I think you’re intentionally trying to poison the well. Any discussion on this point will lead to you then saying “why should it be a 1 to 1 ratio, shouldn’t the price we want the seller needs not what the buyer is willing to pay?”
The price will be has high as the buyer is willing to pay, and as low as the seller is willing to take.
If what you did was was fraud then no, you didn’t add any value.
But with that said, you are free to sell your art for what ever price you can get. If you find an idiot that values it for three times its worth than yes, you created wealth, because that simple idiot is happier as a result. It’s not up to you to figure out how happy he’ll be, or inform him of the going rate for apples and wheat.
Prior to Futures markets what you could sell your wheat for depended on a variety of variables including how good you were at negotiating. Futures markets took the negotiation part away from the farmer (largely to the farmer’s benefit).
That said in a discussion on the creation of wealth I think it is informative to ask if I trade one bushel or two bushels or three bushels of apples for your one bushel of wheat if wealth creation is different in each case.
Yes, your skill at negotiating plays a role in wealth generation. Just as your ability to grown more or better apples. But you weren’t talking about negotiations, you were talking about fraud and swindling.
Yes it is. The value of apples will change over time, some times higher some times lower. Like I said, wealth can also be destroyed. When all you can grow are apples, you are at the whim of how desirable apples are at any given time. Likewise, if you desperately need wheat, you’ll be at the mercy of what ever the going price of wheat is.
I think what you’re now driving at is the issue of speculation: That someone will buy a bushel of apples, not wanting apples, but wanting to cash in on the trade. It’s not ideal, but it’s also generates wealth (and bubbles).
A futures market acts as a price discovery mechanism so everyone is on the same playing field.
Now, prior to such markets, if the going rate is 1:1 for apples:wheat bushels and I manage to get a 3:1 deal out of you where has wealth been “created”? Yes, I got more so I gained wealth but you got a raw deal so wealth was destroyed. It balances out. In the end it was a shifting of commodities. There are still the same number of bushels of wheat and apples in existence but no wealth was “created”. The wealth was merely shifted.
Whether I got the better deal by being a savvy negotiator or threatening to kill you and your family unless you gave me the better deal does not really matter in this discussion.
So too with my stick figure art. You may decide it is worthless or worth a bushel or three bushels. No wealth was created. Merely existing resources being shuffled around.
Are you serious? This is exactly what I meant when I said you were intentionally trying to poison the well. Congrats.
To you, there is no difference between a savvy negotiator and a guy with a gun?
If you can’t reason beyond what you wrote there the rest of this discussion won’t make any sense to you. If you consider all transactions to be at gun point then obviously you don’t see wealth created.
Again, you are wrong. If I think it’s worth three bushels, and I’m willing to give those up in exchange, then wealth has been created. I am now happier having the art, and you are happier having the apples. To me apples are worthless, but art is rare and hard to come by. To you apples are essential to survival.
How many apples will be exchanged is then a matter of how badly you need apples, and how appealing I find your art. Remember that before and after the transaction, I consider apples to be worthless to me, I have no need for them. I think you’re a sucker taking my apples, and you think I’m a sucker buying your art. But in the end we’re both happier.
No guns required.
The presence of a coercive factor is theft, the presence of deceit is fraud.
Why do you think it’s a raw deal? The guy with a lot of wheat he may be happy to get rid of as much of it as he can so he doesn’t have to store it over winter. Remember that he doesn’t value wheat, he’s got too much of it, what he wants is an apple. So he’s laughing at you for only getting 3:1 instead of 4:1.
And in both cases, you each spent time and talent creating a product to be sold. As long as someone values that, wealth is generated.
Ah, I see where you’re confused. Before the transaction, you have apples and I have oranges. But you hate apples and I hate oranges. To us, they have no value, no neither have us is happy so neither of us has any wealth. When we decide to trade, you end up with something you value, and I end up with something I value. In the process we both get a raw deal, because we both laugh at the other guy for being a sucker. Yet, we’ve both gained.
For the purposes of this discussion is the key here.
Yes, me threatening you is illegal BUT we are talking about “wealth generation”.
For our purposes it matters not how I got the better deal.
Whether I out negotiated you or threatened you the end result is I got a 3:1 deal when the going rate should be 1:1. Why does how we got to that result matter when we are asking whether wealth is generated?
Are you saying wealth is generated if I negotiate better than you but it isn’t if I threaten you assuming the end result of the deal is the same?
If you cannot grasp that and want to rant about the differences of threats versus savvy negotiators then I am done here.
While you may hate oranges you realize they have value because other people want them.
There are nasty chemicals I personally would not want to have but are valuable to others. Few would be so stupid to think, “Ah, this stuff is shit…I hope someone will just take it from me.”
Yes, as long as that’s not just a bubble (i.e. the buyer actually gets enjoyment out of it, and doesn’t just buy it out of the belief that someone else will pay $600), that’s wealth generation.
Whack-A-Mole, we can add 30 more posts to the discussion if you want, but if you do not understand that wealth and money aren’t the same thing, you need to grasp that concept before the discussion can usefully proceed.
If having things I value is all that is involved in my having wealth, then the man who loves wadded gum wrappers above all and has a house absolutely full of wadded up gum wrappers is possibly one of the wealthiest people on the planet.
No way, though, right? He is sitting on a pile of trash.
