[HN Gopher] A catalog of wealth-creation mechanisms (2009) ___________________________________________________________________ A catalog of wealth-creation mechanisms (2009) Author : xojoc Score : 272 points Date : 2021-10-06 09:39 UTC (1 days ago) (HTM) web link (blog.rongarret.info) (TXT) w3m dump (blog.rongarret.info) | asimjalis wrote: | Ron missed an important category. Creating value by entertaining | people. | [deleted] | pjc50 wrote: | There's a followup: https://blog.rongarret.info/2009/10/wealth- | production-mechan... - in reply to the first time this was posted | on HN! | trgn wrote: | Since this list is so broad it includes pretty much any | professional activity, as a counterpoint, compare to Adam Smith, | who had a lot more rigorous definition, and for who wealth | creation can only happen when labour is applied to the production | of useful commodities, or in the market making for such (crudely | summarized). | | e.g. "curing disease" did not create wealth. Instead, he put | physicians on the same level as house maids and clowns, in that | they are unproductive in the strictest sense (although still | necessary of course). | LeifCarrotson wrote: | This is a great catalogue of wealth creation mechanisms at a | societal or global level, but it misses the question of wealth | acquisition: How does an individual gain personal wealth? There | are, in my opinion, three fundamental categories: | | 1. Create value (this encompasses most of the catalog) | | 2. Deplete valuable resources | | 3. Extract value from a transaction stream | | The idealized engineer creates utility out of chaos. This value | creation, however, is limited in its ability to cause them to | gain wealth: They typically sell their time during which they | perform this activity for a salary. A company that employs an | engineer and pays him $100,000/year might make many times that | amount with the products that he designs. | | An oil company, coal mine, or non-sustainable farmer owns some | land rights and takes out resources. The things they remove are | valuable, but the profit does not come from the creation of the | resource - they already existed. This category also applies to | other activities which might not actually take a resource away | but which harm the commons. | | There are some activities which are useful, but where | practitioners make far more money than the actual value they | create. Someone who organizes and who employs many workers and | sells the sum of their output is in a position to profit from the | difference in that transaction. Jeff Bezos might hypothetically | be smarter, luckier, stronger, and overall able to pack more | boxes than any of his warehouse workers, but he's still human - | he's not gaining wealth to the tune of more than $13,000,000 | dollars per hour while his employees are making $18 an hour | because he's creating about a million times more value. Instead, | of the three categories, he (and anyone else who makes more than | approximately a standard deviation above the median GDP) is | primarily extracting more value. | | My personal problem is that I take particular satisfaction in | creating something valuable. I find resource extraction to be | unsatisfying to the point of being demoralizing, and I find | leveraging power to extract more value than I think I'm due to be | shameful. | imtringued wrote: | Start out from a very simplified scenario: You do all work | yourself. | | It's pretty easy to see why this is inefficient. You need to | duplicate equipment and experience. You need to travel long | distances. You cannot work 24/7. Some work needs more than one | person. | | Since labor is the fundamental building block of a society you | are better off if you can do something with less labor. You let | someone else do the work because they can do it in less time | than you can. | | Jeff Bezos isn't rich because he is creating more value or | wealth, he's rich because he is delegating work to lots of | people. The CEO of a company is basically a monopoly no matter | how big the company is. | pitaj wrote: | > he's not gaining wealth to the tune of more than $13,000,000 | dollars per hour while his employees are making $18 an hour | because he's creating about a million times more value | | He gains that wealth because he took the risk and invested his | money into a company that provides a huge amount of value to a | massive amount of people. A large amount of people now | increasingly value his company highly, believing that it has | good future prospects. | | He is extracting practically nothing from the company itself or | the workers. His wealth increases only because people in the | market value the company highly, and he owns a large portion of | the company. | LeifCarrotson wrote: | The company itself is performing things that are valuable, | but he's not doing those actions personally. Of the three | types of wealth acquisition, making money from an ownership | position is extraction. | | If the workers don't show up to create value for him and for | the company, they don't get paid. They're creating some value | by packing boxes, that contribution might be worth $25/hr, | but they've only been able to