOT zero sum. nobody needed to LOSE money (like in poker) for me to gain this wealth - my now 500k house. wealth is gained whenever an asset increases in value - for WHATEVER reason. what is the wealth in the system now? 500k has ANYBODY lost any money? no (this is your first sign it is not zero sum) yet, i (the sole participant inthis nonzero sum game) now have 500k wealth Note: the fact that i haven't sold it is 100% irrelevant. it's still wealth. i decide to sell the house. dood pays me 500k i used to have 300k wealth (before my house went up in value), then i had 500k wealth in my house. now i have 500k wealth in my pocket. so, i have 500k wealth now (i used to have 300k). 200k is PROFIT. has anybody lost 200k so i could make 200k? no. this is why it's not zero sum if walk out of a poker game with 200k profit, it came from somebody else's loss. THAT's zero sum now, what is the wealth in the system (one house). it's 500k that system has gained WEALTH. it was 300k, now its 500k i've got a 500k wealth (Im now outide the system) with 200k of that as profit the guy in the system now has 500k wealth (with no profit). if house values go down, the system LOSES wealth. if house values go up, it GAINS wealth neither could happen ina zero sum game. see the distinctions?