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For a transaction to create wealth the two parties must collectively be more wealthy than they were before. If they are collectively as wealthy then no wealth h

by simonh 5y ago

For a transaction to create wealth the two parties must collectively be more wealthy than they were before. If they are collectively as wealthy then no wealth has been created. Some criminal activities destroy wealth in aggregate even though money or goods changed hands in a way that superficially resembles a trade. I suspect though that the distribution of money itself between people can increase net wealth, because it shifts how that money will then be used economically in useful ways. The same $1 in the hands of a minimum wage worker might have different economic value than if it was in the hands of a millionaire because how it is likely to be used in the economy is different. I don't know which is better though, will the minimum wage worker pay for services that are more beneficial, or will the millionaire invest it in a company that creates jobs and provides services? We need both things to happen though to some degree, so maybe the answer shifts with the economic cycles. If I buy a coffee and drink it have I just decreased net wealth by destroying valuable coffee, or have I increased it by transferring the money to somewhere it can do more useful economic work in downstream transactions?

bckr 5y ago
The coffee would become cold and undesirable of it were brewed and not purchased. The grounds of the beans would lose their flavor if not purchased and brewed. The land the beans are grown on, though, might be used for other purposes, including to restore natural habitats and thus derisk the whole economy.
- samus 5y ago
  The coffee getting cold and the beans going stale are inefficiencies that arise because of entropy. The latter are true opportunity costs though.
  - hinkley 5y ago
    Some commodities have more elasticity on the supply side than others and that changes the economics. You only have so many options with coffee, you have to sell it sooner rather than later. Gold bars are easier to store, but also more attractive to steal. Other than that maple syrup heist in Canada a few years back, we don't usually see bulk, perishable goods getting stolen because it's too much of a pain. I think they only did it because of the element of surprise. Who steals syrup??
jkhdigital 5y ago
Wealth, as the author defines it, depends on subjective valuations. If I value x more than y and you value y more than x, then I can give you my y for your x and we are both wealthier.
TheOtherHobbes 5y ago
You make a good point. A realistic definition of wealth is 1. Everyone is better off. 2a. Nothing of lasting value is damaged... 2b. ...*unless* that damage is accounted for and explicitly accepted by all concerned parties, including those who are not immediately involved in any negotiation. If you use this definition, very few things that are called wealth creation actually create real wealth. It's actually a stability consideration. Any wealth creation which attempts to grow and doesn't follow this definition cannot be persistent and stable, because damage will always tend to exceed the nominal wealth created.
- MichaelZuo 5y ago
  I would add another line, 2c. Considering effects within the solar system Since entropy invariably increases overall.
bo1024 5y ago
Economists use the term "welfare" for this, not "wealth".
imtringued 5y ago
>The same $1 in the hands of a minimum wage worker might have different economic value than if it was in the hands of a millionaire because how it is likely to be used in the economy is different. It's clearly better off in the hands of the minimum wage worker. It's funny how people deride governments as central planners when companies and their owners are committing that very same central planning at a smaller scale. The only difference is that the government is much bigger and when it isn't then local governments will lick the boots of the CEOs. When people talk about trickle down they are basically advocating for more central planning. 300 million brains aren't good enough, there is no way they could possibly know what they want, instead some rich millionaire or billionaire gets to tell them what they should want.
- WalterBright 5y ago
  > It's clearly better off in the hands of the minimum wage worker. Why?
  - aqme28 5y ago
    I would argue because the relative utility is higher. A higher percentage change in that person's purchasing power. OP though was arguing that that poorer people will spend it better, which might be true as well since the rich tend to hoard.
    - WalterBright 5y ago
      > the rich tend to hoard Ironically, it's poor people that hoard cash in a can or a mattress, not rich people. Rich people invest it. Even cash in the bank isn't cash in the bank, the bank promptly loans out a multiple of it.
    - simonh 5y ago
      The $1 is relatively more valuable to the worker than the millionaire, but is it more valuable to the economy? I intuitively suspect so, but I don’t know why and I also suspect intuition could easily lead us astray on this.
- 5y ago
rrrrrrrrrrrryan 5y ago
> I don't know which is better though, will the minimum wage worker pay for services that are more beneficial, or will the millionaire invest it in a company that creates jobs and provides services? One way of measuring this is by looking at the "velocity of money." [1] IIRC a dollar spent at a local, family-owned restaurant travels 7x further than one spent at a mega-chain restaurant before . The restaurant owner might use that dollar to pay their cook, who might use it later that week when he gets a haircut to pay his barber, who might later use it to buy a coffee, etc. Because value is created for both parties with each transaction, this is considered much better for the economy (and especially the local economy) compared a dollar spent at McDonald's, where it might just go into a bank account and stop moving. I don't have the data to back it up (someone here might?), but I'd be tremendously surprised if a dollar put in the hands of a millionaire circulated more than a dollar put in the hands of the minimum wage worker, or if it created more value in the overall economy. [1] https://www.investopedia.com/terms/v/velocity.asp https://www.investopedia.com/terms/v/velocity.asp
- WalterBright 5y ago
  > where it might just go into a bank account and stop moving. Banks don't make money by storing your dollar in a vault. They make money by loaning it out. They loan deposits out as fast as possible. People who get the loans don't sit on it, either. It's madness to be paying interest on money just to let it set. They borrow money in order to promptly spend it.
diplodocusaur 5y ago
what's a better use of money, buying a cup of coffee or three packs of gum? I think that's the subtlety with wealth here, that it is a moving target depending on context, possibly even adaptive in an evolutionary sense