negotiate $18/hr of that value | creation. They're probably handling goods worth tens of | thousands of dollars per hour where that wealth is exchanged | between end consumers and manufacturers, but they're not | charging a commission to the buyers based on a percentage of | that transaction. | | For Jeff, though, he's not personally adding value to the | company in proportion to his personal contributions of labor | or ideas or memos. Instead, because of his ownership of | approximately 10% of the company, he's a dead weight on | transactions regarding the other 90%. He extracts some of the | money moving between those other people on the market. | | I admit that there's definitely an element of risk that's not | well covered by this simple three-category model, but I | question whether taking a risk from a position as a VP of a | hedge fund (another primarily extraction-based operation) | morally ought to have an upside worth $200B. | pitaj wrote: | > If the workers don't show up to create value for him and | for the company, they don't get paid. They're creating some | value by packing boxes, that contribution might be worth | $25/hr, but they've only been able to negotiate $18/hr of | that value creation. They're probably handling goods worth | tens of thousands of dollars per hour where that wealth is | exchanged between end consumers and manufacturers, but | they're not charging a commission to the buyers based on a | percentage of that transaction. | | Or their contribution might be worth $16/hr. Value is | subjective. If they agree to work for $18/hr, then that | work is worth at the most $18/hr for them. They do charge a | commission to the buyers by proxy. Sure the company does | some averaging across time, which is valuable to workers | and both sellers and buyers on the marketplace. It makes it | much easier for everyone involved. Do you really think | workers want to get paid based on commissions? Do you think | someone moving a box containing something priced $1000 | deserves to be paid more than someone moving an identical | box containing something priced $1? | | > The company itself is performing things that are | valuable, but he's not doing those actions personally. Of | the three types of wealth acquisition, making money from an | ownership position is extraction. | | Extraction from what? What does extraction even mean? This | applies to any investment or holding any stocks. Investment | benefits the company (and I guess the workers and consumers | by proxy) by providing resources for companies to develop. | It's a two-way thing: investor takes on risk by giving | money to company, company promises to give investor some | amount of profit in the future. If anything, investment is | creation of wealth from risk. | ggrrhh_ta wrote: | One can legitimately (within the set of rules we give | ourselves as a society) possess and earn a lot of wealth | without actually creating most of that value. If all the | employees - en masse - could not go any more to work, would | the company still be providing that huge amount of value? | Probably not. At the end of the chain there is always a group | of people creating the value through work. That doesn't mean | that the wealth is not legitimately earned even if that | person -alone- did not create million times more value. | pitaj wrote: | Value is subjective. Wealth is not created by labor, but by | mutually beneficial consensual trade. | [deleted] | Borrible wrote: | Fasten, widen and simplify communication space. Entertain | communicants for free. Boost individuality and ego of | communicants or tweak according to demand. Sell the inflated | souls to the highest bidder. | silicon2401 wrote: | > fasten | | This should be speed up or accelerate: https://www.merriam- | webster.com/dictionary/fasten | Borrible wrote: | Thank you, much appreciated. Most people are reluctant to | improve non-native speakers. Which I personally think is a | pity. | streamofdigits wrote: | I am surprised education does not figure more prominently in 9. | In a sense all wealth is created through education (a newborn | child knowns nothing about "wealth"). | | NB: Education is not just the "provision of information" or "help | with figuring out the rules" (although there are aspects of | both). | lisper wrote: | Author here. AMA. | roussanoff wrote: | US economic historian here. The idea that the US government | funded the construction of the first Transcontinental Railroad | and Panama Canal to trade with China is very, very weird. | | - 1850-1890 was a period of high protectionism, highest tariffs | on imports in the US history. | | - A good approximation of share of traded goods in the railroads | would be the share of imports+exports in the GDP. Together, | exports and imports were not more than 15% of GDP. Source: | https://www.nber.org/system/files/working_papers/w4710/w4710..., | Table 3. | | - railroads transported a lot of agricultural products and also | passengers, and were hugely profitable from that. I doubt they | would recover any cost by transporting porcelain and whatever | other goods China exported at the time. | | - "But that answer is wrong, as can be shown by examining | historical records