
A catalog of wealth creation mechanisms - lisper
http://rondam.blogspot.com/2009/10/catalog-of-wealth-creation-mechanisms.html
======
noonespecial
_It's important to keep in mind that there is a distinction between wealth and
money. Wealth is a measure of how much stuff people have that they actually
value for its own sake. Food, housing, clothing, shelter, and artwork, are all
examples of wealth. Money, by way of contrast, is merely an accounting
mechanism that humans have invented in order to facilitate trade. Money and
wealth often go together, but they are completely different things. You can
transform money into wealth, and vice versa (which is the whole point of
having money), but you can have money without wealth and vice versa. And you
can make (or earn) money without creating wealth, and vice versa. But
historically, the most reliable and the most socially beneficial way of making
money is to create wealth. So to help encourage that, here's a more or less
comprehensive list of fundamental mechanisms of creating wealth._

Brilliant! This should be required reading for everyone even thinking about
going into politics or finance. Even economists seem to miss this one on an
uncomfortably regular basis.

~~~
lisper
To give credit where it's due, PG pointed this out long before I did:

<http://www.paulgraham.com/wealth.html>

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lionhearted
Informative piece. Short history tangent:

> (Donald Gibbs, of Pearl-Harbor conspiracy-theory infamy)

I had thought thae "USA wanted in to WWII and provoked Japan" was just a
generally accepted position by most everyone who'd looked into it.

United States companies were responsible for 80% of Japan's oil. U.S.
Government bans companies from exporting oil to Japan, declares Japan "a
hostile nation", and starts stationing more troops, supplies, and armaments in
the American-owned places you'd need troops to launch an attack against Japan.

Following the embargo, Japan goes into "oil shock". They're set to run out of
oil in two years. Consumer prices for oil-based products go up 10x or more.
The nearest place where there was oil was Indonesia, which was at the time was
owned by European colonial powers already at war with Japan.

Here's a decent world map:

[http://www.ciese.org/curriculum/boilproj/images/Reference%20...](http://www.ciese.org/curriculum/boilproj/images/Reference%20Material_world_pol98.jpg)

America owned the Philippines at the time. Japan's war was taking them into
Indonesia. The United States had just declared Japan a hostile nation,
embargoed them, and started moving troops and arms into the Philippines and
Hawaii.

It was obvious Japan would attack the United States following those events.
Since United States foreign intelligence and military analysis were very good
at this time, the pretty obvious conclusion is that the U.S. Government wanted
war with Japan. Later, Pearl Harbor was sold as attacking for no reason to the
American people for PR reasons, but the leadership must have known that their
actions made a Republic of USA/Empire of Japan war pretty inevitable.

~~~
DanielBMarkham
Has everybody forgot about the invasion of China? The rape of Nanking? And
when does an oil embargo cause another country to take up arms in a sneak
attack?

Come on, guys, Japan always had the option of terminating their belligerence.
There was a legitimate reason for the oil embargo, and it wasn't to provoke a
war.

Geesh.

~~~
Perceval
I don't know why you're being moderated down. The Japanese had already begun
conquering large swaths of East Asia, Southeast Asia, the Philippines, and so
on.

A U.S.-Dutch oil embargo was hardly belligerent compared to the actual
conquests of the Japanese.

The grandparent poster reads like they got their information about WWII from
the Yasukuni Shrine museum...

~~~
gruseom
I downvoted because it has nothing to do with the point under discussion,
which is whether the US knew about Pearl Harbor before it happened. Imperial
Japan certainly was nasty, but "Imperial Japan was nasty, so Donald Gibbs,
lisper, and lionhearted are wrong about this factual question" is a non
sequitur.

------
lkozma
Reminds me of a JL Borges piece in which he writes of a fictive Chinese
encyclopedia in which animals are categorized as:

    
    
       1. belonging to the Emperor
       2. embalmed
       3. trained
       4. piglets
       5. sirens
       6. fabulous
       7. stray dogs
       8. included in this classification
       9. trembling like crazy
      10. innumerables
      11. drawn with a very fine camelhair brush
      12. et cetera
      13. just broke the vase
      14. from a distance look like flies

~~~
lisper
[http://rondam.blogspot.com/2009/10/wealth-production-
mechani...](http://rondam.blogspot.com/2009/10/wealth-production-mechanisms-
followup.html)

~~~
Tichy
<http://xkcd.com/386/>

------
frig
Your reader vitriolic isn't really grasping the particular distinction between
"wealth" and "money" you're trying to make.

You really would want a three-way split between wealth and money and value;
it's often the case that wealth production leads to value-destruction, which
keeps things interesting.

It's also the case that once you have the three way wealth/value/money dynamic
going you have to figure out:

\- what are other people's states of mind in this classification? or, at
least, what can they be?

Because, for example, in some sense fame is a kind of wealth -- it's useful if
it's the right kind -- as is demand for your particular goods (or disdain for
your competitor's wares), as it's also useful.

On the other hand it's not clear that it fits your description of wealth.

If it is wealth then advertisers and other persuaders count as wealth-
producers.

If it isn't either you need a fourth category or you need to shoehorn it into
some more-abstract notion of value.

Sidenote: I've always thought it _extremely_ unfortunate that English uses the
phrase "make money", as unless you're actually "making money" what you're
doing is "getting money" (which phrase is, incidentally, apparently the
vernacular amongst the unschooled dwellers of the inner city); first, rectify
all the names.

This kind of sloppiness in language leads to worse derangements, as evidenced
in Vitriolic's notion of creating wealth (what he's talking about is
_accumulating_ surplus wealth).

~~~
dmoney
What's the difference between wealth and value?

