Where does wealth come from?
Just an idle thought I had recently - where does wealth come from, in the modern economy?
If money was all gold coins, wealth would come from the mines - they control the total amount of coin in circulation.
If money was all dollar bills, wealth would come from the mint.
But nowadays, its all on paper, or in computers. Where does new wealth come from?
We could calculate 'available wealth' by taking the net worth of all people and asset-owning entities. But that seems like a zero-sum game; just money shifting around. Where does the new stuff come from?
We could say that wealth in the world today isn't something that's really interesting to total up - maybe the really interesting thing is to measure how much money moves around. I think this is pretty much how GDP is calculated. But that seems kind of hokey, too - because two people could just trade money back and forth, a lot - and under that measurement, there would be a lot of wealth created, but really there's no change.
Maybe this is just an inherently complicated issue - but I'm really hoping that one of you folks will be able to give me a simple answer that will illuminate some core issue that I'm missing.
If money was all gold coins, wealth would come from the mines - they control the total amount of coin in circulation.
If money was all dollar bills, wealth would come from the mint.
But nowadays, its all on paper, or in computers. Where does new wealth come from?
We could calculate 'available wealth' by taking the net worth of all people and asset-owning entities. But that seems like a zero-sum game; just money shifting around. Where does the new stuff come from?
We could say that wealth in the world today isn't something that's really interesting to total up - maybe the really interesting thing is to measure how much money moves around. I think this is pretty much how GDP is calculated. But that seems kind of hokey, too - because two people could just trade money back and forth, a lot - and under that measurement, there would be a lot of wealth created, but really there's no change.
Maybe this is just an inherently complicated issue - but I'm really hoping that one of you folks will be able to give me a simple answer that will illuminate some core issue that I'm missing.
posted by Bruce Williams at
11:30 PM
10 Comments:
That's an interesting question. I've written a fairly detailed answer here.
By
Ben Bateman, at 4:40 PM, July 10, 2006
Like Bateman, I believe that currency is not wealth. Currency is an expression of trade wealth. Consider the adjective "priceless". When one has a large collection of priceless objects, they are considered wealthy beyond measure. However, currency value makes "priceless" a paradoxical concept. Everything has a trade value...even life. When all you have is life, are you wealthy? (Oh my, it is 2AM and I am making no sense. Time for bed.)
By
ec_for_life, at 10:44 PM, July 23, 2006
I concur with Bateman on most of his points in his post.
I'd like to add however, since I just came over from Bookworm, that one form of wealth that is truly objective in the sense that you can measure it, is time.
Your time, specifically. You can pay a teenager at minimum wage to type a paper for you, because your time is better spent using your intelligence and skills to make 40 dollars an hour. Paying 5 dollars an hour so that you are free to earn 40 dollars an hour, is a positive net gain.
In relation to goods and services, goods and services provide you with something you didn't have just a few decades ago, as bateman mentioned.
Because of that, wealth was created by the simple fact that, that in today's world you can do things that you couldn't do before. In today's world, your time can be spent more productively and on more things, than was available just 2 decades ago. So to take the creation of wealth down to its lowest denominator, I see wealth as being defined by how much time it saves from a person's life. The invention of the microwave oven as an idea and an application, created wealth simply because it took down the total man hours needed to heat a piece of food to a specific temperature. Even if you factored all the man hours that went into producting, assembling, and developing/marketing micro waves, it has still created wealth.
Money, then, is a measure of services provided, and also an objective measure of how much time you have saved of someone else's total life span. The one thing you cannot do, is to prolong the natural lifespan of a person. You can stretch it a few years here or there, but in the end, it is finite. Measurable. If someone pays you 100 dollars and you pay someone else 5 dollars, then the 100 dollars is obviously in return for you saving them time and effort. It's worth 100 dollars to them, because their time can be better spent doing something else for 500 dollars, or 5,000 dollars.
In essence, humanity has stopped just exchanging money. Humanity has, with free trade, reducing the waste of resources and man hours required to "do things". By saving time, it is almost the same as prolonging someone's life. And that, is quite valuable. How long a person lives, and what they do in that time, will always have value, regardless of gold or materials.