of the time." - citation needed. | hinkley wrote: | 1853 is when Admiral Perry showed up in Japan with gun boats | and said "You _will_ trade with us. " Whatever the confusing | economics were of trade with East Asia, we were not only active | over there, we were being rudely pushy about it. | asdff wrote: | If trading opportunities were the answer it would have been | reported as much at the time imo. Here is the justification | from the U.S. house of representatives about the project at the | time, in 1856: | | "The necessity that now exists for constructing lines of | railroad and telegraphic communication between the Atlantic and | Pacific coasts of this continent is no longer a question for | argument; it is conceded by every one. In order to maintain our | present position on the Pacific, we must have some more speedy | and direct means of intercourse than is at present afforded by | the route through the possessions of a foreign power" (1) | | The reason seemed to be just geopolitics rather than trading | opportunities. I'm curious if you know what route they were | referring to in this quote that routed through a foreign power? | An oversea route maybe? In 1856 we had territory coast to coast | already so the caravan routes were within our possessions. | | 1. | https://en.wikipedia.org/wiki/First_transcontinental_railroa... | roussanoff wrote: | I am not that familiar with the history of railroads, but I | will speculate: | | - take the railroad as far west as possible, then a | stagecoach (expensive, slow, uncomfortable). The land route | was created after the Gold Rush: | https://en.wikipedia.org/wiki/California_Trail | | - ship to Panama, cross by land in Panama, ship from Panama | to California (cheaper, slower, risk of disease like malaria) | | - ship around South America. Yep, all the way to Antarctica, | through Magellan Strait. (even cheaper, even slower, risks | from travelling by the sea). This route seems crazy if you | look at the map. However, for goods, it was very much in use | before Panama Channel was built. Sea is so much easier than | land. | | I am not sure what "foreign power" this quote refers to | though. Panama? Chile? Maybe you could also go through | Mexico? | _dain_ wrote: | Magellan strait | _dain_ wrote: | They had to sail around the bottom of South America. | lisper wrote: | For the record, the idea that the transcontinental railway was | built to link the east coast with China was not mine, it was | Donald Gibbs's. | practicallytru wrote: | That's more or less how the railroad has since served the | {Chinese-American, } people who worked so hard to build it. h | ttps://en.wikipedia.org/wiki/First_transcontinental_railroa.. | . | ravitation wrote: | That seems mostly irrelevant, aside from maybe providing | credit. The way in which you "co-opt" it in this piece is not | as some questionable hypothesis, whose veracity is | unimportant - which seems to be your intent based on this | comment and the rest of the actual piece. It's hard to see | how you are not explicitly endorsing this hypothesis when you | have unquoted lines like "but that answer is wrong, as can be | shown by examining historical records of the time." You are | not saying that Donald Gibbs thinks this is wrong, you are | saying you think it's wrong. | lisper wrote: | Yes, that's a fair criticism. If I were to rewrite this | article today I would try to make this clearer. I think at | the time, having recently seen Gibbs speak, I found his | argument compelling. But I clearly could (and should) have | done a much better job communicating it. Mea culpa. | ravitation wrote: | Also, for the record, I really enjoy/get a lot of value | from your writing (if I didn't I probably wouldn't have | criticized this tiny part of it). | lisper wrote: | Thanks for the kind words. And I always appreciate | constructive criticism. It's the only way to improve. | SilasX wrote: | Your post is written on a hard drive, not stone. You can | still correct the error. | MkNape wrote: | I've always wondered if one of the reasons was to protect the | Union. Would be a lot easier to prevent states from seceding, | and defend US borders when you can quickly transport soldiers | (plus equipment, food, etc.) to where they're needed. | roussanoff wrote: | I don't think there is a single answer to "why the US built | railroads", but both the railroads and the Eisenhower's | Interstate Highway System certainly had something to do with | the military needs. | myohmy wrote: | I would imagine so. The CN railroad was specifically built to | transport soldiers from eastern Canada to BC to defend | against American machinations. (Not for expansion, nope, no | way, we didn't want Alaska anyways!) | Synaesthesia wrote: | Well that's the government intervening in the economy | (protectionism) to support local corporations. | | BTW you should check the work of economist Michael Hudson, I | think he's the foremost expert in this realm. | somedudetbh wrote: | Not a historian but possible other weird thing: | | "(Bonus question: what did the U.S. give to China in exchange | for its china?)" "(the answer to the question I posed above | about what the U.S. traded to China in the 19th