4 ms·

It isn't a question of actual dollars in circulation, you can always print more after all, it's a question of total economic value. All goods in circulation in

by orclev 9y ago

It isn't a question of actual dollars in circulation, you can always print more after all, it's a question of total economic value. All goods in circulation in the U.S. have a finite value, and it definitely is a zero sum game. You can add more goods and therefore value, but that can only happen at a certain rate (this would be tied into population growth, employment rate, and profit margins among other things). There are also close ties with median income as the value of goods tends to be tied directly to wealth distribution. Ultimately at any given time there is a finite amount of "wealth" to go around, if one person gets a bigger slice, then that means someone else has to take a smaller slice. People don't want to be millionaires because they have some unhealthy attraction to U.S. currency, they want to be millionaires because of the goods and services that they can trade that money for (or in many cases because they can use it for rent seeking to generate unearned income). The actual amount of currency in question is irrelevant, it's a question of access to those goods and services, and those goods and services are finite, therefore wealth is finite.

chrisweekly 9y ago
pg (and many, many other entrepreneurs and investors) disagree vehemently, positing that startups are about wealth _creation_. if wealth isn't created, how has humanity's global standard of living so radically improved?
- PhilWright 9y ago
  Some startups will create extra wealth, some will destroy wealth some will redistribute it. Imagine I create a new shoe factory right next door to an existing shoe factory. After 10 years we find... 1) I failed, I lost all the investors money and had to close down. I destroyed the investors wealth. 2) I win, the next door factory has closed down and now I have all of their business. But I have exactly the same costs, sales, staff and so forth. So the profits come to me from now on instead of the neighbor. I have supplanted them, but consumers and the economy as a whole is no better off. Wealth is transferred to me as ongoing profits that would otherwise have gone next door. 3) I win, the next door factory has closed down and now I have all of their business. I produce the same output as they did but with less staff and lower costs. So consumers benefit from lower prices, the money they saved can be spent on other things, creating demand elsewhere. Wealth is transferred to me as ongoing profits that would otherwise have gone next door. Everyone wins except I employ less people than the neighbor so there is less employment. But the extra demand for other goods because of my lower prices means they get employment at other businesses! Number 3 is why the UK, which used to employ 90% of people in agriculture before the industrial revolution, does not have 90% unemployment today, the people released from agriculture because of better productivity are freed to work in other sectors instead.
  - TheSpiceIsLife 9y ago
    In the scenario where a startup destroys wealth, what they're really doing is redistributing it. It's not like they take the investors money, cash the cheques, then burn the cash. Isn't there also at least a fourth and firth scenario, one where the new shoe factory wins but has larger costs than the old one (better marketing but worse cost control), and another scenario where both shoe factories thrive? What about one where they merge, or a holding company buys both and operates them both to produce different lines.
    - TheCoelacanth 9y ago
      In some cases they actually do destroy wealth in the process of redistributing it. For any startup that subsidizes its products below its costs it is possible for it to destroy value. If they produce something for $10 dollars then sell it for $8 to someone who derives $9 of value out of it, then they have transferred $1 of wealth to their customer and have destroyed $1 of wealth.
  - abakker 9y ago
    4) You win, The neighboring shop is still there, you have specialized and they have specialized and the available breadth of product in your category (shoes) has created consumer choice to capture a larger share of wallet.
    - orclev 9y ago
      That also implies that demand for other products has fallen, so that's just wealth redistribution (because you're taking a larger share of their wallet).
nnfy 9y ago
If economic value were zero sum, then economies would never grow. >All goods in circulation in the U.S. have a finite value, and it definitely is a zero sum game. Except I can create new goods, possibly for free (e.g. writing software, growing crops, mining materials) and directly increase the value of the economy. Contrary to zero sum. >You can add more goods and therefore value, but that can only happen at a certain rate Unless you want to try to argue that the rate is so low that the economy is *effectively zero sum in the short term, you've just contradicted yourself. If you can add value to the economy, it is fundamentally not zero sum. You seem to be conflating the finiteness of wealth and value with the inability to create new wealth or value. Now, that aside, one could argue that currency exchange itself is zero sum on short timeframes when new money is not printed, but market forces dynamically assign value to currency, such that the economy may still grow with a finite supply of money. Furthermore, I'd like to point out that generally when one purchases goods or services, even in the short term the transaction is unlikely to be zero sum, because goods and services can be used immediately to generate more wealth, and therefore are arguably worth more following the exchange.
- orclev 9y ago
  More or less your first point, the rate of growth is so low, that over short term it's effectively zero sum. Something else to consider is that in your example of "for free" wealth creation you're not actually getting any of that for free, that's a form of wealth transformation or transfer. Let me elaborate on that point using each of your examples. I'll start with mining as that's the simplest, in that case you're taking a natural resource (which is finite) and extracting it and refining it. You're having to pay your workers (and/or buy and maintain machines) in order to do so, so in part your redistributing the companies wealth to the workers and service providers your company does business with. In exchange you receive raw and/or processed minerals/metals. That might seem like wealth creation but it's really transformation, you've reduced the value of the land you extracted the material from and converted it into a transportable form. The value of that material might seem to be more, but that's only because you've invested value in extracting it, in other words you're passing on your cost of doing business. You haven't added value, the value was already there, you've simply converted it and invested some of your companies value into it, so when you sell it you're simply converting one form of wealth into another, you're converting the wealth of that processed material into cash wealth. The situation with growing crops is similar, although part of what is being invested there is time. You might think, "well, time is infinite, there's always more time", but each persons time is finite and it has value, even if only to that person (opportunity cost), so once again you're doing a wealth transformation, you're transforming those workers time into money, and ground, seed, fertilizer, water, and sun into crops. When you sell those crops you're once again recouping your cost of doing business. Wealth hasn't been created from nothing, it was transferred and concentrated from a variety of sources. You might think, "well, what about the workers time, that's new wealth", only it isn't, there was a cost involved in those workers upbringing and living, so that's once again just a form of wealth transfer and transformation. Truly the only free wealth in the entire thing is the sun, although even that isn't infinite, even if it is free from the perspective of anyone on Earth (it might be more accurate to say it's wasted/destroyed if you don't use it). Ultimately there is no free lunch, entropy always wins. Software is the most complicated one, as there's zero unit costs associated with it, but substantial development costs. Once again though, you're looking at wealth transformation/transfer. In the case of software you're transferring/transforming the developers, QA, and other workers personal knowledge and time into software. Similar to the workers in the previous example they've invested time and money into improving their knowledge and living, so you're really paying them for them to recoup their losses (wealth transfer) and then when you sell the software you're simply passing those expenses on to your customers. Ultimately it's all about wealth transformation and transfer. There is finite natural wealth, it existed before humanity, and if humans vanished tomorrow it would continue to exist. Economies are mostly about taking the existing wealth and distributing, concentrating, and transforming it into forms that are more convenient for people. When you get down to it, the unit cost of a good is really it's intrinsic value, it's a form of wealth transformation. Profit margins on the other hand, are wealth transfer, you're transferring wealth from the purchaser to yourself. No value is actually being created. New wealth only comes from discovering new resources. Want to create wealth now? Do like Elon Musk and others are doing and take a look at asteroid mining.

