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So, I was never good at (or interested in) economy. What I don't understand is where this 'wealth' is coming from. You say no one can provide it now. But it's

So, I was never good at (or interested in) economy. What I don't understand is where this 'wealth' is coming from. You say no one can provide it now. But it's seemingly coming out of thin air (your chinese example: What happened? The people are the same. Resources are probably comparable. Building an iPhone in CN generates money .. how?). The whole big picture, macroscopic view never made sense for me. The 'click' is missing. It seems that this wealth is more or less as arbitrary as shares (look to me).

samolang 13y ago
Here is a pretty good primer: http://www.reddit.com/r/finance/comments/utf5u/where_has_all_the_money_in_the_world_gone/c4yfkhg http://www.reddit.com/r/finance/comments/utf5u/where_has_all...
bradleyjg 13y ago
In an agrarian society most people are working on small plots of land growing food and/tending animals. Their labor combined with the natural resources is enough to create food for their families and a little bit left over. They take that little bit left over and trade it to a guy that makes clothing, and a guy that makes tools. All the goods and services in the whole country don't amount to all that much -- enough food to feed everyone plus some clothes and tools. Now move to the industrial agricultural age. The same food (better really) that it used to take 90% of the labor of the country to grow now can be done by 5% of the people. Instead of having only enough surplus to support a few guys making clothing or building tools, most of society can go off and find things to do with their time to trade to the farmers for food and to each other for whatever everyone else is doing. Now all the good and services of the country not only include a wide variety of food, clothing, and tools, but it also includes concerts, amusement parks, computers, dishwashers -- all of which can be traded for the very same bushels of corn or herds of cattle that the agrarian society was producing. All of this is very simplified but it should give you the basic idea. Bill Gates can give the global poor money and they can use that to import goods and services made elsewhere, but that's just a temporary change. If you really want the societies to be richer, you need the people in that society to be doing things with their time that are of great value to others. That's what increases the total amount of wealth in the world.
deleted 13y ago
[deleted]
Noxchi 13y ago
Think of life and humans as a chemical reaction, like fire. We consume and process things to make other things. A tree by itself has limited value to a human, but if you process it into a house, it has a lot more value to a human. Lets say you need 100 trees to make a house. 100 trees is worth $10,000. A person with the job of chopping trees (a lumberjack) can cut down 300 a year, so they make $30,000 a year in income. Lets say the lumberjack wants to buy a house. A house is worth $20,000 to him. He pays a firm to build him a house for $20,000. The firm buys 100 trees from someone for $10,000 and then turns them into a house for the lumberjack. That extra $10,000 they received is called "value add". They added value because humans (the employees of the firm) had to turn the wood into a house. This is what the economy basically is, and you can be in two roles: 1: The resource extractor 2: The resource processor Or in other words, you can be the wood or the flame. How to do you make a big fire? Get more and better resources (like wood and air) Start fires in more places than one (parallel processing of the wood) Start hotter fires (blowtorch vs a match) Pretty much all of the above is controlled by laws and policy of the government. The citizenry are like the flame - they have innate, unfaltering properties. It is the role of the government (the person trying to build a big fire) to know these properties of the citizenry, and setup the right conditions so they burn their brightest.
CWuestefeld 13y ago
What I don't understand is where this 'wealth' is coming from. Wealth is the result of - Raw materials (natural resources) - Capital (building the factories) - Labor (running the factories) - Technology (figuring out better ways of doing things Obviously, technology is improving all the time. We're figuring out better ways of production, so that more can be created even with fewer of the other inputs. Indeed, while we're stuck with pretty much the original set of raw materials, technology lets us figure out things to do with stuff that we never even realized was a raw material. Capital is always building on itself. That is, given adequate maintenance, you have all the factories that you had last year. Plus you build new ones this year. So capacity is always increasing. Labor is always increasing in two ways. First, the population of the world grows, so we've got more people to do the work. But more importantly, the more people we've got to divide the work amongst, the more each person can specialize. And the more each can specialize, the more efficiently he can work at it. So all these factors work to bring greater wealth to the world.
PeterisP 13y ago
You can think of wealth as "total stuff+useful services produced" which is approximately the same as "total stuff+useful services consumed". First, you can go from idleness to producing - if I sit on my ass I produce no wealth; if I assemble an iPhone then I create wealth since an iPhone is more useful&valuable than the unassembled components. Second, you can have great differences of production efficiency. You can make the exact same people with the same effort generate order(s) of magnitude more wealth per year by making different products, making the same products more efficiently, or combining people with capital(=machinery, automation, economies of scale). Third, trade generally creates wealth as such. There are classic examples, but the sense is that re-distributing tasks to the places where they're done relatively more efficiently allows both parties to have much more goods&services than if they'd be isolated and didn't trade. The point is that there can be huge differences of how much wealth a person is generating, and those differences form the differences in national wealth. Simply "giving people fishes" to go on the same way doesn't generate wealth. "Teaching the people to fish" does generate wealth. And there are two exceptions, where charity is key - first, if people are starving, then feeding them allows them to keep their means of future wealth generation, instead of eating their seeds and milkable animals, and selling their tools. And second, if you "give a fish" to kids&young adults, then that enables them to "learn fishing" and generate more wealth in the future instead of being stuck in ineffective menial jobs (that don't generate much wealth for them nor their employers) from early childhood till death.
samolang 13y ago
Say you live on an island without much technology. Everybody on the island farms manually, but everyone is still hungry because they can't grow enough. Then one day somebody invents a tractor. Now all of a sudden there is enough food for everyone to eat as much as they want. The island just got wealthier because technology increased their efficiency. This process is basically how the world gets wealthier, through increases in worker efficiency.
The_Double 13y ago
The easiest way to see it is like this: Lets say you make chairs. Someone pays you 100$ for a chair. You make the chair with a small amount of materials, and sell it to the buyer for 100$. At the start of this process, there was 100$ and maybe 5$ of materials. After the transaction, the 100$ is still there, but there is also a chair worth 100$ in circulation. So 105$ of assets turned into 200$.