century is | "fur")" | | My understanding is that in this period, the most valuable | China->US exports were tea, silk, and porcelain. The USA didn't | produce anything the Chinese were interested in buying (unlike | the Spanish, who had had torrents of silver coming from South | American silver mines), and so British and American traders in | the Canton System and Thirteen Factories period traded opium | from British India to China, which of course led to the Opium | Wars, British control of Hong Kong, etc. | | I've never read anything about fur exports from USA to China | being a big part of 19th century USA trade, but I have read a | about mid-19th century booming East Coast and European demand | for beaver pelts. | pacman2 wrote: | I don't know about the Panama Canal, but the rest is true | (mainly UK). | | " ... transporting porcelain and whatever other goods China | exported at the time." | | China exported Silk, porcelain and tea like the is no | tomorrow but did not buy anything. At one point China | accumulated a huge part of the world silver reserves, sucking | liquidity out of the western economy. Opium "solved" this | problem. | | It was my understanding that the Opium trade was mainly a GB | thing. I was not aware that the US was involved. | cossatot wrote: | Fur exports from North America to China were the major reason | for the European exploration of western North America in the | 17th and 18th centuries, and into the earliest 19th century. | The Chinese elite used fur pelts to line their robes. Sea | otter, which has the highest follicle density of any mammal, | was the most favored (and I believe imperially mandated for | the highest ranking mandarins) and the pelts were incredibly | valuable. The Spanish and English exploration of the Pacific | Northwest was largely done by trade expeditions which would | trade various goods for pelts with the various Native tribes, | and then sail to Canton to trade the pelts for Chinese goods. | The Russians more or less enslaved some of the tribes of the | Aleutians (the Unangan people) and brought them as far south | as central California in their trade ships; the Unangan | hunters hunted from sea kayaks by day. | | Both the North West Company (British) and John Jacob Astor | (US) set up transcontinental overland trade networks in the | late 18th and early 19th century focused on the fur trade, | with China being a primary customer for pelts. | | I think in the first few decades of the 19th century, Chinese | Imperial fashions changed and much of this system collapsed, | although not fast enough to prevent the near-eradication of | the sea otter population. | | A good pop history of the US Overland component is _Astoria_ | by Peter Heller. It is also addressed a bit in more scholarly | work such as the _Columbia 's River: Voyages of Robert Gray_, | by J. Richard Nokes. | thedogeye wrote: | The answer to the bonus question is opium. In particular the | Forbes family (not related to the magazine folks) traded | about 20% of all the opium sold in China during this period | with the other 80% coming from the British East India Company | and other UK-based trading houses. | | Fun fact, the Forbes family is still one of the wealthiest | families in America, they own their own massive private | island called Naushon Island right next to Martha's Vineyard. | They also have their own family museum in Boston where you | can learn about their trading history in Asia which I'm super | eager to visit And the patriarch of the Forbes Family today | is... wait for it... John Kerry. When Obama made Kerry his | secretary of state the Chinese weren't super thrilled, they | have a long memory. | B1FF_PSUVM wrote: | (that was interesting, thank you) | | > wealthiest families | | The role of families in history is sadly under-reported. | | I'll bet a lot of interesting stuff would come up if that | angle were properly mined. | | Probably hard to get funding for it, though. | thedogeye wrote: | Source for this is a book called Barons of the Sea: | https://www.amazon.com/Barons-Sea-Worlds-Fastest- | Clipper/dp/... | | Great book if you're interested in America's history in | large scale drug dealing. | [deleted] | peterburkimsher wrote: | The article is a good summary of typical business models! I also | learned a lot by trying to answer the _(Bonus question: what did | the U.S. give to China in exchange for its china?)_ - fur and | opium. | | https://en.wikipedia.org/wiki/Old_China_Trade | | The article lists the following: Move, Store, Transform, Farm, | Build, Mine, Health, Research, Information (Supply/Demand, Law, | Journalism). | | _I 'm pretty sure this is a comprehensive list. Can anyone think | of anything I've left out?