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Monday, October 24, 2011

Is Wealth Zero Sum

The postulation that wealth is zero sum, meaning that whatever wealth I have has been gained at the expense of others, in effect total global wealth is finite but is inequitably distributed. This argument rests on the assumption that wealth cannot be created and wealth can be defined and quantified. I submit that this is a fallacious argument.

First wealth can be defined in many ways such as the value of knowledge, a great many friends, honors, respect, or many other abstractions where the “wealth” is self determined or determined arbitrarily by others. This type of wealth is not finite and can be both created and destroyed. Therefore, for any meaningful argument wealth must be defined in terms of tangible goods such as gold, money, art, land, etc. But the postulation is that wealth is zero sum meaning that it is finite when it is obvious that the world’s available wealth today is far greater than it was a hundred years ago. But the professor / philosopher avoids this inconsistency by stating that his zero sum argument only applies to the moment and cannot be viewed in any historical context. But this refutes his argument that wealth cannot be created because global wealth has increased and he acknowledges this. This reduces his argument to the total global wealth is finite at any given moment, which is true at that moment, but in the next moment new wealth can be created e.g. a gold strike, oil strike, new invention, etc. The professor / philosopher acknowledges this but then moves to the more abstract view of wealth common to those who argue that wealth can only be gained at the expense of others – hence that wealth is finite.


The argument then becomes increasingly doctrinaire as he attacks – without noting – capitalism. He argues as follows:

“Material wealth obviously originated in the creation/origin of the universe (that is where the stuff comes from). Once we had the earth and people, people could start acquiring material goods like land and resources. These resources can be made more valuable by the addition of labor, thus creating wealth. They can also be made more valuable by other means, such as creating scarcity and controlling pricing. These material goods can be acquired in various ways, fair and foul. The classic method is, of course, conquest.”

How this argument supports a zero sum conclusion is beyond me because it demonstrates how wealth can be created and shared yielding a wealthier population overall. The actual argument appears to be the inequity of some people being wealthier than others based on the assumption that unethical and even illegal means were used to accumulate that wealth. He leaves no room for wealth accumulation via fair means. But his argument has ceased being the creation of wealth but instead has shifted to the sharing of wealth.
At this point the argument shifts to the abstraction of money “the pieces of paper” whose value is commonly agreed to but his real argument doesn’t appear to be the creation of wealth but how that wealth is created.
“Monetary wealth is obviously a social construct: we made up the financial game and the “creation” of wealth depends on the sort of game being played at any given time. For example, some folks “created” wealth by clever repackaging of toxic assets. Other people “create” wealth by working and investing their money (which is supposed to give them more money). In many ways, this is “fictional” wealth in that we are literally just making this stuff up and its value depends entirely on how far we are willing to all play make-believe. Yes, I play the game-it is a convenient way to handle exchanges in some ways. But, I always remember that it is just a game we are playing (I work, I get some paper, I hand the paper to someone and they give me an apple).”
The point being made here is a little fuzzy to me because everyone knows that paper money is an abstraction whose value is set by common agreement and backed by the government. The creation of wealth followed the same rules when commerce depended entirely on gold and silver currency. It appears that he is simply opposed to how wealth is created and how it is inequitably distributed. But he concludes his argument that wealth is finite by arguing that currency (paper) is finite because printing more doesn’t create wealth but results in inflation. That is true but then at a stroke he reduces wealth to how much money you have and since that is finite wealth is finite and zero sum. That is ridiculous of course because tangible wealth can be created in many ways and the currency is simply a method of measuring the wealth created.
In my opinion this entire argument illogical and rests on false assumptions. And when the argument is reduced to its core it appears that it is anti-capitalism and the unequal distribution of wealth.


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4 comments:

Anonymous said...

I agree "wealth" as an abstract can be easily generated, changed, and destroyed; however, actual currency, which I'll estimate as $5 Trillion USD ($1,000 in USD as of May 2011, US $1,185 in Euros as of May 2011, the rest in various other global currencies estimated) is not being created at any skyrocketing pace given many countries are using a floating currency based on the USD or EUR anyways (as of 1971). Even if there was a +/- 5% change in total global currency yearly, it would still make the global market values a zero sum game.

I can claim the "value" of my iPad is actually $200K USD, but it's not going to change my bank account only having $1K USD. What would change my personal wealth amount is economic policies which distribute wealth based on effort and not luck (born into a wealthy family, making a successful company in 1 year vs running a business for 10 that fails despite wise and informed decisions). I'm glad that parts of the EU place caps on executive compensation, it's ridiculous to think that a single person needs more then $300K a year to live, even with a family. Without social, political, and economic caps on largess, inequality has become the natural state of being. Few sane people would turn down a $3million USD paycheque yearly; few will take that $3million and give it to their employees; we've created a system the rewards excessive greed and encourages inequality; which is made reality because of a zero-sum state of global currency.

When viewing currency exchanges on a micro scale, yes "wealth is created," but not on a global scale. Instead debt is transferred. Any financial transaction is based on actual currency, which needs to exist somewhere for that transaction to be made. When $50 Million USD is invested in a bonds market or stock, it must exist to be invested. There are secondary markets where no wealth is required immediately, but ultimately real currency is needed for a transaction to transpire. I can't will $100 million USD into existence.

If you can refute this, I'd be very interested to hear; please be detailed.

Royce said...

Of course this response doesn't really address the subject of wealth creation other than from the point of view of currency. Furthermore, it wanders off into the subject of wealth redistribution. I have posted a longer rebuttal as "Is Wealth Zero Sum - revisited".

Rob Messer said...

Interesting post. Particularly the idea of "fake wealth". A fact that is particularly distressing given the fact that 40% of the US economy is financial services.

The idea that wealth can be created is a good one. Barren land made fertile, for example (which I think you pointed out). If paper wealth is false, than the real wealth of fertile land is the enrichment the beneficiaries.

Perhaps that is the real problem today, the economy geared towards fake wealth, versus enriching real wealth. Something to think about.

Anonymous said...

Interesting post. Particularly the idea of "fake wealth". A fact that is particularly distressing given the fact that 40% of the US economy is financial services.

The idea that wealth can be created is a good one. Barren land made fertile, for example (which I think you pointed out). If paper wealth is false, than the real wealth of fertile land is the enrichment the beneficiaries.

Perhaps that is the real problem today, the economy geared towards fake wealth, versus enriching real wealth. Something to think about.