Anybody know anything about economics? I have a question.

[chaska]

I have a friend, very intelligent ... VERY intelligent. But he is also sometimes a little "out there". Further complicating the situation is that I don't know if this is his original idea or not, I suspect it's not ... I should ask him.

Anywho....

He says (assuming I get this right) that wealth is a closed system, that wealth is not created, that, rather, it's merely shifted around from one individual to another.

It's been a while since we had this discussion, so I can't remember his argument, but it makes sense, all wealth derives from the earth (until we can exploit whatever lies beyond the earth). I think (assuming some truth to this) that as more and more people populate the earth and with resources being finite, some questions of fairness of alocation come up.

I posted about this once before and one of the arguments against was by someone who said that as a writer he created wealth where none existed before. I don't accept this, a product is not the same as wealth, it's something to be exchanged for wealth, is it not? (is labor wealth?) Of course, new sources of wealth are discovered (literally - as in dis-covered, unearthed) all the time, but if my friend is correct, that all wealth already exists, would it not therefore rightfully belong to all in common?

I realize this is a bit nebulous, and I don't even know why I'm asking, but I'd like to hear some thoughts on this, especially if you've studied economics, finance, Socialism, etc. For some reason I find the question fascinating, and I often find it applies to various issues that come up here. I wish I could think of an example. Alas, no.

[GOPBasher]

1. I'm no economist, but no, I don't think he's right. Any time we

grow more food from the soil, for example, we increase wealth. Any time we take raw materials and make them into products that people want, we increast wealth. Any time we provide a service to people who want it, we increase wealth. Any time we come up with a new idea that people want to use, we increase wealth. I think my interpretation is good, but again, I'm no economist. I could be wrong.

[chaska]

4. Yeah, but....

Everything you named is created from what already exists. Unless we consider ideas and labor to be wealth, and I'm not saying we shouldn't, and even then ideas and labor come from human beings which are themselves products of the earth.

My question may not even apply to issues of economic fairness, but I think that's where I'm ultimately going with it.

For example, did you ever have the thought that, hey, I own nothing. Some own way too much. And they inherited it from their parents. When people came to this country, by and large they just layed claim to whatever they wanted, with no exchange taking place at all. Is it fair that we come into a world where everything is already owned, or should those that own everything have to share it. Should everybody be given their 40 acres and a mule, so to speak?

[The2ndWheel]

2. Unless everyone can have everything

I'd say yes, it is a closed system, and if the scale goes up on the one side, it has to go down on the other.

[Selatius]

3. If you define wealth as capital, then wealth must be finite.

I cannot increase the amount of land that exists.

I cannot increase the amount of iron ore that exists in the earth.

I cannot increase the amount of oil in the earth that exists.

I cannot increase the amount of molecules found in nature on earth.

I can, however, convert the land into some useable form.

I can, however, transform that iron ore into something I can use.

I can, however, transform that crude oil into something useable.

I can, however, through letting nature take its course, rearrange those molecules into a form I can eat. (food)

Now, if we're talking about intangibles like a service, I can create that. As long as I live, I can juggle balls for your amusement for however long I wish to do so.

Now, if we're talking about money, I can create that, through fractional reserve banking.

[chaska]

6. So you would consider labor to be wealth....

Does that thereby legitimate the fact that we come into to world owning no share of the tangible wealth? I mean a conservative might say, you have your labor, and that's all you need. Pull yourself up by your bootstraps.

Maybe what I'm getting at is the question of whether we are obligated to share the wealth of the planet (and consequently limit how much one person can hold) with all those that inhabit it.

My brain is often not on this planet and in the present moment or active paradigm. I understand that this is all too theoretical.

[Selatius]

9. If you want a value judgment, then I would affirm that we are obligated to share.

Our mutual survival depends upon us sharing with each other resources. When we monopolize a resource like farmland, we cause strife between those who own it and those who do not own it but need it. This is how wars start.

Looking back, I believe it would be more appropriate to say I defined wealth as "matter," since you can't increase that, but utility can be derived from intangibles like me cleaning your house for a fee. Now, using that definition, the power of labor is different from the power of capital in terms of wealth as I originally defined it in my first post.

[The2ndWheel]

11. And the process that created farmland in the first place

requires a continued monopolization of it. Simple land that was then declared to be farmland was land monopolized. It only makes sense that it continue to what we have today; a complete separation of life from food. And of course you can't fight a war against an agribusiness, they own the food. Try taking it from them without having to pay for it. So you have to pay them for the privilege to live. You need a job for that. That job isn't picking the food, automation does that. Your job keeps you busy enough so that you can't fight them, because you have to pay them for your life.

