Money Versus Wealth
posted at 2:48 pm on April 30, 2009 by Doctor Zero
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One way to measure the “transformational” power of the Obama presidency is to consider the speed with which Democrats transformed from the steel-taloned deficit hawks of the Bush years, into a party very comfortable with trillion-dollar deficits, and a fifteen-trillion-plus projected national debt. Anyone old enough to remember the early Clinton years has seen this happen before, of course. As the shadow of the Obama deficits looms over the economy, we can expect to begin seeing the sort of breezy journalism we got in the Nineties, wondering exactly why deficits are so bad. The fact that liberals are willing to ask the question illustrates one of the fatal flaws in socialist economic policy: the confusion between money and wealth.
Money is easy to create. Obama has already stolen a trillion dollars of it from the future. All that was required was printing up a few more stacks of bills, and adding a few more zeroes to various federal balance sheets. Last night, like every other day of his presidency, Obama spoke about how much money he plans to “invest” in various government programs. Liberals in general, and the news media in particular, use the amount of money thrown at any given problem as the sole important method of measuring how much we “care” about it.
Wealth is a far more elusive, and important, part of the economy than money. Wealth is what people do with their money… and even more to the point, it’s what people could do with their money. Free people in a free economy create wealth through their choices. You can run down to the grocery store and spend ten dollars buying steak to cook for dinner tonight, or you could go to a restaurant and spend two or three times that much, having the steak expertly prepared for you. Sixty bucks might seem like a lot to spend on dinner… but how much would it cost you to venture forth into the wilderness and hunt your own dinner down, or raise your own cattle and slaughter them? Suppose you make twenty dollars per hour at your job. That grocery-store steak is worth half an hour of your time, and the fine dinner at at five-star steak house cost three hours of your income. Compared to the time and effort it would take you to hunt or butcher your own meat, even assuming you knew how – and were lucky enough to have a successful hunt tonight – it’s a bargain. You create wealth by giving your money to the grocer or restaurant for your dinner, and now they have money to invest or spend according to their needs and desires. Meanwhile, you also created wealth for your employer, because you were able to spend hours working at your day job, instead of fooling around in the brush with a bow and arrow, trying to bring down a deer.
Modern technology greatly amplifies wealth creation. You couldn’t possibly build yourself a computer or automobile from raw materials, no matter how much time you invested. You can’t perform surgery on yourself. The twenty dollars in your pocket represents vast wealth, because you can choose to spend it in so many different ways, and your employers chose to give it to you (after taxes, of course) because the hour you spent earning it was worth more than having a twenty-dollar bill sitting in their vaults. You can use that twenty dollars to buy things that the last Egyptian pharaoh could not have purchased with all the gold in his kingdom, or all the kingdoms of the world combined. The computer you’re using to read these words is vastly more powerful and easy to use than it would have been a decade ago, because the pursuit of profits drove computer and software companies to compete and produce better products, and their competition created wealth. You’re probably using high-speed Internet and a comfortable flat-screen monitor to read this, using a computer that can do a dozen other things at the same time, and if you wanted to share this essay with a friend, you could email a link in seconds.
The wealth built into that twenty dollar bill dissipates if you’re not allowed to choose how you spend it. How wealthy are you if the grocer takes your twenty bucks and tells you that you have to eat fish instead of steak… and you’re allergic to fish? How wealthy would you be if your employer paid you in company scrip, which could be spent only at the company store, on a limited selection of products the company sees fit to offer – at whatever price they decide to charge? Even though that scrip has value – you can buy stuff with it – it represents much less wealth, because you have fewer choices in how to spend it.
Socialism annihilates wealth. Government control of the economy destroys the value of the dollars circulating through its bloodstream. Every one of the trillion dollars Obama dumped on the American economy reduced the value of every dollar that was already here, because government stimulus bills create no wealth – they just force the economy to spend money in ways it didn’t want to. Not a single hour of productive labor is created when a big pile of deficit dollars is sucked out of the free market and expelled from Washington. Socialism creates the illusion of prosperity by forcing money to be spent in politically favored areas, then shining the media spotlight on where the money was spent… and hoping nobody notices all the choices that weren’t made, all the possibilities that were foreclosed, fading away in the darkness outside that spotlight. And deficit spending is ultimately the worst excess of socialism, because it destroys the wealth of the future, taking away their choices and options… draining the lifeblood from the America that could have been, in the arrogant knowledge that an aborted future does not have a voice to defend its interests, and the voters of today will never stumble across the corpses of murdered opportunities.
