Comments on: How is wealth destroyed and where does wealth come from? http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from Distributed Action Research blog by Andy Roberts Wed, 01 Feb 2012 10:31:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: UK GDP since 1948 (Economics) http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-111781 UK GDP since 1948 (Economics) Mon, 02 Jan 2012 12:34:17 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-111781 [...] Domestic Product is the output of Britain. Find out how this recession compares to the others. This article titled “UK GDP since 1948″ was written by [...] [...] Domestic Product is the output of Britain. Find out how this recession compares to the others. This article titled “UK GDP since 1948″ was written by [...]

]]> By: Wisconsin is making the battle lines clear in America’s hidden class war (podcast) http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-111682 Wisconsin is making the battle lines clear in America’s hidden class war (podcast) Thu, 15 Dec 2011 12:54:10 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-111682 [...] the interpretation here has more to do with culture and aspirations than the relationships to the means of production. And who is responsible for these ‘distorting filters of media [...] [...] the interpretation here has more to do with culture and aspirations than the relationships to the means of production. And who is responsible for these ‘distorting filters of media [...]

]]> By: brian mcgee http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-105709 brian mcgee Thu, 20 May 2010 17:05:34 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-105709 right now in the us the federal reserve is loaning private banks money at o percent .do you thing it would be a better system if us government loaned money directly to citzens at lets say 3%on a home .that interest could pay for infrastructer .then bankers would be nothing more than clerks and we could elimante property tax and have a better standard of living right now in the us the federal reserve is loaning private banks money at o percent .do you thing it would be a better system if us government loaned money directly to citzens at lets say 3%on a home .that interest could pay for infrastructer .then bankers would be nothing more than clerks and we could elimante property tax and have a better standard of living

]]> By: mark http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-103297 mark Fri, 02 Apr 2010 16:08:58 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-103297 My simple understanding for the creation and destruction of Wealth: If I fix a stereo and sell it on eBay for more than the original purchase price, wealth has been created. Use to think the extra money made was just a transfer of wealth. That is not true! There are extra bucks in my pocket, and the new owner has a prized stereo. When the stereo stops working after a few years, or FM radio stations no longer broadcast (for some unknown reason at this time) the stereo decreases in value or may become completely worthless. Wealth has been destroyed. No one ran off with the money. It's just gone! Now! On to understanding the Federal Reserve and Carbon Credits! My simple understanding for the creation and destruction of Wealth:

If I fix a stereo and sell it on eBay for more than the original purchase price, wealth has been created. Use to think the extra money made was just a transfer of wealth. That is not true! There are extra bucks in my pocket, and the new owner has a prized stereo.
When the stereo stops working after a few years, or FM radio stations no longer broadcast (for some unknown reason at this time) the stereo decreases in value or may become completely worthless. Wealth has been destroyed. No one ran off with the money. It’s just gone!
Now! On to understanding the Federal Reserve and Carbon Credits!

]]> By: LIBERTY: Natural law applies to economics as surely as gravity applies to ripe apples « Reinke Faces Life http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-102158 LIBERTY: Natural law applies to economics as surely as gravity applies to ripe apples « Reinke Faces Life Mon, 08 Mar 2010 11:38:58 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-102158 [...] http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-fr... [...] [...] http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-fr... [...]

]]> By: Ignacio Couce http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-101637 Ignacio Couce Tue, 02 Mar 2010 07:10:25 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-101637 There is one and only one way of increasing wealth. Wealth increases as production increases per unit of investment per capita, be that unit of investment time spent stumbling through a forest and picking berries, or engaging in arduous labor ,or investing in capital equipment. For example, if I spend 24 hours fishing with a hook and line, and in that time period I catch X number of fish to feed Y number of people, we can calculate my return on my investment of time and energy, and the wealth in that society represented by the availability of fish per person. Conversely, if I use the same materials, but apply 23 hours to making a net, then spend one hour fishing with that net and now catch 2X fish, the standard of living has increased for that same Y number of people (they can now enjoy twice as many fish to eat), or the population can increase while maintaining the same standard of living enjoyed by the original X number of people. The key is the production of goods and services people actually want and value. The signals that determine what people actually want and value are price, profit and loss. In there absence, there is no way of determining what people actually want and value -- socialist societies in which these signals are not allowed to operate have proved this fact over and over again; from the USSR and Cuba to Venezuela, Greece and China, there can be no doubt that these principles cannot be denied by government edict; that in fact these principles operate weather or not the economic system is based on "the private ownership of capital." Natural law applies to economics as surely as gravity applies to ripe apples. There is one and only one way of increasing wealth. Wealth increases as production increases per unit of investment per capita, be that unit of investment time spent stumbling through a forest and picking berries, or engaging in arduous labor ,or investing in capital equipment. For example, if I spend 24 hours fishing with a hook and line, and in that time period I catch X number of fish to feed Y number of people, we can calculate my return on my investment of time and energy, and the wealth in that society represented by the availability of fish per person. Conversely, if I use the same materials, but apply 23 hours to making a net, then spend one hour fishing with that net and now catch 2X fish, the standard of living has increased for that same Y number of people (they can now enjoy twice as many fish to eat), or the population can increase while maintaining the same standard of living enjoyed by the original X number of people. The key is the production of goods and services people actually want and value. The signals that determine what people actually want and value are price, profit and loss. In there absence, there is no way of determining what people actually want and value — socialist societies in which these signals are not allowed to operate have proved this fact over and over again; from the USSR and Cuba to Venezuela, Greece and China, there can be no doubt that these principles cannot be denied by government edict; that in fact these principles operate weather or not the economic system is based on “the private ownership of capital.” Natural law applies to economics as surely as gravity applies to ripe apples.