This is why I’m arguing wealth doesn’t consist in having things you value–rather, it consists in having things that can move other people.
ETA: My wife pipes in as follows: I might have a rock collection which I value quite highly. But if it’s just a bunch of gravel collected from parking lots, the rock collection doesn’t make me wealthy. Now, if one turns to be a diamond, then I’ve got genuine wealth–whether I value it or not. I’m sitting on a gold mine just by having the diamond in my posession–because by having the diamond I have acquired a disposition to move other people according to my desires.
So then–wealth isn’t having things I like, it’s having things other people like.
I think the main clarification needed is whether the question is asking a more GQ-ish question about the mechanism by which more money enters the economy (and the side effects thereof) or whether the question is a more philosophical one about how value is determined.
The fact that we’re in Great Debates would point to the latter, but the focus on dollar amounts and the seeming lack of understanding about the basics of economies would point to the former.
The OP is explicitly open to the possibility of either.
Seeing how the conversation has evolved, though, it seems to definitely (now) be a philosophical discussion (albeit intended to be informed by an understanding of the more GQ-like facts).
But it’s not a philosophical discussion of how value is determined, it’s a discussion about the nature of wealth. What’s being generated when wealth is generated, and how is it generated?
Some in the thread think that wealth is relative to individuals as follows–wealth for X is something of value to X.
Others think that wealth is relative to individuals in a different way–wealth for X is something X can use to move others according to X’s desires.
What I’m really hoping for is a non-relative understanding of wealth. Certainly wealth is tied in to value and different entities value different things. But that an entity values something is an objective matter–so it doesn’t seem impossible that there might be an objective answer to the question “how much wealth is there in this system?” On the first definition above, there can be no answer to this question–or at least, the answer will be different for different people. The second definition, however, may yield an objective measure of wealth. Not that that’s an argument for the second definition–the arguments for the definition were given elsewhere in the thread.
Yes, though of course the opportunity cost of not eating the taco is that it rots anyway. Being eaten is part of what makes a taco worth something. That’s why we keep growing food.
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The second definition, however, may yield an objective measure of wealth. Not that that’s an argument for the second definition–the arguments for the definition were given elsewhere in the thread.
[/QUOTE]
The amount of wealth in the world is in the hundreds of trillions of dollars, so you’re not going to get an exact number. However, measured on that scale, you can come up with a reasonable approximation, since the subjective values even out.
But you asked how wealth is CREATED, not how much there is. Wealth is created by moving resources from lower value to higher value uses. You combine things to create wealth. Seeds, water and land become food. A spear and a wild animal become meat and furs. Rubber, steel, oil and some technological savvy become a car.
Sure, I’m not looking for that–just (hoping for) an understanding of wealth which would allow for an an objective measurement “in theory.” In other words, an understanding of wealth which doesn’t make the wealth contained in a system relative to the one doing the measuring.
Are you more inclined to say that X having wealth involves X having things X values, or that X having wealth involves X having things others value?
I hate to be pedantic (nah, I like it really :p), but that’s not the opportunity cost of not eating the taco. Even if the taco never rotted it wouldn’t matter. The opportunity cost of not eating the taco is… not eating the taco.
Also, let’s keep in mind that nature creates wealth by creating food, and that we are all entitled to that. Some would say that overall humans have destroyed most of the wealth of the planet (if you consider wealth as fundamentally being "good stuff that we want to have).
Without getting to the whole fractional reserve banking system (which Wiki can explain better than I can), the short answer is the government prints it and the banks lend it out for a fee (interest).
Money is only valuable because it is universally accepted as a medium of exchange. And it’s value fluxuates depending on the supply and demand, like any other commodity as well as other factors like the stability of the government printing it. The reason right-wing gold bugs have such a hard-on for gold as a medium of exchange is that it tends to have universal value, even if the government collapses.
Correct. It is destroyed when the taco is consumed. The taco stand makes money because the value of the taco is worth more than the sum of the ingredients, time and labor used to create it.
Wealth will also be destroyed over time as the tacos go stale and become unsellable. This loss of value is “depreciation”.
It also helps to think of wealth and value in terms of the accounting equations.
Owners Debit/Equity = Assets - Liabilities
Assets are the value of things you own or things people owe you. (like a house or car or your 401k)
Libabilities are things you owe other people (like your mortgage or school loans)
Debt or Equity is the total worth of everything you own, owe and are owed. Also called Net Worth.
Net income = Revenue - Expenses
Revenue is income you receive that increases your assets (like your salary)
Expenses are outputs that increase your liabilities (like your bills).
So someone can have a high income but a low net worth because as soon as they get paid, they put the money into flashy, high cost items that lose their value (depreciate) very quickly (like cars or high fashion clothes).
By the same token, a person who appears to be of modest means can actually be a millionare because they spend money on high quality items that last and invest in revenue generating assets.
Essentially yes. Because it is your ability to trade things you have for things you want that makes you wealthy.
There’s a funny implication, though–going back to the “adam and eve” scenario, that first time Eve makes a knowledge-pair and Adam makes a life-pair, both have become more wealthy. But then the instant they trade one for the other (even before they’ve consumed them) Adam and Eve have both now lost that wealth. They’re exactly as wealthy, now, as they were before they made the fruit-pairs.
Both are happier now, but because neither now has the ability to trade what they have for something they value more, neither has any of the wealth they created previously.