by orclev 9y ago

chrisweekly 9y ago

pg (and many, many other entrepreneurs and investors) disagree vehemently, positing that startups are about wealth _creation_. if wealth isn't created, how has humanity's global standard of living so radically improved?

PhilWright 9y ago
Some startups will create extra wealth, some will destroy wealth some will redistribute it. Imagine I create a new shoe factory right next door to an existing shoe factory. After 10 years we find... 1) I failed, I lost all the investors money and had to close down. I destroyed the investors wealth. 2) I win, the next door factory has closed down and now I have all of their business. But I have exactly the same costs, sales, staff and so forth. So the profits come to me from now on instead of the neighbor. I have supplanted them, but consumers and the economy as a whole is no better off. Wealth is transferred to me as ongoing profits that would otherwise have gone next door. 3) I win, the next door factory has closed down and now I have all of their business. I produce the same output as they did but with less staff and lower costs. So consumers benefit from lower prices, the money they saved can be spent on other things, creating demand elsewhere. Wealth is transferred to me as ongoing profits that would otherwise have gone next door. Everyone wins except I employ less people than the neighbor so there is less employment. But the extra demand for other goods because of my lower prices means they get employment at other businesses! Number 3 is why the UK, which used to employ 90% of people in agriculture before the industrial revolution, does not have 90% unemployment today, the people released from agriculture because of better productivity are freed to work in other sectors instead.
- TheSpiceIsLife 9y ago
  In the scenario where a startup destroys wealth, what they're really doing is redistributing it. It's not like they take the investors money, cash the cheques, then burn the cash. Isn't there also at least a fourth and firth scenario, one where the new shoe factory wins but has larger costs than the old one (better marketing but worse cost control), and another scenario where both shoe factories thrive? What about one where they merge, or a holding company buys both and operates them both to produce different lines.
  - TheCoelacanth 9y ago
    In some cases they actually do destroy wealth in the process of redistributing it. For any startup that subsidizes its products below its costs it is possible for it to destroy value. If they produce something for $10 dollars then sell it for $8 to someone who derives $9 of value out of it, then they have transferred $1 of wealth to their customer and have destroyed $1 of wealth.
- abakker 9y ago
  4) You win, The neighboring shop is still there, you have specialized and they have specialized and the available breadth of product in your category (shoes) has created consumer choice to capture a larger share of wallet.
  - orclev 9y ago
    That also implies that demand for other products has fallen, so that's just wealth redistribution (because you're taking a larger share of their wallet).