]]> By: Abe Rao http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-90125 Abe Rao Fri, 16 Oct 2009 16:17:12 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-90125 When they say wealth is destructed in the stock market, that is just on individual level. When the Dow was at 14,000, the people who pulled out incredible amounts of money profited at the cost of the ones who didnt. So is the total wealth destroyed, or has it just changed hands. If the govt did not pull money out of the system, how is total wealth detroyed?. I am not an Econ major, i relate more to engineering. I think that wealth is more like energy - it cannot be destroyed, only converted from one form to the other. When they say wealth is destructed in the stock market, that is just on individual level. When the Dow was at 14,000, the people who pulled out incredible amounts of money profited at the cost of the ones who didnt. So is the total wealth destroyed, or has it just changed hands. If the govt did not pull money out of the system, how is total wealth detroyed?.

I am not an Econ major, i relate more to engineering. I think that wealth is more like energy – it cannot be destroyed, only converted from one form to the other.

]]> By: Ray Guy http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-88480 Ray Guy Mon, 28 Sep 2009 13:59:22 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-88480 Only if the things that can be produced with them remain in demand... Scrapping a load of tools for, say, super luxury yachts, only makes the remaining tools more valuble if people still want super luxury yachts to the same degree. A company scraping their yacht factory due to collapse in demand may be increasing their competitors market share, but that market itself has also decreased in value. Only if the things that can be produced with them remain in demand… Scrapping a load of tools for, say, super luxury yachts, only makes the remaining tools more valuble if people still want super luxury yachts to the same degree. A company scraping their yacht factory due to collapse in demand may be increasing their competitors market share, but that market itself has also decreased in value.

]]> By: PJ http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-86882 PJ Thu, 10 Sep 2009 07:16:33 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-86882 But when tools rot, the working tools become more valuable. But when tools rot, the working tools become more valuable.

]]> By: PJ Brunet (pjb) 's status on Thursday, 10-Sep-09 06:59:49 UTC - Identi.ca http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-86881 PJ Brunet (pjb) 's status on Thursday, 10-Sep-09 06:59:49 UTC - Identi.ca Thu, 10 Sep 2009 07:00:05 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-86881 [...] http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-f... a few seconds ago from api [...] [...] http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-f... a few seconds ago from api [...]

]]> By: Andy Roberts http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-81423 Andy Roberts Thu, 16 Jul 2009 22:22:25 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-81423 Jon, I agree totally with your conclusions. Governments, non-governmental agencies and institutions such as the IMF and World Bank are motivated by one thing only and that is to preserve the capitalist system at all costs. I would disagree that behaviour of banks and the extension of ever larger amounts of credit is the main factor bringing about the economic crisis, I see this more as a symptom of the fundamental contraditions rather than the cause. This may seem a small point, but the conclusion arising from the Money as debt video might be that all we need to do is to regulate the banks better and everything wil be alright, but it won't be. I'd also add to the two main problems facing society the growing inequality between rich and poor, both within the rich counties and between nations worldwide and the inevitable social problems and unrest resulting. The puzzle as to why governments act in the interests of the economy for the benefit of the few rather than for the people they are meant to represent might be answered by studying the nature of the state. Jon, I agree totally with your conclusions. Governments, non-governmental agencies and institutions such as the IMF and World Bank are motivated by one thing only and that is to preserve the capitalist system at all costs.

I would disagree that behaviour of banks and the extension of ever larger amounts of credit is the main factor bringing about the economic crisis, I see this more as a symptom of the fundamental contraditions rather than the cause. This may seem a small point, but the conclusion arising from the Money as debt video might be that all we need to do is to regulate the banks better and everything wil be alright, but it won’t be.

