This may be a GQ instead of a GD thread. I’m not sure.
Suppose I create a work of art. I spend five dollars on the material. The work ends up getting appraised at $505.
Have I just generated $500 of wealth?
It would seem so–the physical matter was worth $5, now it’s worth $505. $500 has been created.
On the other hand, it would seem not–the thing is worth $505, but when someone pays me that money, they are out $505. The money changes hands, but neither appears nor disappears. I did something which enabled me to transfer money from someone else’s hands into mine, but this is not the same thing as “creating” that money–and “generation” would be a kind of “creation” wouldn’t it?
So is this an instance of “generating wealth” or not?
Maybe is there a distinction between “generating value” and “generating wealth”?
Some people think that economics is a zero-sum game, i.e. that there’s a fixed amount of wealth out there, and $500 that your painting is worth basically came from somewhere else, making someone else poorer, or something else worth more.
It doesn’t really work that way, from what I can see; the Fed and other governments regulate the money supply so that in (vastly simplified) essence, when you create your $505 painting for $5 in materials and effort, $500 is added to the total amount of money in the system, so in that sense you did create $500 worth of money.
I’m not clear on the actual ins and outs of how the money supply’s regulated, but it is tightly coupled to the inflation rate, and is essentially why the value of a “dollar” (or euro, yen, rupee, etc… ) diminishes over time. You may generate $500 now, but your painting will (hopefully) be worth more than $505 in the future if it keeps its value.
I may be misunderstanding how the terms are used in economics, but it seems clear to me that wealth is not money.
When you sell the painting to somebody, they’ve lost money, but they’ve gained something that is at least of value to them - unless it was a pity sale, of course, or an extreme impulse buy, or some other explanation of why they’d buy it at a lost to themselves.
As I understand it, ‘wealth’ is something that’s a bit more generic and averaged than ‘value’ - if it’s not something that you could count on to be saleable for around 500 dollars, then it’s not 500 dollars worth of wealth. But if the appraisal is a good one, then that painting represents wealth, in my opinion.
Right. As ChrisK says, before you created the painting, you had $5 and the art collector had $505. After you create and sell the painting, you have $505 and the art collector has a painting which they consider more personally valuable than $505 (else they wouldn’t have bought it at that price). So you’ve gone up by $500, and the art collector has gone up by some amount; you’ve created at least $500 of wealth.
Yes, you applied time and talent to create something that someone else valued. That’s all there really is to it.
The idea in a market based economy is that the $5 thing you bought was actually only worth $1, but someone did something to it to make it worth $5 to you. Subsequently, you’re going to take the $500 you made, and buy something from someone else. That person also took $5 of raw materials and and created wealth.
The important point there is that you are good at what ever it is you did, in fact you’re better at it than the two other people you interact with. But they’re better at the things they did. Each person does what they’re good at, instead of what they’re bad at, and wealth is created.
Further to that point, it’s unlikely you consider the thing you made to be worth $505. To you it’s still a $5 hunk of clay. Likewise, the person that sold the clay doesn’t value it at $5, to them it’s $1 worth of raw materials. Each of you does something you might not want to do so that you’ll have money to spend on things you do want to do.
Now, to carry this forward, imagine you didn’t have $5, but instead had to borrow it. Does the person who lent it to you also create wealth? They will delay having $5 for how ever long it takes you to pay it back, and in doing so will expect something in return. That service is of value to you, so you are willing to pay more than $5 for it, perhaps $6.
I should have asked the more basic question: What is wealth?
When I imagine scenarios, all I see are bits of matter shifting places–nothing being created or generated. Of course that’s the wrong way to think about it! It’s got to be that the thing being generated–the wealth–isn’t a bit of matter but rather is a type of pattern in the movement of matter.
Probably a constitive part of that pattern resides in the activities of human brains.
In short it is that the whole is greater than the sum of its parts.
Your car is a pile of metal and plastic (mostly). As individual lumps not worth near what the finished product is. Granted you add in the cost of engineering and manufacturing and paying secretaries in the company to make it all come together. Even then there is a value beyond the raw costs.
Perhaps an easier way to think of it is someone developing a new process for manufacture. Say Henry Ford and the production line.
People could build cars before that but they were expensive. The production line allowed for mass production and made costs per unit drop but massively increased how many units you could build. Same raw materials in a given car but produced for less per unit. More people can buy them and they become more productive (they can now choose jobs further from home). Transportation of goods becomes more economical and so on.
In the end you have magnified the capacity of the economy to do business. You have generated wealth well beyond what it cost to produce it. Hence the economy grows.
Wikipedia says value is the worth of a good as determined by the market.
So generating wealth is creating an abundance of something that the market determines is worth something. (Presumably–worth something more than the constituent materials that went into its making were worth.)
What is worth?
Is it how much people are willing to pay or is it how much they should be willing to pay?
To the OP a piece of art is a transfer of wealth (e.g. money or something of value) from one person to another.