That is why deficit spending on Obama’s scale is so awful: because it takes a trillion dollars from the future without asking its permission, burns away a vast amount of the wealth that money represented, replaces it with a debt that can only grow worse with every passing year, and tries to convince the American people the whole transaction was a bargain.
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Doc Zero, in the Green Room where you belong!!! Okay, now I’ll read it.
Security Mom on April 30, 2009 at 3:14 PM
Thank you. I can very much use this type of information to explain to people what “wealth creation” is. Even Republicans are often unaware of how the system of capitalism really works, and why it’s so awesome.
apollyonbob on April 30, 2009 at 3:20 PM
Ironically I was discussing this very topic, money versus wealth, this morning with my co-workers. It is a difficult topic to discuss with the less informed since we are taught\conditioned to think increse in money is wealth.
WashJeff on April 30, 2009 at 3:24 PM
I praise your eloquence, and agree on all points but this: deficit spending is not significantly worse than the same magnitude of tax-and-spend. The important part is how much of the nation’s resources the government is ineffectual using, and whether one diverts it away from private investment by borrowing, held capital by amortizing, or out of the hands of the productive by taxation only changes the nature of the negative impact, not its magnitude.
Count to 10 on April 30, 2009 at 3:26 PM
I’m so glad to see you posting here! Thanks for the great column.
INC on April 30, 2009 at 3:26 PM
The flawed reasoning behind the idea of fiscal “stimulus”, really.
Count to 10 on April 30, 2009 at 3:27 PM
I’m stoked that Doctor Zero got a spot in the Greenroom.
BadgerHawk on April 30, 2009 at 3:30 PM
Thanks, everybody! I’m glad you found it worthwhile. Hitting “submit” on that first blog post, for a first-class place like this, did the same thing for my heart rate as signing my mortgage…
Doctor Zero on April 30, 2009 at 3:44 PM
Tremendous.
Flyover Country on April 30, 2009 at 3:49 PM
It is a great piece! And thank you for explaining it in a clear,concise and understandable way. Not mocking my intelligence but it is a daunting subject especially when we are in the middle of an economic transformation. What I don’t see or understand yet is how much of this damage can be erased (for lack of a better word) if we are so lucky to get a fiscally conservative president even if he is up against a dem-heavy senate and congress.
sherry on April 30, 2009 at 3:54 PM
Amen.
The Apologist on April 30, 2009 at 3:57 PM
Glad to see you here, Doc Zero, and great job, as usual.
FloatingRock on April 30, 2009 at 3:59 PM
Yay! Doctor Zero in the Green Room!
Alana on April 30, 2009 at 4:00 PM
Thank you, Doctor. This needs to be put into a handout so it can be given to the CNN reporters at the July Tea Parties.
Rod on April 30, 2009 at 4:01 PM
Doctor Zero……..
……. with your permission, I am going to link everyone I know to this article.
Seven Percent Solution on April 30, 2009 at 4:05 PM
Buddy I put your writing up there with Victor Davis Hanson and it is so refreshing to do so, thanks for the work. About 10 days ago you posted a very succinct response that went on to explain why liberals could not see the good in the west and America and how they cling to every perceived wrong like it was an anchor around our collective necks.
How could I get a copy of that awesome string of sentences?
DanMan on April 30, 2009 at 4:12 PM
Great article. Thanks!
Feedie on April 30, 2009 at 4:17 PM
Excellant piece Dr.
I would like to add – those who are in favor of “money” have never had nor created wealth – hence their desire to both recieve it for free, while not understanding its damage.
Odie1941 on April 30, 2009 at 4:21 PM
Copy and Paste?
Count to 10 on April 30, 2009 at 4:25 PM
Thanks Count to ten but if I could find it I would. I don’t typically (maybe never have) copy and paste comments in blogs but that one just sunk in the more I thought about it.