by simonh 5y ago

bckr 5y ago

The coffee would become cold and undesirable of it were brewed and not purchased. The grounds of the beans would lose their flavor if not purchased and brewed. The land the beans are grown on, though, might be used for other purposes, including to restore natural habitats and thus derisk the whole economy.

samus 5y ago
The coffee getting cold and the beans going stale are inefficiencies that arise because of entropy. The latter are true opportunity costs though.
- hinkley 5y ago
  Some commodities have more elasticity on the supply side than others and that changes the economics. You only have so many options with coffee, you have to sell it sooner rather than later. Gold bars are easier to store, but also more attractive to steal. Other than that maple syrup heist in Canada a few years back, we don't usually see bulk, perishable goods getting stolen because it's too much of a pain. I think they only did it because of the element of surprise. Who steals syrup??

jkhdigital 5y ago

Wealth, as the author defines it, depends on subjective valuations. If I value x more than y and you value y more than x, then I can give you my y for your x and we are both wealthier.

TheOtherHobbes 5y ago

You make a good point. A realistic definition of wealth is 1. Everyone is better off. 2a. Nothing of lasting value is damaged... 2b. ...*unless* that damage is accounted for and explicitly accepted by all concerned parties, including those who are not immediately involved in any negotiation. If you use this definition, very few things that are called wealth creation actually create real wealth. It's actually a stability consideration. Any wealth creation which attempts to grow and doesn't follow this definition cannot be persistent and stable, because damage will always tend to exceed the nominal wealth created.

MichaelZuo 5y ago
I would add another line, 2c. Considering effects within the solar system Since entropy invariably increases overall.

bo1024 5y ago

Economists use the term "welfare" for this, not "wealth".

imtringued 5y ago

>The same $1 in the hands of a minimum wage worker might have different economic value than if it was in the hands of a millionaire because how it is likely to be used in the economy is different. It's clearly better off in the hands of the minimum wage worker. It's funny how people deride governments as central planners when companies and their owners are committing that very same central planning at a smaller scale. The only difference is that the government is much bigger and when it isn't then local governments will lick the boots of the CEOs. When people talk about trickle down they are basically advocating for more central planning. 300 million brains aren't good enough, there is no way they could possibly know what they want, instead some rich millionaire or billionaire gets to tell them what they should want.

WalterBright 5y ago
> It's clearly better off in the hands of the minimum wage worker. Why?
- aqme28 5y ago
  I would argue because the relative utility is higher. A higher percentage change in that person's purchasing power. OP though was arguing that that poorer people will spend it better, which might be true as well since the rich tend to hoard.
  - WalterBright 5y ago
    > the rich tend to hoard Ironically, it's poor people that hoard cash in a can or a mattress, not rich people. Rich people invest it. Even cash in the bank isn't cash in the bank, the bank promptly loans out a multiple of it.
  - simonh 5y ago
    The $1 is relatively more valuable to the worker than the millionaire, but is it more valuable to the economy? I intuitively suspect so, but I don’t know why and I also suspect intuition could easily lead us astray on this.
5y ago

rrrrrrrrrrrryan 5y ago

> I don't know which is better though, will the minimum wage worker pay for services that are more beneficial, or will the millionaire invest it in a company that creates jobs and provides services? One way of measuring this is by looking at the "velocity of money." [1] IIRC a dollar spent at a local, family-owned restaurant travels 7x further than one spent at a mega-chain restaurant before . The restaurant owner might use that dollar to pay their cook, who might use it later that week when he gets a haircut to pay his barber, who might later use it to buy a coffee, etc. Because value is created for both parties with each transaction, this is considered much better for the economy (and especially the local economy) compared a dollar spent at McDonald's, where it might just go into a bank account and stop moving. I don't have the data to back it up (someone here might?), but I'd be tremendously surprised if a dollar put in the hands of a millionaire circulated more than a dollar put in the hands of the minimum wage worker, or if it created more value in the overall economy. [1] https://www.investopedia.com/terms/v/velocity.asp https://www.investopedia.com/terms/v/velocity.asp

WalterBright 5y ago
> where it might just go into a bank account and stop moving. Banks don't make money by storing your dollar in a vault. They make money by loaning it out. They loan deposits out as fast as possible. People who get the loans don't sit on it, either. It's madness to be paying interest on money just to let it set. They borrow money in order to promptly spend it.

diplodocusaur 5y ago

what's a better use of money, buying a cup of coffee or three packs of gum? I think that's the subtlety with wealth here, that it is a moving target depending on context, possibly even adaptive in an evolutionary sense