Certainly that art may appreciate in value but that is merely the value individuals place on it. It has not “generated” new money. It may become more valuable but it has not added to the economy as a whole.
See my previous post for the how new wealth is created.
Put some cash on the table in front of you, and you’ll notice is does nothing. Just sits there looking at you. But we can add up the numbers and say it has worth, or value, it is $20 (or how ever much you have).
Now, look at the computer you’re using to play on the internet. You exchanged cash for it, but you get something out of it. It has a function, and brings you enjoyment, more function and enjoyment than the pile of cash.
The amount of function/enjoyment it brings to you represents its value. And to that you’ll assign a number. You might be willing to pay $500 if all you want is a simple machine, or $5000 if you’re really into gaming.
I don’t game, so a $5000 machine has no value to me, it’s still only worth $500 based on what I’ll get out of it.
To me a car has an inherent value based on the utility of having it, but only up to a point. I’m willing to pay $10,000 maybe $12,000 to have a decent vehicle with a few perks, but beyond that the addition I see no value. A $25,000 car doesn’t add $15,000 worth of value to me, it’s still just a car. But to other people leather seats and a beefed up stereo are important, they add value.
Two entities, call them Adam and Eve. And two trees, call them Tree of Life and Tree of Knowledge. (No relation to the famous trees or individuals of that name.)
Adam can eat the fruit of the tree of Life, but the fruit of Knowledge is poisonous to him. He can’t even touch it, or else he’ll surely die. For Eve, the reverse is the case.
However, the fruit of these trees has a strange property. If you join together two knowledge-fruits just so, then they become a new kind of object. And this object is edible to Adam. In fact, not only is it edible, Adam quite prefers it to the taste of the tree of Life.
Same goes for the other tree and its relation to Eve.
So–Adam and Eve could just eat from their own individual trees. Or they could start making fruit-complexes for each other, and thereby enjoy something tastier than they would have had before.
When Eve puts together two knowledge-fruits to make something Adam finds delicious, she has thereby created wealth, correct?
In our scenario there’s nothing stated about limited resources or anything, so wealth doesn’t require that (if I’m right that Eve has created wealth). Instead, all that’s needed is that someone is incentivized by something someone else has done–right?
So then generating wealth is generating a disposition to induce a pattern of behavior, correct?
I’m trying to figure out what’s essential to the concept “wealth”, so I’ll know what’s being measured when people measure “wealth.”
If I’m right that Eve would count as generating wealth, then wealth is not fundamentally a function of scarcity or a relation of scarcity to anything else. In the real world, it may correlate somehow with scarcity, but what it is is different.
Can you have a genuine economy without conscious agents? Does an economy (i.e. a pattern of movement and generation of wealth) require that its agents have desires? Or only dispositions?
Haha you guys are probably to the point of wtf by now…
Like I said, wealth is correlated in many ways, in the real world, with scarcity.
But that correlation isn’t what wealth is. Right now it appears that wealth is a disposition to induce certain patterns of human behavior.
Which patterns? right now I’m thinking:
X is wealth to Y to degree Z when there is an extent (correlated with Z) to which having X gives Y a disposition to induce certain patterns of human behavior desirable to Y.
But if that’s right, there’s no such thing as just “generating wealth.” There can only be generating “wealth to Steve” or “wealth to Jane” or “wealth to Company W” or “wealth to Nation G.”
That conception of wealth, then seems too… finegrained?
Maybe “generating wealth” is just the act of generating any of the above specific wealths? But that makes it hard to see why generating wealth should be valuable in itself–presumably Steve is rational to prefer the generation of wealth-to-steve rather than the generation of wealth-to-just-anybody.
Look, take your hypothetical and phrase it this way:
Adam has access to plenty of Knowledge Trees, and because of his height he’s very good at picking them. But they’re worthless to him because he can’t eat them.
Eve has access to plenty of Life berries, and because of her stature is very good at picking them. But they’re worthless to her.
For each of them to spend the day picking would be a waste of time. And for each of them to try and swap would be a waste of time.
But when each does what they’re good at, then trades, each is better off. Adam can take something worthless to him, and trade it for something of immense value–wealth is created.
In your OP, the art you created had no value to you, because you can create art. But to someone that loves art without the ability to create it the painting has value, lots of it.
Now, with the rest of your scenario, we see how our society has gotten infinitely more complicated. Apple can take dozens of highly specialized components, each valued at $5 and sell something for $300. The company itself doesn’t have to make batters, processors, hard drives, RAM, or touch screens. They let other companies do that, then find the best (value). Each of those companies are taking components and creating things like batteries. And some people are mining and processing chemicals so that people can make batteries. Those people then by iPods.
To be clear, I do know all this of course. What I’m after isn’t an explanation of how the economy works in any particular detail. I’m just after a conceptual analysis of “wealth” and what it means to “generate” it.
So that I might feel like I have something intelligent to say when the conversation turns toward the politics of wealth.