DanMan on April 30, 2009 at 4:31 PM
I think that was something I wrote after Janeane Garofalo erupted… I’ll have to see if I can find that and put it up… I don’t want to spam the Green Room, though…
Doctor Zero on April 30, 2009 at 4:31 PM
I’d be honored!
Doctor Zero on April 30, 2009 at 4:32 PM
Can’t use the “Send to a Friend” feature. Says there’s a 404 error code. Not being incredibly tech savvy, what does this mean? I want to send this to everyone I know!!!!
mimi1220 on April 30, 2009 at 4:42 PM
“draining the lifeblood from the America that could have been, in the arrogant knowledge that an aborted future does not have a voice to defend its interests, and the voters of today will never stumble across the corpses of murdered opportunities.”
F’ing brilliant metaphor! Terrific article. Kudos.
College Prof on April 30, 2009 at 4:47 PM
Doctor Zero,
I have read and marveled at your posts for some time now. This is typically brilliant, and I can only hope your stuff finds an even broader audience.
Thanks for sharing your insights, which are much appreciated.
warbaby on April 30, 2009 at 4:50 PM
I like Doctor Zero. I really like Doctor Zero.
LibTired on April 30, 2009 at 4:52 PM
Holy ****… you mean that was your first post?
LibTired on April 30, 2009 at 4:53 PM
That was epic. Just truly excellent sir. Eloquent, well reasoned, great use of imagery to aid the pathos side of the argument while not relying on it. And so polished!
TheUnrepentantGeek on April 30, 2009 at 4:58 PM
An excellent piece. But you should also explain just what money is. Money is a bookkeeping mechanism. A twenty-dollar bill in your pocket means that society acknowledges that it owes you something, something vaguely described as “twenty dollars.” When you go to a store and spend that twenty dollars, you have traded that debt away and received something in return. The store, whether a sidewalk vendor or amazon.com, now has claim on that debt.
If you still doubt that money is a bookkeeping mechanism, consider this: if you deposit that twenty-dollar bill a bank, the moment the bank accepts the deposit that bill is no longer money. It is currency, but not money. If the bank decides that the bill is too worn and sends it to the Federal Reserve for destruction, neither you nor the bank has lost the slightest part of that twenty dollars, which exists now on the books of the bank, and only there.
A stable currency means that “twenty dollars” will have, in aggregate the same value tomorrow that it has today. Some things will be cheaper, some more expensive. Computers have gotten cheaper. Most raw metals have gotten more expensive. To have a stable currency, the amount of money and the amount of value being traded using money must remain in the same aggregate balance.
njcommuter on April 30, 2009 at 4:58 PM
I am such a fan of Doctor Zero. So happy to see you writing here.
(I suspect “Doctor Zero” is actually Charles Krauthammer. Glad to have you here.)
carbon_footprint on April 30, 2009 at 5:14 PM
I’ve spent the past hour or so site-Googling HotAir and reading Dr. Zero’s many posts here.
Someone should take the time to collect the good doctor’s writings and publish a book.
While I wait for that to happen, I am going to start collecting them and sending them to my friends and family.
Thank you, Doctor. I and many others are looking forward very much to your next post.
Rod on April 30, 2009 at 5:15 PM
I think this might be it here: Doctor Zero on April 16, 2009 at 11:20 PM
Rod on April 30, 2009 at 5:22 PM
No. There’s nothing wrong with deflation sprung from productivity. Tampering with the money volume is the root to many problems.
the_nile on April 30, 2009 at 5:24 PM
Dr. Z, all you have to do is just keep posting your comments here.
Thanks for the link.
INC on April 30, 2009 at 5:52 PM
Wow. That is just so well put. Keep enlightening the idiots Doc!
Browncoatone on April 30, 2009 at 6:14 PM
Here is another angle on wealth creation.
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Wealth is created in only two ways.
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1–By extracting something valuable from the earth, potential wealth (iron ore in the ground) is turned into kenitic wealth (iron ore at the steel mill).
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2–By manufacturing a useful or desirable product from those raw materials (a new car that you can use).
