How is wealth created?

chippy_250

May sound a stupid question but how is wealth created?

For example if my house is a country. There are four people in my house and each have £100 each. Then the value in my house (country) is £400 yes?

So if I create a sweet shop and each person buys £5 worth of sweets then I can now say I have £115. I have made £15 profit right?

But I haven't really made any money because there is still £400 within my house (country). All that has happened is there has been a transfer of cash for goods.

So in real life, is money actually gained or just transfered/exchanged?

CLAPTON

money isn't wealth

wealth is the ability to create goods and services

Lokolo

Indeed ^^ you can be rich but not wealthy and vice versa.

chippy_250

Right ok so how is money created?

When the bank of England starts printing money who does it go to? How do they know how much to print?

Cleaver

chippy_250 wrote: »

May sound a stupid question but how is wealth created?

For example if my house is a country. There are four people in my house and each have £100 each. Then the value in my house (country) is £400 yes?

So if I create a sweet shop and each person buys £5 worth of sweets then I can now say I have £115. I have made £15 profit right?

But I haven't really made any money because there is still £400 within my house (country). All that has happened is there has been a transfer of cash for goods.

Wealth is created when you deposit £100 with a bank and then the bank lend it out on a fractional reserve basis to a number of profitable businesses. Who then deposit their chunks of money with banks, who lend on a fractional reserve basis etc. etc.

This book has a good description.

Orpheo

• Growing
• Mining
• Manufacturing
• Fishing
• Animal husbandry

Everything else is leeching.

Or theft.

Loughton_Monkey

chippy_250 wrote: »

May sound a stupid question but how is wealth created?

Not a stupid question at all. But quite frankly, it is meaningless unless qualified by who's wealth.

Starting with a family, then you are quite right. The wealth of the family doesn't change one inch by passing it around. This small (but realistic) example explains the whole myth surrounding GDP as a 'measure' of wealth.

In logical terms, a family earning and spending £400 between them has a 'GDP' of £400. Maybe Father keeps it all for himself, starves wife and children and leads the life of Riley. Maybe they all have a fair crust and are all equally 'wealthy'. That's how the wealth is distributed.

By the extremely simple device of the wife charging for cleaning, ironing, and cooking, and the kids getting paid for mowing the lawn, cleaning the car, and doing the shopping, but having to pay rent, we can easily increase that family's 'GDP' up to £600.

And yet as a family, they are not one penny more 'wealthy'.

Governments, and particularly Brother Brown, seem to have this idea that whizzing the money around much faster is 'good' for the economy. Yes, it is 'good' for a more equitable distribution of existing wealth, but does sweet FA for the entire wealth.

Move up to industry and commerce, and it's the same thing. They can increase turnover, increase wages, market well, but at much lower profitability and are applauded for doing so, but this does not necessarily do their 'wealth' any good. If they do get more wealthy, then it's probably at the expense of the ailing company down the road.

It's a zero-sum game. Except in UK case a negative game, since for years and years, we have suffered a huge negative balance of payments. In monetary terms, therefore, we cannot fail to be poorer year on year. And that's exactly what has happened, and continues to happen.

Higher GDP, together with taxation and government spending are all 'good' for shovelling this dwindling wealth around. This country applauds itself (for reasons unknown) every time GDP goes up - indicating that this swishing around is getting faster. All it does is ensures that at any one time, there are some sections of the community to whom the money 'sticks' a bit more than others.

When you move up to the 'Global' economy, then wealth is ultimately created by labour, and by digging things out of the ground. Food. Iron. Copper. Gold. Diamonds. Wood. All produced by labour and converted to hard currency (which we call 'wealth'). Further amounts of labour add value by converting to steel, cars, houses, jewellery etc.....

Trade and commerce efficiently shifts this global wealth around the global economy. Countries like Germany and many Asian countries trap more wealth inside than they let outside their own economy. They are getting wealthier.

UK has (had) a lot of wealth already, and we can paddle it around a bit faster by setting up more sandwich shops, building more houses, etc. but as a nation we will not be a single penny wealthier.

Orpheo

Loughton_Monkey wrote: »

Not a stupid question at all. But quite frankly, it is meaningless unless qualified by who's wealth.

whose

Who's = who is, who has

Cleaver

Orpheo wrote: »

• Growing
• Mining
• Manufacturing
• Fishing
• Animal husbandry

Everything else is leeching.

I don't really agree with this, as I think it's a bit of an outdated view.

Loughton_Monkey

Orpheo wrote: »

Or theft.

That's the point, you see.

I steal your wallet. I am £100 richer. You are £100 poorer. No wealth has been created. All we have done is changed who owns and controls it.

You get your £100 back from the Insurance company, who is thus £100 poorer. Premiums go up and so policyholders collectively are £100 poorer. You are neutral.

Now I spend the £100 buying wine in France, out of which they make £30 profit, then UK is £30 poorer. France is £30 richer.

Economics is not difficult!

suicidebob

Orpheo wrote: »

whose

Who's = who is, who has

You must be proud of yourself!