Can wealth be created and destroyed?

No, it really, truly isn’t.

No! Not all innovation replaces some antecedent technology. There are brand new opportunities for wealth creation. Even when something is replaced there is an opportunity for greater efficiency. (The replacement probably wouldn’t happen otherwise). It’s certainly true that there could be some dislocation to oil producers if they fail to diversify. Whale oil producers suffered the same fate when kerosene distillation started. Saddlers and farriers were decimated when the motor car took over. But you surely aren’t suggesting there is no more wealth than two centuries ago? For starters, there’s six times more people than there was then. If wealth was constant we should all be six times poorer, instead of dozens of times wealthier. There’s six trillion dollars of infrastructure devoted to oil extraction alone. Where did that come from? Certainly not from whalers.

We haven’t discussed wealth destruction either. If wealth can only be transferred, where did the property wealth of the cities of Grozny or Aleppo get transferred to when they were flattened?


Yes, different debate. I’m thinking of nuclear fusion from deuterium.**

Ok, I’ll put my point forward, if I convince you, you owe me a night on the beer.

Currencies are similar to commodities/assets, their value is based on supply and demand. Someone can buy and sell and speculate on their direction. If you have a couple of billion you can obviously move the markets more than the average Joe. I assume you are in agreement.

Say for example i have 1 million euro sitting in an Irish Bank account - i have the choice to buy a house in Dublin or the US.

I decide to buy in the US, A house that equates to $800k. in order to buy i obviously have to get my euros into US $.
So i wire it over. Give the vendor their asking price and i get my house. Has someone gotten wealthier?

No **NEW **wealth was created but it was transferred from one country to another, from one person to another, from one asset or commodity to another. You could go into further detail and look at it from a company perspective. From the buyers perspective, they have have a house plus change - their wealth hasn’t changed. They hope the house doesn’t loose value - they have an asset plus their change. No new wealth. The seller is down a house but up a $800k - no new wealth.

I (the buyer) sold euros, (euros as a whole, viewing them as a commodity) became less valuable. On the opposite side of the equation I bought US $, they became more valuable.
When I buy the house my bank account decreased, the vendors bank account increased. I’m up a house they are down a house.
Supply and demand. Zero sum game. No ***NEW ***wealth was created. It was transferred from one item/asset to another.

The same example could be put to Dubai.

You with me?

The price of assets goes up and down. The important thing is to be in the right asset as it goes up in value.

Oh please if anyone wants to DESTROY wealth then go and buy some bitcoin from your bank balance (try they work in Ireland or and then send the bitcoin to address: 1BitcoinEaterAddressDontSendf59kuE
Or write your wallet password seed on a peace of paper and then burn that paper and destroy the computer the wallet was created on.
Poof gone

Or take your own house, sprinkle some petrol around add match, stand back a distance and watch wealth burn
(no one gains anything by your house burning down)

Is there an agreed definition of wealth?

For example, in a society of just a few scattered individuals what would define wealth?
Is having cash or assets wealth? Why?

What is the definition of wealth?

Thats the problem here aint it, people are mixing up wealth (no proper definition given) with energy (clearly defined physics construct) and the laws of thermodynamics.

I can see how it might be attractive to equate the two, especially now that modern economies are so tied to energy use.

But does the sum of the gains of all other properties equal to the “wealth” lost in the fire.

One could make a more extreme example, will the universe be “wealthier” if a mega asteroid splits the Earth in to two molten rocks tomorrow morning. Never mind mankind…

That logic only works in a “desirable” area, in other place it’ll devalue all the neighbouring properties, a la Detroit!

Fair enough. As long as it’s my special 2003/06 Home Brew, proving that the wealth gets created before it is transferred. :stuck_out_tongue:

Ok, stop right there. Currency is not equivalent to wealth. You seem to make that mistake in every anecdote. Currency is a medium of exchange. It merely represents value, and only as a matter of trust. That’s why the text on Bank of England banknotes says “I promise to pay the bearer on demand the sum of x pounds”. (Yes, it used to mean “in gold”, but that’s irrelevant).

When Glencore hauls a tonne of coal out of the ground, where is the wealth transfer? They didn’t pay the equivalent amount for the land lease – if that was the case why would anyone ever extract minerals? Somewhere on the planet, money will be brought into existence to buy that coal. Will all the rest of the world’s money be devalued as a result? Of course it won’t. That coal will be used to produce energy which in turn will be used to manufacture goods which will be added to the world’s store of wealth. The money was only a contrivance to grease the wheels of the economy. Otherwise a wholly impractical system of barter would have been required. But in principal the creation of new wealth could have been done entirely without the medium of money.