nnfy 9y ago

If economic value were zero sum, then economies would never grow. >All goods in circulation in the U.S. have a finite value, and it definitely is a zero sum game. Except I can create new goods, possibly for free (e.g. writing software, growing crops, mining materials) and directly increase the value of the economy. Contrary to zero sum. >You can add more goods and therefore value, but that can only happen at a certain rate Unless you want to try to argue that the rate is so low that the economy is *effectively zero sum in the short term, you've just contradicted yourself. If you can add value to the economy, it is fundamentally not zero sum. You seem to be conflating the finiteness of wealth and value with the inability to create new wealth or value. Now, that aside, one could argue that currency exchange itself is zero sum on short timeframes when new money is not printed, but market forces dynamically assign value to currency, such that the economy may still grow with a finite supply of money. Furthermore, I'd like to point out that generally when one purchases goods or services, even in the short term the transaction is unlikely to be zero sum, because goods and services can be used immediately to generate more wealth, and therefore are arguably worth more following the exchange.

orclev 9y ago
More or less your first point, the rate of growth is so low, that over short term it's effectively zero sum. Something else to consider is that in your example of "for free" wealth creation you're not actually getting any of that for free, that's a form of wealth transformation or transfer. Let me elaborate on that point using each of your examples. I'll start with mining as that's the simplest, in that case you're taking a natural resource (which is finite) and extracting it and refining it. You're having to pay your workers (and/or buy and maintain machines) in order to do so, so in part your redistributing the companies wealth to the workers and service providers your company does business with. In exchange you receive raw and/or processed minerals/metals. That might seem like wealth creation but it's really transformation, you've reduced the value of the land you extracted the material from and converted it into a transportable form. The value of that material might seem to be more, but that's only because you've invested value in extracting it, in other words you're passing on your cost of doing business. You haven't added value, the value was already there, you've simply converted it and invested some of your companies value into it, so when you sell it you're simply converting one form of wealth into another, you're converting the wealth of that processed material into cash wealth. The situation with growing crops is similar, although part of what is being invested there is time. You might think, "well, time is infinite, there's always more time", but each persons time is finite and it has value, even if only to that person (opportunity cost), so once again you're doing a wealth transformation, you're transforming those workers time into money, and ground, seed, fertilizer, water, and sun into crops. When you sell those crops you're once again recouping your cost of doing business. Wealth hasn't been created from nothing, it was transferred and concentrated from a variety of sources. You might think, "well, what about the workers time, that's new wealth", only it isn't, there was a cost involved in those workers upbringing and living, so that's once again just a form of wealth transfer and transformation. Truly the only free wealth in the entire thing is the sun, although even that isn't infinite, even if it is free from the perspective of anyone on Earth (it might be more accurate to say it's wasted/destroyed if you don't use it). Ultimately there is no free lunch, entropy always wins. Software is the most complicated one, as there's zero unit costs associated with it, but substantial development costs. Once again though, you're looking at wealth transformation/transfer. In the case of software you're transferring/transforming the developers, QA, and other workers personal knowledge and time into software. Similar to the workers in the previous example they've invested time and money into improving their knowledge and living, so you're really paying them for them to recoup their losses (wealth transfer) and then when you sell the software you're simply passing those expenses on to your customers. Ultimately it's all about wealth transformation and transfer. There is finite natural wealth, it existed before humanity, and if humans vanished tomorrow it would continue to exist. Economies are mostly about taking the existing wealth and distributing, concentrating, and transforming it into forms that are more convenient for people. When you get down to it, the unit cost of a good is really it's intrinsic value, it's a form of wealth transformation. Profit margins on the other hand, are wealth transfer, you're transferring wealth from the purchaser to yourself. No value is actually being created. New wealth only comes from discovering new resources. Want to create wealth now? Do like Elon Musk and others are doing and take a look at asteroid mining.