By
Ymarsakar, at 4:25 PM, July 24, 2006
Well, I have a new idea from where new wealth comes from. If you think on cool, you will find no new wealth comes from this planet (i.e. earth).
So basically, we can download something from other planet, and this new entity or energy may be utilized to build up new wealth. Say electricity creation for next 50 years. We could save a lot of money for this 50 years, and it convert actually to our wealth.
What do u think?
Thanks,
Himadrish
By
Anonymous, at 11:40 PM, September 26, 2006
That's crazy, Himadrish! I like it.
By
Bruce, at 8:09 AM, September 27, 2006
so what is tha answer?
By
Bart, at 1:24 PM, February 12, 2007
There is an excellent book on just this topic: "The Way the World Works" by Jude Wanniski.
Or you can read a lot of detailed essays for free on the web:
www.polyconomics.com
Unfortunately the really fascinating stuff from supply-side economics are usually drowned by the political rantings of it's detractors and proponents. I suggest trying to ignore all that and get to the meat of the theory.
By
Anonymous, at 11:20 AM, February 27, 2007
There is an excellent book on just this topic: "The Way the World Works" by Jude Wanniski.
Or you can read a lot of detailed essays for free on the web:
www.polyconomics.com
Unfortunately the really fascinating stuff from supply-side economics are usually drowned by the political rantings of it's detractors and proponents. I suggest trying to ignore all that and get to the meat of the theory.
By
Anonymous, at 11:20 AM, February 27, 2007
Money, and wealth, still comes from digging stuff out of the ground. It has since prehistory; it doesn't look like it will stop anytime soon.
Up until recently, that stuff was gold, by and large, or any other metals. It probably still is a large component on a global scale. My guess is that by far the largest component of diggable stuff is oil.
Despite all the claims of paper or digital economies, we still base all economic calculations back to three things - the value of the US$, the value of a barrel of oil, the value of an ounce of gold. There is now 'value of a Gb of data' yet, despite a Gb being worth a lot, say for pr0n (no, really, think about it!) or a movie (and the DRM); a Gb of spam is actually worth a negative value. This would be the main reason why data is not a tradable commodity, and likely never will be - 99.999% of it is crap.
Think about what events would really cause economic collapse: running out of oil and / or metals.
Running out of oil is really no big problem - there are other sources of energy. Running out of metals is a big problem though: we can still get energy from trees / sunlight / animals, but without metals we have no transport, communications or weaponry (to defend ourselves from any animals who might see us as a source of energy). Put simply: Stone Age and the resultant minor economic downturn :-)
Running out of oil might happen in our lifetime; running out of metals will take longer but will happen. Earth's resources are large, but not infinite. Eventually, we will reach a point where there won't be enough metals to allow us to find new sources of metals - asteroids, the Moon, Mercury. For some metals (especially non-radioactive steel) we are close to that point already. Non-radioactive steel currently allows us to build airliners and spacecraft; without it we can't make accurate radiation counters - vital to the maintenance and manufacture of airliners and spacecraft. (See http://en.wikipedia.org/wiki/Operation_Deadlight)
Ponder that for a moment - there will come a time, and soon, where we won't be able to make airliners or spacecraft anymore. We'll be stuck, here, on Earth. Using up all the oil, then all the metals, and then... we won't have to worry about economics anymore; only about whether our flint knife will protect us from that grizzly bear runing towards us.
Economics will always be about digging stuff up. Data won't save you from a bear, or from peak oil.
Good luck, have a nice life.
By
Corinoco, at 5:46 PM, March 05, 2007
I think that all the above responders haven't really understood Bruce's actual doubt. His doubt isn't about wealth, but about the money! For Bruce, here is a site that may be helpful. It's assertions are concerning Canada; but are true , I think, for all the countries in the world.
http://mindprod.com/money/moneycreation.html
Also, searching for "Where does money come from?" will help considerably in relieving this fundamental curiosity. Try viewing the youtube videos by Paul Grignon. I assure you. This will really change the way you look at the world economy.
By
Siphyrus, at 3:11 AM, April 12, 2008
Post a Comment
<< Home