How is wealth created?

Loughton_Monkey

princeofpounds wrote: »

I suggest that you take a look at the excellent Khan Academy tutorials for more information on what money is and how the economic systems work. In particular one on banking and then the one on basic economics.

http://www.khanacademy.org/

It's all free.....

Thanks for the link. A huge number of videos.

But just to get into it, I watched one on buying versus renting. This guy spends almost 10 minutes explaining why it is better to rent.

Jeez! How biased can you get!!!!!!!

He assumes a $1m house and assumes he can rent it for $36K a year (3.6% of its value). Then he assumes he can get 4% net on $250K cash he has stashed away. So cost of living there is $36K less $10K interest = $26K

Now he assumes buying. He uses his $250K cash and gets a mortgage at 6% less 30% tax relief. That's $31.5K and has to pay $10K 'Property Taxes'!!!!

Hence $26K is better than $41.5K. QED Renting is better than buying.

Brains of a rocking horse!

1. Where does he think he can rent at such a low cost on such a value of house?
2. What happened to any captial appreciation on the house?
3. What happened to the value of being able to 'save' [pay off his mortgage] at 4.2% net instead of 4%?
4. What happened to inevitable inflation on his rent?

........

All he 'proved' (but actually didn't) was that cash flow in year 1 may be better by renting.

Loughton_Monkey

HAMISH_MCTAVISH wrote: »

That's correct, in that the idea has not yet been put to productive use.

Although I see where ninky is coming from though....

Too many posters here assume that only things like manufacturing, mining or agriculture create wealth. Just to be clear, there is no need to physically manufacture something to be productive.

The creation of wealth is not restricted to the extraction, exploitation or transformation of natural resources.....

I find it extremely difficult, personally, to understand where Ninky is coming from. I don't think anyone implied that mining is the only way of creating wealth, but he posts "if you define wealth creating as mining..." and goes on to talk about ingenuity.

To talk about wealth, it is essential to define the exact entity about which you are talking. If I buy £2 of wool and knit a jumper and sell it for £10, I am £8 wealthier in cash terms. However, if it happens to be my sister who bought it, our household is £2 poorer!

Ingenuity does nothing whatsoever until it is 'used' practically. The farmer sheers the wool. A dyer adds value and sells it to me. I knit it. A 'genius' like Ninky could do something like re-designing it, creating innovative packaging and marketing-speak and add more value to the jumper. And it eventually gets sold to someone for £90.

Very many people have become wealthier in this process, but I come back to my main 'thesis' which is that for the UK as a whole, this is a zero sum game. Cash has gone nicely through 50 different hands and wealth distribution has changed. Only when that jumper is sold abroad does the UK get richer.

Sadly we import more jumpers than we export, which is why UK gets poorer by the day.

ruggedtoast

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.

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

You've gained £15 from your transaction, at some point you'll want one of the other housemates to do something for you and you'll trade money back for their labour.

If your economy takes off the lack of available funds will be a pain, probably someone will end up really poor and you can make him work his a$$ off for pennies and then take it all back in tax and rent.

Eventually someone will work out that lending money to the other three at interest is quite profitable as well and will then start loaning out money that doesnt exist at interest that cant be paid back because there isnt enough cash in your closed system to provide it.

Then its inflation, debt servitude and someone making an easy living writing extra zeroes on the end of bank notes all the way.

HAMISH_MCTAVISH

Loughton_Monkey wrote: »

If I buy £2 of wool and knit a jumper and sell it for £10, I am £8 wealthier in cash terms. However, if it happens to be my sister who bought it, our household is £2 poorer!
.

No it isn't.

Your household started with £12 in cash.

It now has £10 in cash and a jumper worth £10.

By engaging in productive enterprise you have created wealth.:D

HAMISH_MCTAVISH

Loughton_Monkey wrote: »

I don't think anyone implied that mining is the only way of creating wealth, .

Close enough.....

Orpheo wrote: »

• Growing
• Mining
• Manufacturing
• Fishing
• Animal husbandry

Everything else is leeching.

Or theft.

DervProf

HAMISH_MCTAVISH wrote: »

No it isn't.

Your household started with £12 in cash.

It now has £10 in cash and a jumper worth £10.

By engaging in productive enterprise you have created wealth.:D

The jumper was worth £10 to the buyer. It is now worth what someone will now pay for it.

Orpheo

HAMISH_MCTAVISH wrote: »

Close enough.....

In which I imply that mining is the only way of creating wealth.:think:

System

There are assumptions in the original example which make it unrealistic as an analogy:

1) You say each resident "has" £100. But what is £100 in the context of a country consisting of one house? Did they decide jointly to print some bits of paper and write values on them? Why do they think they are worth £100? What can you do with a bit of paper saying £100 on it if your entire world is 4 people in a house?

2) You open a sweetshop. Where? How? Where do you get the sweets from? Do you make them? Do you grow the ingredients in the garden? If your entire world is the house then unless you mine or grow the sweets then one of the others must already own them, or the wherewithal to manufacture them. Where did he get them from? How did he buy them? How do you buy sweet manufacturing materials if you are in a self-contained world only having bits of paper saying £100?


Wealth is the accumulated surplus in a society arising from all its basic needs being met, so someone is able to devote leisure time to doing something unproductive in the short term for the sake of longer term gains.
eg you agree to feed and support me so that I can spend my time digging coal. After a few years our society has more wealth - we own a coal mine - and also we have a higher standard of living - we keep warmer.

nearlynew

HAMISH_MCTAVISH wrote: »

The creation of wealth is not restricted to the extraction, exploitation or transformation of natural resources.....

How f*cking stupid can anyone be?

Look around you McTittish.

I mean, literally, move your eyes from your computer screen and look around you ....

Every single thing you can see right now has come from the earth's resources - either land, air or sea.

Without the earth's resources we have nothing. And without these things or some means of acquiring them we would be dead.


For all your posturing and quoting of statistics, you really haven't got a clue.


You silly, silly boy.





I love rewired.

DiggerUK

chippy_250 wrote: »

May sound a stupid question but how is wealth created?........
.......................................
So in real life, is money actually gained or just transferred/exchanged?

Wealth has to be created by work, sweat of your brow, making something etc..
Go in to search engines and research 'Labour Theories of Value', the classical economists had it nailed.

Money, aka coin and currency in circulation, is not wealth. They are just tokens for exchange.