samolang 13y ago

Here is a pretty good primer: http://www.reddit.com/r/finance/comments/utf5u/where_has_all_the_money_in_the_world_gone/c4yfkhg http://www.reddit.com/r/finance/comments/utf5u/where_has_all...

bradleyjg 13y ago

In an agrarian society most people are working on small plots of land growing food and/tending animals. Their labor combined with the natural resources is enough to create food for their families and a little bit left over. They take that little bit left over and trade it to a guy that makes clothing, and a guy that makes tools. All the goods and services in the whole country don't amount to all that much -- enough food to feed everyone plus some clothes and tools. Now move to the industrial agricultural age. The same food (better really) that it used to take 90% of the labor of the country to grow now can be done by 5% of the people. Instead of having only enough surplus to support a few guys making clothing or building tools, most of society can go off and find things to do with their time to trade to the farmers for food and to each other for whatever everyone else is doing. Now all the good and services of the country not only include a wide variety of food, clothing, and tools, but it also includes concerts, amusement parks, computers, dishwashers -- all of which can be traded for the very same bushels of corn or herds of cattle that the agrarian society was producing. All of this is very simplified but it should give you the basic idea. Bill Gates can give the global poor money and they can use that to import goods and services made elsewhere, but that's just a temporary change. If you really want the societies to be richer, you need the people in that society to be doing things with their time that are of great value to others. That's what increases the total amount of wealth in the world.

deleted 13y ago

[deleted]