Don’t get me wrong. Not every exchange of money represents wealth creation. That’s why you’re able to come up with your counterexamples of house sales etc. New wealth circulates in the economy by a whole cascade of processes and transactions. Sometimes new value is added, sometimes it is lost. It is an inductive fallacy on your part to suggest that because there are some transactions that merely transfer wealth, that those are the only types of transactions. And certainly the burden of proof is on you to explain where the world’s current wealth came from if it could never have been created.

That brings us to the fundamental question of what wealth is in the first place, lest you argue that it subsists in coal in the ground, or stones in the Stone Age. I argue that at its most basic, wealth can be described in evolutionary terms as the means by which humans survive and increase their chances of reproductive success. Since life itself is a temporary and local reversal of entropy, it is reasonable to equate some wealth with the harnessing of energy – for food, mobility, and the capacity to exploit further resources. The latter stems from a uniquely human ability to recognise potential and derivative wealth. Although I argue that rocks in the ground are not wealth per se until they are productively utilised, they can be assigned a value if there is a solid prospect of future exploitation. You only have to look at the value assigned to the “proven and probable reserves” of the oil and mining companies.

Much of the rest is concerned with status – the (somewhat justifiable) belief that material possessions increase our chances of attracting mates and reproducing. This is not negated by the fact that we generally have vastly more than our basic needs, and that status symbols are illusory. As long as everyone is taken in by the same illusion, the strangest things may represent wealth – black tulips, music copyrights, iPhone Sixes, artworks, and virtual Pokémon creatures, to name a few.

Many forms of wealth (capital?) depreciate and/or require effort to maintain.

If it was geometrically and logistically possible for everyone to have their own personal road to their favourite destinations, would we be more or less wealthy?

Is there an optimal amount of wealth?

Is there a national equivalent of net disposable income?

I’m not saying energy and wealth are connected, I’m saying the laws are the exact same.

Eg, I have a 60watt light bulb, it gives off 20W of light, 40watts of heat into a room. The 40watts of heat energy sloshes around with the existing heat energy in the room, it gets absorbed and it’s so minor it’s not noticeable. Liek a typical domestic arrangement.
If you have a fashion shop/jewellers with a lot of lighting, the heat from all the lighting will effect the temperature in the room.

Similarly, if you burn down one house, as Mantissa correctly points out, all the houses in Ireland technically go up in value, but it’s negligible.
If you burn down a village or introduce a Nama, the price of the assets will go up considerably as supply is restricted.

My point, NEW wealth cannot be created. It gets transferred, either concentrated or diluted.

I would define wealth as anything of value.

The value of an asset/stock/currency/commodity/house can go up or down. It is all supply and demand.
In your example. the wealth/value has been transferred from another asset to raise the price of this stock. Something was sold to buy the stock. The low volume doesn’t really matter, once demand exceeds supply.

The person you bought the bitcoin from now has the $ you paid for them.
You’re up bitcoin, down $. The seller is up $, down bitcoin.

If you destroy your bitcoin - you have reduced the supply, which means everyone else bitcoin has gone up in value, assuming demand stays the same.

Wealth has not been destroyed. Just transferred.

Ok, could you please answer one simple question that you have so far avoided. Do you believe that the sum total of human wealth is unchanged in the last two hundred years, the last two thousand years, and the last fifty thousand years?

Currencies have a value, if I have enough of them I will be wealthy. Similar to any asset/stock/commodity. The interesting thing about a currency, is for every $ issued, there is debt attached to it. So every creditor has a debtor.

Just look at the companies balance sheet for the wealth transfer. When they sell the coal, they make money. Every business adds some form of value to a product, they then sell this product, which is how they make their money. But someone else parts with money to buy the product.

Wealth is owning something that there is demand for. Doesn’t matter what it is.
Yep, everything has a price.

From an accounting/numbers point of view, there has been no change in the overall sum of wealth.

If the US has 10 trillion in debt today and China has 10 trillion in credit today.
Has the amount of wealth changed from the 60’s where the US used to be a creditor? No, because someone else was a debtor.

When you grasp this concept, you will then understand why the Germans are anal about manufacturing.
You will then also understand why the Chinese Yuan is now part of the SDR.

Or at least, it will give you a better understanding as to why manufacturing is so important.

But why are you plucking a figure of $10 tn, when that is a small fraction of US wealth? You are making these assertions as if you have totted up the entire global balance sheet, yet you have only presented two seemingly random numbers without even any evidence as to their relevance. Do you have any citations or references to back it up? Can you think of any reason why Credit Suisse fundamentally disagrees with you when they say global wealth doubled from 2000 to 2013, and would increase another 40% in the subsequent five years?