[Selatius]

13. In terms of monopolization, I was generally referring to the activity of...

having control over, say, 100 acres of land but only using 10 acres of land to purposely restrict supply and drive up prices. This has been a major problem with some of the wealthy latifundistas in Latin America who control vast amounts of land and has sparked civil unrest between landless farmers and the poor with the landlords who own the land.

[The2ndWheel]

15. Exactly

Agriculture is what created class.

[chaska]

5. HELP!!! Somebody help me find a point to this. What the heck am I getting at?

[On the Road]

7. Wealth is Definitely NOT a Closed System

it is true that the physical world is pretty close to being a closed system on our time scale. Agriculture would be an exception -- feral land which is farmed suddenly produces, corn, cotton, or fowl that would not exist otherwise.

But even where nothing is grown, the same physical material has greatly different economic or wealth value depending on what form it's in. Does a ton of iron ore underground have the same wealth value as the iron that could be exctracted from it? Does a tree in the forest have the same economic value as the furniture and lumber that it could produce?

For that matter, most wealth is not held in commodities, but in enterprises, which create wealth largely through what they DO, not what physical assets they have. Is software economically worthless because it only contains ones and zeros? Are service industries worthless because no physical assets are exchanged?

The value of some types of wealth, such as real estate, also varies depending on it utility to people and businesses. Manhattan is worth more than it was five hundred years ago when it was only inhabited by Indians and for good reason.

So your friend is seriously off track. Express wealth in any way you like -- savings, material possessions, net worth -- and compare 2007 with two hundred years ago. There is exponentially more wealth in the world today than there used to be.

[The2ndWheel]

8. With less diversity in life

Oh well, nothing comes for free.

[chaska]

12. I'm not so sure...

You're talking about value. I'm talking about wealth. Wealth not in terms of money but in terms of what IS, what was here before man and will (hopefully) be here after him, what is real and tangible. It's like the example I gave in the OP, the writer said he created wealth from what he wrote. No, I think he created a product (that is tangibly and quite literally worth only the paper it's written on) that can then be exchanged for wealth (or a representation of wealth - greenbacks).

I think the same probably applies to computer software, certainly it should, ones and zeros, no matter how artfully arranged, are inherently worthless until exchange for wealth.

You too would consider labor and ideas to be wealth. I'd like to hear more about that. I don't disagree, but I'm not convinced yet.

[On the Road]

17. That is True ONLY of the Bare Elements of the Material World

Outside of living things, there is basically the same amount of material in the world now as there was two hundred years ago. What is different is the wealth -- the amount of goods each person owns multiplied by the population.

Define wealth however you want, you'll get a huge increase starting with the industrial revolution. To avoid that conclusion, you would have to take a position that ten tons of iron ore represent the same wealth as a car or that a stand of trees is equivalent in wealth to a house.

There are many definitions of wealth, most of which would have a dollar equivalent. Just choose one and see if it's constant. The only ones that would not show an increase are either silly or non-economic.

[Recursion]

10. No. Our wealth mostly comes from the Sun

Almost everything valuable is a stored form of solar energy.

[chaska]

14. Ah, good one....

I considered that actually. But I decided that the Sun was a part of the earth, in the sense that without it the earth produces no life and the question wouldn't matter anyway. And because, and I may be wrong, I don't think the sun literally creates anything. I THINK it is only an ingredient that allows for things to be created from what's already here. In any case, sunlight is part of the definition of earth wouldn't you say? And in practical terms any effect it has on the creation of planetary wealth beyond it's facilitatory role is not to human scale, not something we could exploit.

Bottom line: I consider sunlight to be a part of the earth's wealth.

[chaska]

16. But what about solar energy?

Hmm. There might be the fly in the ointment of the argument. Yes, that seems very likely. Some sort of apparatus for capturing the sun's energy is necessary of course, but it is a small part of the picture compared to the energy (wealth?) created.

Hmm, gonna have to give this one some thought.

[Recursion]

26. Well, think of what is valuable

Some things are fixed, finite, and earthbound. Mostly metals and minerals.

Everything else: oil, crops, heat, animals, human labor, etc., gets its energy from the Sun. That's why economics is not zero sum, because the Sun keeps giving energy to the earth and will continue to do so for a few billion years more. That energy is stored in different ways, but it's an addition to the system every year.

[bluewave]

18. I don't think this is true. What is wealth? Assets? Currency?

You've got to define wealth first. Currency is traded on the open market. You can most certainly create what is traditionally thought of as "wealth" by printing more money. Just because a foreign country demands your currency doesn't mean their "wealth" is diminished in some way.

