Wealth and money
In answer to a question on another thread, MichaelAarethun posted:
Wealth - Money in excess of current need. Maybe used to store personal accumulated value against retirement or other future needs.
Money - an agreed upon and acceptable medium of representing the value of work and may be traded for current needs or stored as wealth.
While those definitions may work for comparing concepts denominated in money, I think they are too narrow for trying to measure reality. If wealth is defined only as excess money, then when I trade money for a shovel I become less wealthy, even though my assets are at least equal. If the shovel later appreciates in value, I might grow even more wealthy without even seeing any increase in my money cache. Measuring wealth only in terms of money can lead to absurd conclusions such as people in “poverty” with multiple flat screen TVs, cell phones, air conditioning, cars, etc. Those people may have little money, and little earning/productive ability, but they are wealthy beyond the dreams of kings just a century ago.
Also, going back to a monetary calibration of the value of all things is avoiding the subjective aspect of money and wealth. It doesn’t do away with it, since the value of money is only what my trading partners give it, so even money has a subjective foundation to its value. I think it’s useful to acknowledge the subjective value up front. E.g., a bottle of water may be worth $1. But if I trade $1 for the bottle of water, then that trade is evidence that I would rather have the bottle of water than the $1, and the seller would rather have the $1 than the bottle of water. So, for me, the bottle of water was worth more than $1, and for the seller it was worth less. Immediately after the trade, though, I might value a second bottle of water as less than $1, since I’m no longer thirsty. So every free trade involves each side increasing their wealth. Money lets us translate each other’s independent value scales across lots of people, but it doesn’t replace each person’s own valuation.
As another example, I can freely choose to spend one hour working for money, or pruning my fruit trees, or playing with my grandkids. In each case, I made a trade of time/labor that I thought increased my wealth (money, or more productive trees, or enjoyment), even though only one had a ready translation to money. Perhaps I could value my pruning labor by what it would cost to hire a pruner, but that would ignore the value of the exercise I got, or the increase in my gardening skills. And there’s no monetary value to the time playing with grandkids – hiring someone else would defeat most of the value I obtained.
There’s a strong desire to find the right value of everything, but that’s not possible. A bottle of water is worth more to a thirsty person. Music I like is worth more to me than music I don’t like.
Thoughts?
Wealth - Money in excess of current need. Maybe used to store personal accumulated value against retirement or other future needs.
Money - an agreed upon and acceptable medium of representing the value of work and may be traded for current needs or stored as wealth.
While those definitions may work for comparing concepts denominated in money, I think they are too narrow for trying to measure reality. If wealth is defined only as excess money, then when I trade money for a shovel I become less wealthy, even though my assets are at least equal. If the shovel later appreciates in value, I might grow even more wealthy without even seeing any increase in my money cache. Measuring wealth only in terms of money can lead to absurd conclusions such as people in “poverty” with multiple flat screen TVs, cell phones, air conditioning, cars, etc. Those people may have little money, and little earning/productive ability, but they are wealthy beyond the dreams of kings just a century ago.
Also, going back to a monetary calibration of the value of all things is avoiding the subjective aspect of money and wealth. It doesn’t do away with it, since the value of money is only what my trading partners give it, so even money has a subjective foundation to its value. I think it’s useful to acknowledge the subjective value up front. E.g., a bottle of water may be worth $1. But if I trade $1 for the bottle of water, then that trade is evidence that I would rather have the bottle of water than the $1, and the seller would rather have the $1 than the bottle of water. So, for me, the bottle of water was worth more than $1, and for the seller it was worth less. Immediately after the trade, though, I might value a second bottle of water as less than $1, since I’m no longer thirsty. So every free trade involves each side increasing their wealth. Money lets us translate each other’s independent value scales across lots of people, but it doesn’t replace each person’s own valuation.
As another example, I can freely choose to spend one hour working for money, or pruning my fruit trees, or playing with my grandkids. In each case, I made a trade of time/labor that I thought increased my wealth (money, or more productive trees, or enjoyment), even though only one had a ready translation to money. Perhaps I could value my pruning labor by what it would cost to hire a pruner, but that would ignore the value of the exercise I got, or the increase in my gardening skills. And there’s no monetary value to the time playing with grandkids – hiring someone else would defeat most of the value I obtained.
There’s a strong desire to find the right value of everything, but that’s not possible. A bottle of water is worth more to a thirsty person. Music I like is worth more to me than music I don’t like.
Thoughts?
A good example of the above is the first "television" invented about 1890, thirty-five years before the first "practical" television. The first automobile was made in 1769! ... but no one wanted it...
Your example of the dollar for water and a dollar for a shovel are cogent. You can dig more dirt with a shovel than you can with a dollar. You are wealthier for the shovel - and the seller is wealthier, also.
In my undergraduate economics class (2006), the professor, a moderate advocate of free markets, nonetheless kicked off the class by disabusing us of the idea of absolute value. Would you trade a dollar to get a quarter? You might if you needed to make a call from a pay phone. A quarter can make you wealthier than a dollar.
We need to be careful about "objective" vs. "intrinsic" vs. "subjective" values. An objective value is one that furthers your happiness. A subjective value is not an arbitrary choice. Chocolate ice cream in preference to vanilla is a subjective choice. Ice cream versus poison is not. I suspect - induction is difficult here - that there is no such thing as an intrinsic value. People claim that gold has intrinsic value because it is rare. But it was just as rare when the Zulus walked over it unaware. The Apaches called it "tears of the sun" poetically enough, but never monetized their raids. (The Greeks did: they invented coinage to pay each other and themselves to be mercenaries.)
The bottom line here is that too often we fall into an "Orwellian trap." In Orwell's 1984 the real horror was not the dictatorship or even the destruction of Winston Smith and Julia. It was Newspeak. The ideal Party member was a "ducktalker" who could recite the party line without thinking. We fall into that when we want short, concise definitions for "money" and "wealth." Various Austrian economists argue over what is "entrepreneurship" like the blind men and the elephant. Describe the elephant! All of it. Money is many things. Wealth is many more. We should continue to talk about them both.