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Pure services do not create wealth. When you go to the barber, for example, the wealth needed to pay for the haircut already exists. It is simply exchanged for X amount of the barber’s time.
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I was going to write a lot more buy I don’t want to drag on about the dismal science.
esblowfeld on April 30, 2009 at 6:20 PM
Brilliant. I had to read it a few times to completely understand it, but that was because I honestly did not understand what wealth really was. And now, I know. Thank you!
Anna on April 30, 2009 at 6:22 PM
No, not really. The stimulus is premised on the idea that the government can better spend money to create wealth than you can. To be fair, there are ways that the government can spend the money better. Try invading Afghanistan with an independent private militia alone and see how far you get. Try coming up with the Internet, one of the greatest wealth multipliers of all time. Try building a truly workable interstate system made entirely of toll roads. There are ways government can spend money better. Liberals think those ways are vast and conservatives think they are limited. But I don’t think Obama passed the spending measures due to a confusion between money and wealth. Those who support him, however, might be a different story….
calbear on April 30, 2009 at 6:55 PM
Well done Doc!!! Welcome to the Green Room…. Excellent analysis.
Keemo on April 30, 2009 at 7:03 PM
DOCTOR ZERO FOR PRESIDENT
Jim Treacher on April 30, 2009 at 8:06 PM
Excellent…just plain on target.
This is the sort of message that needs to be nailed on the foreheads of every voter. Then, they might just get it.
coldwarrior on April 30, 2009 at 8:11 PM
Over $1.2 million in “stimulus” was just released to our county. Spoke to one county employee this afternoon who was giddily happy that he was probably going to get a raise, and would get O/T again.
I asked if he knew that if all the county employees got a raise…they’d lose money in the long run, as prices would go up in the near term, let alone the long term, as inflation is just round the corner. His response, not to worry, he’d have more money coming in, thanks to the “stimulus” drop to the county this week.
coldwarrior on April 30, 2009 at 8:20 PM
Yes.
So well done as always Doctor Zero. Thanks for doing this. I love to read what you write because you know how to address the subtext and hidden ramifications of the broader surface issues.
tartan on April 30, 2009 at 8:58 PM
404 means Page Not Found. Sometimes the server can redirect to another page and that could trigger the page not found if the destination page isn’t there. But without reproducing the problem myself, hard to know the real cause. I haven’t tried.
tartan on April 30, 2009 at 8:59 PM
It is kind of sad that the good Dr. has to spell this out. In America, this should be clear, but it is not.
I hope Dr. Zero stays in the Green Room where, as someone said, he is as good as VDH.
I speculate whether the good Dr. is a doctor or engineer or scientist. He write too well and thinks too clearly to be a journalist of professor of the humanities.
Dhuka on April 30, 2009 at 10:57 PM
The Doctor is in!
Well done, Doc! Excellent essay!
Saltysam on April 30, 2009 at 11:27 PM
First coldwarrior, now Doctor Zero.
The Green Room officially rocks!
hillbillyjim on April 30, 2009 at 11:49 PM
My sense from modern-day liberals is that they have a hard time conceiving of a situation where the government can’t spend your money better than you can. Of course, it’s all “for the children”.
venividivici on May 1, 2009 at 8:17 AM
That’s why I said in the aggregate. Prices of some things drop, but slowly so that the deflation in those things does not do harm. And people buy more. And maybe more people are buying more. So in the aggregate the currency is stable.
You can’t avoid changes in the money volume unless you completely do away with fractional reserve requirements in banking. And without them, the banking system grinds to a halt. There isn’t enough money in circulation, and people start creating their own with personal IOUs and corporate scrip.
Remember that in the 19th century USA, banks printed their own currency, and books were published reporting on the soundness of each of those dollars, and what ‘exchange rate’ should be given to an out-of-state bank’s currency. Do we want to go there?
There are problems, and one of them is that the Fed’s mandate to maintain full employment is equal to its mandate to maintain the stability of the currency. We have accepted the idea that some small inflation is necessary. I’d prefer to have that piece of programming changed than to destroy the whole system.
njcommuter on May 2, 2009 at 1:40 AM