But again, what is "wealth?"

[rman]

19. in the classic formulation wealth is created from resources and labor

(I think that's Marx)

No-one's going to get rich when there is oil in the ground and apples in the trees, and everybody just sits on his ass.

And there isn't much labor to do when there are no resources. Sure there's labor that does not directly involve resources but that labor to does depend on resources, as do our very lives (food and all that).

So we need to do labor just to stay alive. The more efficient we get the more 'surplus' wealth is created. But that wealth still depends on labor and resources, and since there's a limited amount of both there's a limited amount of wealth.

And certainly at any moment in time there is a finite amount of wealth that does get shifted around from one individual to another - and tends to stick with a certain few individuals; individuals who don't need to spend it (not shift it to another individual) because they already have a lot of it. So they keep it and they get ever richer.
Which, given that there's only so much wealth to go around at any given time, inevitably causes shortage of wealth for others (mostly the ones who did the labor that created the wealth to begin with). In that sense it is a closed system. In the long term it's still a closed system but it does have potential for growth (creation of wealth) - up to a point, dictated by the amount of resources and the amount of labor - neither of which is infinite.

One of the problems with the current economic/finanacial system is that people see fit generate wealth based on speculation about how much wealth will be created in the future. That wealth is spend now and it is treated as though the potential for growth is infinite.

[bryant69]

20. Wealth can be neither created nor destroyed

What if there is a finite but very very very very large amount of potential wealth in existent? What would the practical difference be?

Bryant
Check it out --> http://politicalcomment.blogspot.com

[GOTV]

21. Interesting question, but I'm not sure we all agree on the definition of wealth.

You seem to want to consider wealth the total quantity of anything that can be desired. Is that it?

In that case I think your writer friend is right. A stack of paper has value and a pen has value. If he writes a good story on that paper, it looses it's value as a stack of blank paper, but it now has more value as a story people might want to read - potentially anyway, depending on his talent.

But you don't buy that argument?

You'd include fresh water as wealth wouldn't you? We desire it because it's necessary to stay alive. You'd also include gold I imagine even though it's not necessary for life - we just like it because it's shiny and rare.

Why is gold on the list and products of the mind not? Unless you automatically rule out any desirable thing that is not limited to a fixed amount, which seems arbitrary. I can spend money on gold and I can spend money to buy a story. I can trade gold for a story directly.

What are the rules that determine what is wealth and what is not?

[CTyankee]

22. Your original post also gets into the question of value in use as opposed to value in exchange.

There is value in air (use)without which we could not live and there is value in exchange (gold bullion).

These questions go back to the ancients. Aristotle had lots to say onit, the Romans had their own take, the Church, and on into the Mercantilists, Physiocrats, the Classical School, etc. on up to modern times.

Here are some resources I drew from in my Econ class in grad school:

"History of Economic Analysis" by Joseph Schumpeter

"Wealth of Nations" by Adam SMith

"Principles of Economics" by Alfred Marshall

"Distribution of Wealth" by John Bates Clark

"Ethics" and "Politics" by Artistotle

"Republic" by Plato

"Das Kapital" by Karl Marx

"The Affluent Society" and "The New Industrial State" by John Kenneth Galbraith

[aein]

23. sounds like a lot of belly-button staring to me

[ThomWV]

24. You Friend Doesn't Understand What Wealth Is - Let Me Explain

Wealth grows and shrinks. It is not the same thing as money, which comes and goes.

Wealth is a term that describes ownership of the means of production. If you own a factory you are wealthy, if you get paid a lot to make something in the factory but don't so much as own the tools you work with you may be rich, but you are not wealthy.

Riches can be controlled, which is to say that the amount of money in a system can be limited. No such system exists however, the money supply varies all the time. Wealth can not be controlled, and in fact its growth can not be constrained. You can destroy wealth, as for instance the industrial bases of Germany or Japan during the second world war. Destroying wealth doesn't deter the uniquily human drive to improve on their situation though, and so people will always build and rebuild. That is why wealth can not be constrained and is, essentially, limitless.

Got it?

[TahitiNut]

27. "ownership" is a legal fiction - an entitlement.

It's NOT the same as 'possession' ... and can evaporate with the overthrow of a government. Alternatively, 'owners' can enforce their entitlements by their own force - private armies. We sometimes call those people 'warlords' or 'drug kingpins' ... effecting a private form of "might makes right."

[LSK]

25. I recall from college that new technology generates new wealth

This is proven somewhat by the dot.com boom of the 90s.

Bill Gates and Mark Cuban are examples of wealth created from new technology.