Can wealth be created and destroyed?

If you follow the link you’ll see that it is specifically household wealth that is counted, not any nebulous national or productivity metric. Here is Credit Suisse’s exact definition:

“Net worth or “wealth” is defined as the value of financial
assets plus real assets (principally housing) owned by
households, less their debts. This corresponds to the balance
sheet that a household might draw up, listing the items which
are owned and their net value if sold. Private pension fund
assets are included, but not entitlements to state pensions.
Human capital is excluded altogether, along with assets and
debts owned by the state (which cannot easily be assigned
to individuals).”

I don’t think you looked closely enough. The report specifically takes currency valuation changes into account while counting household wealth. In the 2013 report I mentioned it says that exchange rate movements had a slightly negative impact on wealth. In the latest report for 2015, by contrast, global wealth declined by $12.4 tn specifically because of USD dollar strength. So yes, they do count that.

but to come back to ps200306’s question, why not test your idea by looking at longer time-periods and more extreme scenarios?

  • What differences do you see between today and the end of the last ice-age? (I’d say wealth is greater today, although you could argue that all the potential of today existed then (and perhaps even more))
  • Human actions: If we launched an all-out global nuclear war, would wealth afterwards be increased or decreased? (I’d say decreased)
  • Forces of nature: When the sun becomes a red giant and “Most of Earth’s atmosphere will be lost to space and its surface will consist of a lava ocean with floating continents of metals and metal oxides as well as icebergs of refractory materials, with its surface temperature reaching more than 2,400 K”, assuming we haven’t managed to leave the planet, will wealth be increased or decreased vs now? (I’d again say decreased)
  • Forces of nature: if a disease emerges that eliminates all human life, does that mean wealth is increased or decreased? (also leads to query whether wealth is shared with other species:
  • Forces of …: if an extraterrestrial civilisation arrived and exterminated humanity, how would you characterise our “constant wealth”, or would it be a transfer of wealth from us to them, if so does that mean we should have used their measure of “value” all along?

On an instantaneous basis, it may be realistic to say “wealth is conserved”, on the infinitessimal scale. But on the longer-term, it isn’t meaningful.

I agree with what you are saying so I assume you would also agree with me, no energy was destroyed. I am not debating the practicality of the energy being transferred from one source/type to another. Nor do I suggest the conditions are the exact same after the transfer.

As you point out in your example, one of the important aspects of currencies and power is time. All debt issued requires interest to be paid over time. That creates the flow of currency.

So using your battery analogy -
If I do not have an income (mains electricity) and I spend my money (energy), I am depleting my bank account (battery) over time. I have probably bought food. Trying to reverse this process would be extremely difficult (heat back to light = energy burnt by my body + poo back to food :mrgreen: ).

If we are fortunate to have a job, we add value to a company and we are paid for our services. So I support myself by this means.
Similarly, the light bulb is powered by the mains power. The shop/business makes money from society, pays its bills/expenses with it earning.

My points are, once you understand the flow of energy, you can understand the flow of wealth. It transfers from one aspect to another.

Like you have highlighted, the report focuses on household wealth.
They exclude government/corporate debt etc.

Oh god please stop, I put a value on my smile of 1 million euro and you are destroying my wealth this morning by equating the laws of physics with economic concepts.

But the key point is that “energy” isn’t even a good proxy for wealth. It’s “available” energy, and that reduces monotonically through thermodynamic processes (I probably muddled this point in my previous post).

Commonly, but not universally. You can have zero interest rates. You can have negative interest rates. Also, I don’t think time is entirely crucial, except that if you talk of “change” it normally involves some sort of time progression. However, the time durations aren’t critical to the basic idea.

Not quite the same. Since you keep saying energy isn’t created/destroyed, I’m unsure why you think you’ve “spent” your money/energy. In my analogy, you could have the shop perfectly insulated. So every joule of energy that was in your battery is now stored in the ambient heat of the room. But while it was quite easy to get the energy out of the battery into the room, it’s very difficult to make it go the other way without outside help or another battery or something. Same story as if you sat in the room with a hot cup of coffee, over time it gets cool and the room warms up. The time period doesn’t matter, the point is that the process goes only one way and the availability of the energy decreases.

But available energy gets “used up”. Imagine you’ve bought the food, it’s tins of beans. You could probably exchange them for what you paid for them so no “loss” (in reality you’d need to do work to move the beans from one location to another, but forget that for now). You sit in your room with your beans, and get hungry, and then eat a can of beans (and later do the necessary etc.,). In a sealed system, over time you will turn the beans into other substances, and available energy will decrease. You’ll always have the same energy/matter available to you, however I would argue your wealth is steadily decreasing. In a way that’s what all life is doing at a universal scale.

If I’m sitting with a can of petrol, pour it on the ground and burn it, I’ve made a nett reduction in the available energy of the universe (even though energy is conserved). Economically: I’ve taken something that I might persuade someone to buy and finished up with something nobody would buy. (and you may argue that I’ve increased the value of all the other petrol in the world, but then you’re at best only arguing about accounting, by the same logic we reduce wealth by printing currency; wealth has to be reduced by the destruction of things of value).

Like I said, it’s the 2nd law that gets you…

  • Zeroth: You must play the game.
  • First: You can’t win.
  • Second: You can’t break even, except on a very cold day.
  • Third: It doesn’t get that cold.

Well, I guess the logic (which I don’t agree with) would be that even that devaluation (which is less than destroying the neighbouring properties) would be counteracted by an appreciation in some other residential area (maybe even another city/country).

That would be my point. And it is the same for all assets/currencies etc.

Double entry bookkeeping is now a Law of Thermodynamics.


Just buy a house in Dublin …wealth instantly destroyed!

Your health is your wealth.

I second that! BD

But but when you die everyone else on the planet gets a little better. :open_mouth:


Except it doesn’t work that way, or even any way a bit like that.

Now that’s a good point. That is unless you were killed in a sword-fight, and the person who killed you was an immortal too, and cut off your head in the battle. Then the person who kills you gets a transfer of energy called “the quickening”. This is all based on very good science and is mostly thermodynamics really, as in the end “there can be only one”.

  • :laughing:

I don’t want to derail the other topic…

Roc, the inventor creates a product.
He sells his product to a consumer. The consumer is now down money yet the inventor is up money. No new wealth was created. It was transferred.

The wealth was created during the design/manufacture of the product from its raw materials.

This is the value-added bit that gets taxed as VAT, as I’m sure you know.

Money is not wealth.
The wealth is in the new products contributing to the life of the society.
And it is the increase in quality of life of the consumer.
Money is only the means.

Yes, the money supply must be increased to match that new wealth to avoid deflation (obviously when means of payment does not match the increase in total output of goods and services we get deflation). But don’t let that confuse you.

Adding value is not creating NEW wealth, it is taking an item/commodity, making something and reselling it.
Any profits are someone else’s expense.

Everybody including companies effectively has a balance sheet.
Savings/debt. Assets/liabilities
One man’s savings is another man’s debt.

One man’s savings is a Banks liability
One man’s debt is a Banks asset

A commercial back puts money in a central bank
This is now an asset to the commercial bank and a liability to the Central Bank.

If a central bank cannot borrow (because a government has to much debt) on the open market it can increase its balance sheet.
This is the end of the line and is known as money printing.
Money printing is devaluing currency in circulation

No NEW wealth was created. Simply transferred.