_ | | Music and art come to mind as not being "useful information" but | still appealing, because they reflect and enhance culture, which | brings people together. | | As for wealth storage, I heard another list of investment advice | being told on a Sunday morning: stocks, bonds, and property. | | I winced, because I don't trust the stock market (even though I | do believe that some companies have great potential. Government | bonds require political stability, which I worry about. Property | values are destroyed in war or natural disasters, both of which I | expect are likely to occur in my lifetime. | | What could we invest in instead? Philanthropy. We could just give | it all away! Building guanxi will endure even huge economic | changes. Laptops and phones come and go, but Hacker News karma is | forever ;-) | | https://news.ycombinator.com/item?id=28004632 | TeMPOraL wrote: | I was curious, so I looked it up: the missing category is | _energy_. | | https://blog.rongarret.info/2009/10/wealth-production-mechan... | | > Producing, storing, converting, and transporting energy is | what I had in mind as the missing top-level category. | c54 wrote: | > Bonus question: what did the U.S. give to China in exchange for | its china?) | | Anyone know? | | Suggested here are gold/silver bullion/coinage, unsurprisingly. | Furs and sealskins. And probably a lot of opium: | https://en.wikipedia.org/wiki/Old_China_Trade#Finding_medium... | cushychicken wrote: | I'd guess cotton, sugar, or molasses. | mellavora wrote: | opium | sudosysgen wrote: | Silver that the Chinese would buy Opium from the UK for is a | big one. Without the opium they'd have a surplus of silver/gold | hence the Opium Wars. | throwaway4220 wrote: | He answers it as fur | amir wrote: | It's answered in the article: the answer to | the question I posed above about what the U.S. traded to China | in the 19th century is "fur" | andrepd wrote: | > But historically, the most reliable and the most socially | beneficial way of making money is to create wealth. | | Is it? It seems almost universally true, historically, that those | with the most money are those which create the least value: | nobles, landowners, heirs, etc. | ksdale wrote: | There are definitely a lot of rich people that don't do | anything useful, but looking at the Forbe's list, it's | populated by business people who, regardless of the usefulness | of their businesses, have worked _a lot_. | (https://www.forbes.com/billionaires/) | | And then there's this - | https://www.le.ac.uk/hi/polyptyques/capitulare/trans.html | | It's a guide for the people running Charlemagne's holdings. | Naturally the nobility aren't doing the hardest work, but | they're responsible for at least overseeing the creation of a | lot of wealth if they want to keep their position. | Synaesthesia wrote: | They have not worked hard to earn their billions so much as | used their power and influence in a clever way to suit their | own ends. Most wealthly people also started with an | inheritance. | ksdale wrote: | Most wealthy people do not end up with billions, and most | of them end up with less than their parents had. While I | don't disagree that they've used power and influence to | suit their own ends, there's practically not a single | person on that list who isn't a workaholic. I don't hold | any of these people in high esteem but in my opinion, it's | silly to suggest they haven't worked hard. Of course, they | haven't worked a million times harder than anyone else, but | they have "worked hard to earn their billions." | simonh wrote: | For a transaction to create wealth the two parties must | collectively be more wealthy than they were before. If they are | collectively as wealthy then no wealth has been created. Some | criminal activities destroy wealth in aggregate even though money | or goods changed hands in a way that superficially resembles a | trade. | | I suspect though that the distribution of money itself between | people can increase net wealth, because it shifts how that money | will then be used economically in useful ways. The same $1 in the | hands of a minimum wage worker might have different economic | value than if it was in the hands of a millionaire because how it | is likely to be used in the economy is different. I don't know | which is better though, will the minimum wage worker pay for | services that are more beneficial, or will the millionaire invest | it in a company that creates jobs and provides services? We need | both things to happen though to some degree, so maybe the answer | shifts with the economic cycles. | | If I buy a coffee and drink it have I just decreased net wealth | by destroying valuable coffee, or have I increased it by | transferring the money to somewhere it can do more useful | economic work in downstream transactions? | jkhdigital wrote: | Wealth, as the author defines it, depends on subjective | valuations. If I value x more than y and you value y more than | x, then I can give you my y for your x and we are both | wealthier. | rrrrrrrrrrrryan wrote: | > I don't know which is better though, will the minimum wage | worker pay for services that are more beneficial, or will the | millionaire invest it in a company that creates jobs and | provides services? | | One way of measuring this is by looking at the "velocity of | money." [1] | | IIRC a dollar spent at a local, family-owned restaurant travels | 7x further than one spent at a mega-chain restaurant before . | The restaurant owner might use that dollar to pay their cook, | who might use it later that week when he gets a haircut to pay | his barber, who might later use it to buy a coffee, etc. | Because value is created