I’d also add to the two main problems facing society the growing inequality between rich and poor, both within the rich counties and between nations worldwide and the inevitable social problems and unrest resulting.

The puzzle as to why governments act in the interests of the economy for the benefit of the few rather than for the people they are meant to represent might be answered by studying the nature of the state.

]]> By: Jon Brooke http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-81419 Jon Brooke Thu, 16 Jul 2009 19:19:11 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-81419 As I've become more concerned about what I perceive to be the two main problems facing society - climate change and peak oil - I have also come to wonder, just why aren't our Governments prepared to act quickly and decisively to try and mitigate the effects. Reading/surfing around the subject I also came across the Money as Debt video mentioned above and also the Crash Course, put together by Chris Martenson: http://www.chrismartenson.com/crashcourse Both of these suggest that our money supply is mainly governed by banks making loans and then adding the debt to their balance sheets as assets. Furthermore, they (banks) expect the repayment of these debts with interest, which inevitably, somewhere along the line means that more loans have to be made (as that is the only way that money can be created to finance the interest payments). So inevitably this leads to ever increasing levels of debt and the *need* for a continually growing economy to relentlessly try to make up the difference, even though, under the rules of the game, this can never happen. It seems to me therefore that even in the face of massive disruption of our society Governments are locked into a growth model that is at odds with the things we need to do to mitigate climate change or peak oil - and they keep choosing to put the economy first. Would you please, Andy, care to point out any flaws in my analysis. As I’ve become more concerned about what I perceive to be the two main problems facing society – climate change and peak oil – I have also come to wonder, just why aren’t our Governments prepared to act quickly and decisively to try and mitigate the effects.

Reading/surfing around the subject I also came across the Money as Debt video mentioned above and also the Crash Course, put together by Chris Martenson: http://www.chrismartenson.com/crashcourse

Both of these suggest that our money supply is mainly governed by banks making loans and then adding the debt to their balance sheets as assets.

Furthermore, they (banks) expect the repayment of these debts with interest, which inevitably, somewhere along the line means that more loans have to be made (as that is the only way that money can be created to finance the interest payments).

So inevitably this leads to ever increasing levels of debt and the *need* for a continually growing economy to relentlessly try to make up the difference, even though, under the rules of the game, this can never happen.

It seems to me therefore that even in the face of massive disruption of our society Governments are locked into a growth model that is at odds with the things we need to do to mitigate climate change or peak oil – and they keep choosing to put the economy first.

Would you please, Andy, care to point out any flaws in my analysis.

]]> By: Andy Roberts http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-69991 Andy Roberts Wed, 11 Mar 2009 10:53:53 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-69991 Thanks for all the great comments and answers. I started writing a reply and then it grew into the next post in this series so here's the link to <a href="http://distributedresearch.net/blog/2009/03/11/economics-theory-robots">Economics theory 3: Robots</a> where I hope we can continue this fascinating discussion. http://distributedresearch.net/blog/2009/03/11/economics-theory-robots Thanks for all the great comments and answers. I started writing a reply and then it grew into the next post in this series so here’s the link to Economics theory 3: Robots where I hope we can continue this fascinating discussion.

http://distributedresearch.net/blog/2009/03/11/economics-theory-robots

]]> By: Economics Theory 3. Robots http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-69990 Economics Theory 3. Robots Wed, 11 Mar 2009 10:50:15 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-69990 [...] discussion has been burbling away on my post about How is wealth destroyed and where does wealth come from written last October, in a month when the world financial systems were exposed as being hopelessly [...] [...] discussion has been burbling away on my post about How is wealth destroyed and where does wealth come from written last October, in a month when the world financial systems were exposed as being hopelessly [...]

]]> By: Mark Rowe http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-69953 Mark Rowe Wed, 11 Mar 2009 01:43:51 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-69953 I find the whole concept of wealth creation, movement and depletion fascinating but am nowhere near to understanding it yet! If labour is the key - with the robot scenario wouldn't you need to consider all the labour that contributed to the design, manufacture, operation and powering of the machines? I find the whole concept of wealth creation, movement and depletion fascinating but am nowhere near to understanding it yet!

If labour is the key – with the robot scenario wouldn’t you need to consider all the labour that contributed to the design, manufacture, operation and powering of the machines?