If the broader economy was like a poker game with no-one joining after the start, and no additional buy-ins, it would be a zero-sum game with wealth neither being created nor destroyed, only changing hands.
The zero-sum game can be a useful model in some cases, but I don’t see how it applies generally.

I can think of a reason (not sure myself that it is right though).
Ireland had a GDP increase of 26%. Yet this was mostly due to off-shore financial transactions. Many Irish people haven’t seen much if any pay rise in years. So personal “wealth” is not increasing yet the economy is bubbling away.

Isn’t is really necessary that the meaning of wealth be defined?

Even if we agree we’ll play ball with this “wealth == energy equivalence”, your thermodynamic argument is poor. The law of conservation of energy is only one of the 4 laws of thermodynamics (the first law). The second law however is also worth some attention.

So back to your examples with light-bulbs. Rather than arguing wealth==energy, and using analogies, let’s look at the specific wealth-role of energy within your example. What you measure with watts is not energy, but power (energy per unit time). But I think I know what you were trying to get to. Working with your thought experiment. Say you’ve got 2000W of lighting installed (in your jewellery shop), i.e. 2kW. You’ve got a battery setup, it’s got 1 hour of capacity for your system, so 2kWh of energy (could also measure it in joules/J but lets stick to meter-units).

So you’re sitting there in the dark, with a well charged battery. You flip the switch, and run the system for an hour. The place is lovely and bright, and as you say, you can feel the heat building too (well insulated shop) and 1 hour later the system dims and you are back in the dark, but a little bit warmer. Your argument is that the two situations are the same, but they’re not. How to show that… well let’s try to re-convert that energy…

You want to have a cup of tea. How do you use the energy now in the ambient heat of your shop to boil a kettle… that’s tricky (but if you had a charged 2kWh battery bank, you could think of many ways to do it). Or you want to charge your phone… again quite difficult (but probably easy with your battery bank fully charged). Or if you drop the keys, can you get that heat back into the batteries to give you some light to search (not easily, and not without connecting to a larger system). The *availability *of the energy has gone down substantially. And that’s a one-way road, once some of the energy has been degraded in this way / or entropy increased, that’s it. You can only reverse the process by finding somewhere else to increase entropy.

To bring this back to a version of your original argument, but try to retool it to fit with thermodynamics and to fit with somewhat wooly notions of what “wealth” means. I’d go with ps200306’s argument that wealth is related to “means by which humans survive and increase their chances of reproductive success”, I’d maybe change “means” to “circumstances”, meaning a sum total of interactions with the environment. A lot of that boils down to available energy, and low-entropy configurations of matter (e.g. bricks built in a house, not heaped in a pile, or even just as aggregate and clay in the ground). (To be honest, you probably don’t even need to say what wealth is to argue whether it can increase, just agree it’s about energy and physical structures in some way.)

If you were God, you could look at the universe and work out what’s the optimum configuration for human survival/prosperity that can be reached thermodynamically from the current situation. That would be the “potential human wealth” of our universe. Saying what that is is tricky, of course. However as thermodynamic processes play out, the range of configurations that is reachable reduces. Unless in each step we are moving along the optimum path (and I’ll bet we’re not, in fact I can make it so at least in a tiny way!), the potential/available wealth of the universe is decreasing continuously (actually, we cannot stop “moving” so available wealth has to decrease over time, but sometimes we got more or less benefit of the process).

So (and I’ve just roughed this out over pre-work coffee so don’t be too critical), I’d say that wealth decreases over time if you count potential wealth and apparent wealth. Apparent wealth (i.e. suitability of environment to support human life and reproduction) goes up and down over time, and over the total history of humanity so far has increased.

To be honest - I didn’t bother to look up the exact figure because I wanted to respond asap, the exact figure is not important, the principle is. You are correct however, the world is effectively a giant balance sheet. For every debtor there is a creditor, for every buyer there is a seller. Supply/demand.

ps200306, I’ll admit - you had me doubting myself for a minute. So I decided to look up Credit Suisses report which can actually be found here; … 9100FF5C83

The author of that website you linked forgot to mention the all important word

*This chapter examines how household wealth and its components have changed over time. **Household **wealth has more than doubled since 2000, but gains were concentrated more in the first half of the period. *

Which is true, house prices and stocks had gone up at that period - mom and pops benefit from it. But just because household wealth went up, it means another form of wealth went down. Pretty sure they were in the middle of QE at that point. So currencies were being devalued/government debt increased. In fact - this is probably the QE asset swap. The Fed bought mortgages, gave the banks government bonds instead.