for both parties with each | transaction, this is considered much better for the economy | (and especially the _local_ economy) compared a dollar spent at | McDonald 's, where it might just go into a bank account and | stop moving. | | I don't have the data to back it up (someone here might?), but | I'd be tremendously surprised if a dollar put in the hands of a | millionaire circulated more than a dollar put in the hands of | the minimum wage worker, or if it created more value in the | overall economy. | | [1] https://www.investopedia.com/terms/v/velocity.asp | WalterBright wrote: | > where it might just go into a bank account and stop moving. | | Banks don't make money by storing your dollar in a vault. | They make money by loaning it out. They loan deposits out as | fast as possible. | | People who get the loans don't sit on it, either. It's | madness to be paying interest on money just to let it set. | They borrow money in order to promptly spend it. | bckr wrote: | The coffee would become cold and undesirable of it were brewed | and not purchased. The grounds of the beans would lose their | flavor if not purchased and brewed. | | The land the beans are grown on, though, might be used for | other purposes, including to restore natural habitats and thus | derisk the whole economy. | samus wrote: | The coffee getting cold and the beans going stale are | inefficiencies that arise because of entropy. The latter are | true opportunity costs though. | hinkley wrote: | Some commodities have more elasticity on the supply side | than others and that changes the economics. You only have | so many options with coffee, you have to sell it sooner | rather than later. Gold bars are easier to store, but also | more attractive to steal. Other than that maple syrup heist | in Canada a few years back, we don't usually see bulk, | perishable goods getting stolen because it's too much of a | pain. I think they only did it because of the element of | surprise. Who steals syrup?? | bo1024 wrote: | Economists use the term "welfare" for this, not "wealth". | TheOtherHobbes wrote: | You make a good point. A realistic definition of wealth is | 1. Everyone is better off. 2a. Nothing of lasting value | is damaged... 2b. ...*unless* that damage is accounted | for and explicitly accepted by all concerned parties, including | those who are not immediately involved in any negotiation. | | If you use this definition, very few things that are called | wealth creation actually create real wealth. | | It's actually a stability consideration. Any wealth creation | which attempts to grow and doesn't follow this definition | cannot be persistent and stable, because damage will _always_ | tend to exceed the nominal wealth created. | imtringued wrote: | >The same $1 in the hands of a minimum wage worker might have | different economic value than if it was in the hands of a | millionaire because how it is likely to be used in the economy | is different. | | It's clearly better off in the hands of the minimum wage | worker. It's funny how people deride governments as central | planners when companies and their owners are committing that | very same central planning at a smaller scale. The only | difference is that the government is much bigger and when it | isn't then local governments will lick the boots of the CEOs. | When people talk about trickle down they are basically | advocating for more central planning. 300 million brains aren't | good enough, there is no way they could possibly know what they | want, instead some rich millionaire or billionaire gets to tell | them what they should want. | closeparen wrote: | Government is not just large, it's singular. Three hundred | million people's preferences are reduced to one policy. | Whoever is unsatisfied with this policy can pound sand. When | a company approaches this position it's a monopoly; even in | market ideology, monopoly is bad. | WalterBright wrote: | > It's clearly better off in the hands of the minimum wage | worker. | | Why? | aqme28 wrote: | I would argue because the relative utility is higher. A | higher percentage change in that person's purchasing power. | | OP though was arguing that that poorer people will spend it | better, which might be true as well since the rich tend to | hoard. | WalterBright wrote: | > the rich tend to hoard | | Ironically, it's poor people that hoard cash in a can or | a mattress, not rich people. Rich people invest it. Even | cash in the bank isn't cash in the bank, the bank | promptly loans out a _multiple_ of it. | Aerroon wrote: | > _It 's funny how people deride governments as central | planners when companies and their owners are committing that | very same central planning at a smaller scale. The only | difference is that the government is much bigger and when it | isn't then local governments will lick the boots of the | CEOs._ | | It's not the only difference. Another important difference is | that the central planners aren't spending their own money. | The way they get money is through taxes - they use the threat | of violence to get people to pay, because government has the | (legal) monopoly on violence. You can't opt out from paying | either. | | You're not wrong