Noxchi 13y ago

Think of life and humans as a chemical reaction, like fire. We consume and process things to make other things. A tree by itself has limited value to a human, but if you process it into a house, it has a lot more value to a human. Lets say you need 100 trees to make a house. 100 trees is worth $10,000. A person with the job of chopping trees (a lumberjack) can cut down 300 a year, so they make $30,000 a year in income. Lets say the lumberjack wants to buy a house. A house is worth $20,000 to him. He pays a firm to build him a house for $20,000. The firm buys 100 trees from someone for $10,000 and then turns them into a house for the lumberjack. That extra $10,000 they received is called "value add". They added value because humans (the employees of the firm) had to turn the wood into a house. This is what the economy basically is, and you can be in two roles: 1: The resource extractor 2: The resource processor Or in other words, you can be the wood or the flame. How to do you make a big fire? Get more and better resources (like wood and air) Start fires in more places than one (parallel processing of the wood) Start hotter fires (blowtorch vs a match) Pretty much all of the above is controlled by laws and policy of the government. The citizenry are like the flame - they have innate, unfaltering properties. It is the role of the government (the person trying to build a big fire) to know these properties of the citizenry, and setup the right conditions so they burn their brightest.

CWuestefeld 13y ago

What I don't understand is where this 'wealth' is coming from. Wealth is the result of - Raw materials (natural resources) - Capital (building the factories) - Labor (running the factories) - Technology (figuring out better ways of doing things Obviously, technology is improving all the time. We're figuring out better ways of production, so that more can be created even with fewer of the other inputs. Indeed, while we're stuck with pretty much the original set of raw materials, technology lets us figure out things to do with stuff that we never even realized was a raw material. Capital is always building on itself. That is, given adequate maintenance, you have all the factories that you had last year. Plus you build new ones this year. So capacity is always increasing. Labor is always increasing in two ways. First, the population of the world grows, so we've got more people to do the work. But more importantly, the more people we've got to divide the work amongst, the more each person can specialize. And the more each can specialize, the more efficiently he can work at it. So all these factors work to bring greater wealth to the world.

PeterisP 13y ago

You can think of wealth as "total stuff+useful services produced" which is approximately the same as "total stuff+useful services consumed". First, you can go from idleness to producing - if I sit on my ass I produce no wealth; if I assemble an iPhone then I create wealth since an iPhone is more useful&valuable than the unassembled components. Second, you can have great differences of production efficiency. You can make the exact same people with the same effort generate order(s) of magnitude more wealth per year by making different products, making the same products more efficiently, or combining people with capital(=machinery, automation, economies of scale). Third, trade generally creates wealth as such. There are classic examples, but the sense is that re-distributing tasks to the places where they're done relatively more efficiently allows both parties to have much more goods&services than if they'd be isolated and didn't trade. The point is that there can be huge differences of how much wealth a person is generating, and those differences form the differences in national wealth. Simply "giving people fishes" to go on the same way doesn't generate wealth. "Teaching the people to fish" does generate wealth. And there are two exceptions, where charity is key - first, if people are starving, then feeding them allows them to keep their means of future wealth generation, instead of eating their seeds and milkable animals, and selling their tools. And second, if you "give a fish" to kids&young adults, then that enables them to "learn fishing" and generate more wealth in the future instead of being stuck in ineffective menial jobs (that don't generate much wealth for them nor their employers) from early childhood till death.

samolang 13y ago

Say you live on an island without much technology. Everybody on the island farms manually, but everyone is still hungry because they can't grow enough. Then one day somebody invents a tractor. Now all of a sudden there is enough food for everyone to eat as much as they want. The island just got wealthier because technology increased their efficiency. This process is basically how the world gets wealthier, through increases in worker efficiency.

The_Double 13y ago

The easiest way to see it is like this: Lets say you make chairs. Someone pays you 100$ for a chair. You make the chair with a small amount of materials, and sell it to the buyer for 100$. At the start of this process, there was 100$ and maybe 5$ of materials. After the transaction, the 100$ is still there, but there is also a chair worth 100$ in circulation. So 105$ of assets turned into 200$.