]]> By: Aurino http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-68944 Aurino Mon, 02 Mar 2009 20:28:27 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-68944 " In this example, my shop has created wealth without the use of labor, hasn’t it? " Assuming your competitors are not using robots as well, how is this different from winning the lottery? You just got lucky (or smart) and are able to sell your widgets at market prices, which are determined by the average amount of labour required to make widgets, but you discovered a way to produce widgets using a lot less labour. However, as soon as your competitors discover the same thing, the market price of your widgets will be determined by the price of your raw materials plus the amount of labour required to design, manufacture, operate and maintain the robots. " it’s not labor that creates wealth, but the act of converting 'less useful' stuff to 'more useful' goods " Usefulness has nothing to do with wealth. Nothing is more useful than the air we breath, yet we do not associate air with wealth. Water is another good example: it is worthless where it's abundant, and extremely valuable where it is not. So wealth has everything to do with scarcity, and nothing to do with usefulness. Which is why only labour creates wealth, because increasing the availability of something that is scarce always requires labour. By the way, if one day steel ingots become more scarce than widgets, you can create wealth by turning widgets into steel. There's actually a name for that kind of wealth creation, it's called recycling. ” In this example, my shop has created wealth without the use of labor, hasn’t it? ”

Assuming your competitors are not using robots as well, how is this different from winning the lottery? You just got lucky (or smart) and are able to sell your widgets at market prices, which are determined by the average amount of labour required to make widgets, but you discovered a way to produce widgets using a lot less labour. However, as soon as your competitors discover the same thing, the market price of your widgets will be determined by the price of your raw materials plus the amount of labour required to design, manufacture, operate and maintain the robots.

” it’s not labor that creates wealth, but the act of converting ‘less useful’ stuff to ‘more useful’ goods ”

Usefulness has nothing to do with wealth. Nothing is more useful than the air we breath, yet we do not associate air with wealth. Water is another good example: it is worthless where it’s abundant, and extremely valuable where it is not. So wealth has everything to do with scarcity, and nothing to do with usefulness. Which is why only labour creates wealth, because increasing the availability of something that is scarce always requires labour.

By the way, if one day steel ingots become more scarce than widgets, you can create wealth by turning widgets into steel. There’s actually a name for that kind of wealth creation, it’s called recycling.

]]> By: McDudeqq http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-68735 McDudeqq Sat, 28 Feb 2009 01:08:46 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-68735 It is machine (labour) hours It is machine (labour) hours

]]> By: Andy Roberts http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-64534 Andy Roberts Wed, 28 Jan 2009 09:32:49 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-64534 I can understand the line of questioning. If a balance sheet at one company has been written down, then it seems reasonable to assume that the missing amount of money must have been transferred to somebody else. Wealth however, is not subject to the laws of conservation of energy which cannot be either created nor destroyed. Wealth really can be destroyed. When production is closed down at a manufacturing site for example, the machine tools are scrapped or left to rot, the buildings deteriorate and most of the capital which has been invested there is now useless. Gone. In the case of sophisticated money markets though, where the balance sheets have often been propped up by illegally mislabelled products and dubious accounting tricks, then the answer is that much of this 'fictitious wealth' never really existed in the first place. I can understand the line of questioning. If a balance sheet at one company has been written down, then it seems reasonable to assume that the missing amount of money must have been transferred to somebody else. Wealth however, is not subject to the laws of conservation of energy which cannot be either created nor destroyed. Wealth really can be destroyed. When production is closed down at a manufacturing site for example, the machine tools are scrapped or left to rot, the buildings deteriorate and most of the capital which has been invested there is now useless. Gone.
In the case of sophisticated money markets though, where the balance sheets have often been propped up by illegally mislabelled products and dubious accounting tricks, then the answer is that much of this ‘fictitious wealth’ never really existed in the first place.

]]> By: Andy Roberts http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-64533 Andy Roberts Wed, 28 Jan 2009 09:22:13 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-64533 Great question David. I wonder if anybody else would like to have a go at explaining this first? Great question David. I wonder if anybody else would like to have a go at explaining this first?

]]> By: davidn http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-64501 davidn Tue, 27 Jan 2009 22:22:16 +0000 http://distributedresearch.net/blog/2008/10/11/how-is-wealth-destroyed-and-where-does-wealth-come-from#comment-64501 Suppose I have a shop that is completely robotic. I don't employ any workers, just robots. My robots work day and night producing widgets, which I then sell at market prices. In this example, my shop has created wealth without the use of labor, hasn't it? If so, it's not labor that creates wealth, but the act of converting "less useful" stuff (e.g., steel ingots) to "more useful" goods (widgets). Suppose I have a shop that is completely robotic. I don’t employ any workers, just robots. My robots work day and night producing widgets, which I then sell at market prices.

In this example, my shop has created wealth without the use of labor, hasn’t it?

If so, it’s not labor that creates wealth, but the act of converting “less useful” stuff (e.g., steel ingots) to “more useful” goods (widgets).

]]>