the large companies have the same central | planning problem. One upside though is that people aren't | forced to do business with a specific company - they can | choose a competitor instead. That's part of why monopolies | are a problem. They have the central planning problem and no | alternative. | | The billionaire gets to tell others what to do because he's | paying for it. The central planner takes your money and then | tells you what to do. If you don't comply you go to prison. | | Also, the central planning problem does become less of a | problem the smaller the scale. | dandare wrote: | Trade creates value and not just in the way of moving things. The | law of comparative advantages is mind blowing once you understand | it | https://en.wikipedia.org/wiki/Comparative_advantage#Ricardo'.... | [deleted] | netcan wrote: | >> It's important to keep in mind that there is a distinction | between wealth and money... | | I think this goes astray here. I think the operative distinction | is between "wealth" in the abstract "wealth of nations" sense and | the aggregate of wealth in the "net worth" sense. | | The first definition is pretty closely related to value. The | second is more closely related to the value of assets. If real | estate, shares, bonds and such have a high market value then we | have more wealth in the "net worth" sense. | | The gross market cap of the education sector is not high, but it | does generate value, for instance. | geoduck14 wrote: | >For those of you coming from Hacker News, I'm on a cruise ship | going through Asia at the moment. | | >posted in 2009 | | I really hope this guy gets out of quarantine soon | lisper wrote: | Funny you should mention that, because 11 years later, this | happened: | | https://blog.rongarret.info/2020/02/the-cruise-that-went-wor... | jkhdigital wrote: | > _Wealth_ is a measure of how much stuff people have that they | actually value for its own sake. Food, housing, clothing, | shelter, and artwork, are all examples of wealth. _Money_ , by | way of contrast, is merely an accounting mechanism that humans | have invented in order to facilitate trade. | | I think this is pretty accurate, except the description of money | as "merely" an accounting mechanism. Trade is facilitated through | a variety of accounting mechanisms, and money is obviously an | item in this list insofar as it is the _unit of account_ for | economic entities that maintain accounting books. However, money | is also a concrete economic good in and of itself, subject to | forces of supply and demand much like any other good. | | The author correctly states that wealth is derived from | subjective valuation, so money could be seen as something like | the "limit" (categorically) of wealth, which aggregates the value | judgments over all (person x good) combinations. | imtringued wrote: | >However, money is also a concrete economic good in and of | itself, subject to forces of supply and demand much like any | other good. | | There is an infinite supply of money out there for very obvious | reasons. The USD is primarily a unit of account. The store of | value function has been delegated to debt. The reason why debt | stores values is that people promise to provide value in the | future. Every asset meaning every dollar has to be backed by a | liability meaning a dollar of debt. The reason for that is | quite simple. The dollar has no inherent value, therefore the | net worth of the dollar must be 0. | | The medium of exchange function isn't provided by only the | dollar itself anymore. Nowadays people use a wide variety of | payment services ranging from bank accounts and credit cards to | Paypal and the lightning network and of course, the good old | dollar bill is providing a offline payment service. | | The supply of money is unbounded because the amount of promises | we make and the economy we can create in the process is | unbounded. What is in short supply is labor. | | Simply saving money creates no net real wealth in the economy | because the money that has to be saved has to be created first | through debt. Instead, net wealth is created in the real | economy by the borrower who is using the money for an | investment. If there aren't any borrowers willing to get into | debt (=demand for labor is low) but people keep saving their | money (=they increase the supply of labor) then the interest | rate has to fall to balance the demand and supply for labor on | an individual level. If the interest rate is low or negative it | means there are lots of people who are working but do not | intend to consume or invest the fruits of their labor and it | also means there are lots of people who cannot find employment | opportunities that earn enough to cover their own consumption. | mojomark wrote: | > > However, money is also a concrete economic good in and of | itself. | | Just playing devil's advocate... if you're stranded on an | deserted island with a suitcase full of US $100 bills or | perhaps flash drives with bitcoin in them, does that provide | significant concrete value to you in and of itself? | | Same question, but this time you have "food, housing, clothing, | shelter, or artwork (e.g. some songs loaded in your