~~~
frig
An impossible thing to really nail down and something people can spend their
entire lives chasing their tails over. Intuitively there should be a
difference (I'll justify the intuition in a second) but really making it
precise is very tricky.

"Value of X" == what someone might pay for X; thus, if you have a barrel of
oil and the current market price is $50/barrel then the value of your barrel
is $50 (assuming you can get the market price for it, etc.); if tomorrow the
market price is $55 or $45 that's its value tomorrow.

If your primary interest in oil is buying it and selling it value is what you
should care about.

Now, let's suppose your interest is in using that oil; you operate a machine
shop and the oil is enough fuel to run some machine for a week.

How long the oil powers your machine doesn't change overnight; if the market
price goes to $55 or to $45 you get a week of machine operation out of that
barrel, same as you did when it was @ $50.

The intuition behind splitting off "wealth" from "value" is that you want some
term that captures how _useful_ something is for a particular non-market use
(powering a machine); this _term_ captures the notion that there is a kind of
_utility_ which is not very effected by the item's market price.

So usually when people make a distinction between "wealth" and "value" they're
trying to differentiate between "what price something costs/fetches" and "how
useful is it if actually used"; intuitively those are two different things but
it becomes very hard to thoroughly disentangle them.

You see this notion re-invented many times, but not always with the same
terminology; Warren Buffet likes to say that "price is what you pay; value is
what you get", which is expressing something like the same distinction but
using the term "price" for "value" and "value" for what I (and the original
post) call "wealth"...the important thing isn't what you call things so much
as that you can make the distinction.

The reason disentangling the notions is harder than it looks is that in any
kind of market economy each _is_ in effect dependent on the other in a kind of
endlessly recursive fashion.

Explaining the endless recursion is an endless chore so I won't bother; you
can get a hint of it if you think about the machine shop:

\- a barrel of oil's intrinsic utility to the machine shop is that it lets the
shop operate for a weak

\- ...but why does the shop want to operate? It _could_ be that this is a
hobby shop and the operator just has an _intrinsic love_ of working in it, but
it's probably the case that the shop operates b/c the product of its operation
has enough _value_ that it's worth doing

\- thus the barrel is intrinsically useful in that it lets the shop run, but
the utility of running the shop has to do with _value_ , and so forth

As for wealth-production leading to value-destruction, this is readily
apparent if you look at any time technology's disrupted an industry.

A great historical example is the invention of refrigerators circa the 1900s
and how it impacted the ice merchants of the time.

Before the invention of the refrigerator there was a large industry in the
form of going to cold places, carving out giant chunks of ice, packing them in
insulation (generally thick layers of straw), transporting them to warmer
locations, and then selling them off piece-by-piece to anyone who needed to
keep stuff cold.

After the invention of the refrigerator this ice-market evaporated, as you
might expect; this wasn't b/c ice suddenly stopped working as a source of cold
but b/c its _relative_ utility compared to refrigeration plummeted...since
money is scarce people allocate it towards what they think is the _best_
available option and once you had refrigeration the ice-merchants were the
best available option a lot less of the time.

You see something similar today: by any measure having substantial portions of
the world's intellectual property available online for free is an enormous
increase in the world's wealth -- the same as if every home having the entire
library of alexandria in it -- but it also destroys a great deal of value, in
that there's a lot less willingness to pay for the stuff that's easily
findable online.

But even without disruptive technology there are often cases of increased
wealth leading to value destruction; a common example is that in cities with
effective mass-transit systems (most Japanese cities, most major cities in the
Eurozone, NYC + other east-coast USA cities) there's a lot less demand for
personal transit...having a solution to a problem (in this case: getting
around) is a kind of wealth, and tends to reduce the value of other solutions
to the same problem (private transit alternatives), b/c it's a solved problem.

------
jimmybot
"I'm pretty sure this is a comprehensive list. Can anyone think of anything
I've left out?"

Seems like an overly confident statement that has low probability of being
correct. Is this purposely to provoke people into trying to prove you wrong?
If so, maybe it's genius, though dishonest.

Here's my shot:

The comments on the post also mention finance was left out. Well, if we take
finance to be a combination of moving things and storing things, it sort of
covers part of what's going on, but there's a missing key: lending things.
Taking it in reverse, lending by itself wouldn't be enough either, since
without moving things and storing things, you can't lend out anything you
don't already have.

Anyways, I'm pretty sure I came up with an airtight metaphor for finance. Can
anyone think of how the metaphor breaks down?

~~~
lisper
> Is this purposely to provoke people into trying to prove you wrong?

I wouldn't put such a negative spin on it. It's purposely to ask people if
they can think of anything I've left out, i.e. to spark discussion.

I would actually put finance in category 9, mainly 9a and 9b. The whole point
of finance is that you're dealing with money, not things. But money is an
artificial construct (that's the whole point of money), so dealing with money
means dealing with the rules that society has laid down to govern the behavior
of money. Indeed, most of the actual activity in the financial industry is
doing mathematical modeling (9a) drawing up legal documents (9b).

Reasonable people could disagree.

~~~
Locke1689
I guess you could argue that these are the only _legitimate_ ways to make
wealth or money. Technically, one can do high speed trading that essentially
acts like computerized insider trading (and middle man economics). If someone
provides no actual service, but still receives money, is that legitimate?

~~~
jimmybot
I don't think you could argue that. Finance encompasses a lot more than
questionable trading practices. I said finance, and not say banking, since I
meant any kind of banking and investing. And there is an equivalence between
debt (loans, bonds) and equity ((yc,angel,VC) x investments, stock offerings)
since from the perspective of the company, you are paying rents on capital in
both cases.

Do I need to argue the importance of loans and efficient allocations of
capital? If you don't like thinking about this with money, what about with
loans of goods?