out of | range phone)"? | cortesoft wrote: | There are a lot of concrete economic goods that don't have | value on a deserted island. Iron ore, gold, or really any | natural resource that requires a lot of processing will be | useless on a deserted island. | | In fact, the entire point of the "move things" category in | the article is that things have different value in different | places. | imtringued wrote: | As I mentioned, for your $100 bill there is a liability | attached to the $100 bill. The piece of paper itself is | worthless. | | The problem is that you cannot reach any of the people who | are liable and therefore even its notional value has no | meaning to you. | dandare wrote: | Also capital (aka delayed consumption) creates value, under | specific circumstances. | zakary wrote: | Great article. I've always been fascinated by the question "where | does the value of things really come from?" And this article | touches on that. Everything ultimately goes back to the | fundamental ways we create wealth, and how much time and energy | we expend doing it. The article mentions No.3 as containing most | services which involve transforming goods. I wonder where do | personal services like massage, and prostitution come into that? | | Or what about friendship or a romantic partner? A husband or wife | cannot be converted into money but I'd say having one is to most | people a definite kind of wealth. | | You might call these 'emotional services', and group them in with | art and entertainment in general. I would say this is at least | different enough from manufacturing to warrant their own | category. Edit: rewording | pharke wrote: | I think #7 should be modified to "reduce suffering" after which | it will accommodate not just healthcare but any pursuit that | addresses a person's mind or body. That would include your | examples of massage and prostitution as well as others like | therapy. | | Friendship and romance would fall under #9 as an industry since | the goal is to match people with potential friends and | partners. I'm not sure the 'emotional services' that you | receive from friends, family, and romantic partners should be | evaluated as a commodity. To make that clearer, if I | manufacture something for a loved one or purchase it while I'm | travelling and then transport it back to them I don't measure | the value of that action in terms of money and I'd sincerely | hope they wouldn't either. | geogra4 wrote: | As someone who's partner is a therapist I strongly agree. | It's a very valuable service for those who need it. | jcun4128 wrote: | I remember asking in school if you charge more for what | something was originally worth, how do you not end up with debt | as a net outcome (bucket of money analogy). | mellavora wrote: | There is a telling insight from David Graeber, I think it is in | his great book Debt. | | https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years | | He starts with the reasonable postulates that economic value is | a function of desirability and uniqueness. | | and then observes that the things which make us the most human | are by definition shared among all humans, ... | | thus essentially of zero economic value. | | Of course, he is also arguing against traditional definitions | of economic value by showing how ridiculous they are, much as | you point out. | cowbellemoo wrote: | I'm a fan of Marx's idea that value is created by labor and | the free gifts of nature. | | https://en.wikipedia.org/wiki/Labor_theory_of_value | imtringued wrote: | People definitively value their own work, others may not. | HPsquared wrote: | I'm a fan of the Austrian school's idea that value is | subjective and situational. | | https://en.wikipedia.org/wiki/Subjective_theory_of_value | mbg721 wrote: | While economics might have some insight into how people value | things, humans don't really treat everything as a transaction. | | The story that comes up from time to time is a day-care that | charged fees to parents who arrived late, and that caused | _more_ tardiness, because now the parents didn 't feel guilty; | now they were buying something. | zakary wrote: | I hadn't heard of the day care example before . That's really | interesting. | pjc50 wrote: | One of the core strands of postwar feminism has been examining | how much uncompensated domestic labour women are expected to | perform, not just for their partner and their children but also | for other family members. Especially in the context of care for | the old or sick. | | The term "emotional labour" is the more common used one for | what you've described as "emotional services". | simonh wrote: | I think domestic work does fit into the framework of the | article as "Transforming Things". Turning dirty clothes, | carpets, dishes, etc into clean things that can be used | again; transforming raw ingredients into nice food; shopping | is moving things. These are productive activities that | increase wealth. | zakary wrote: | Emotional Labour is definitely the better term for it. Thank | you for giving me the right term to google. | | I wonder how much of the 'economy' (in terms of work done and | the dollar figures we put on that) is actually a part of this | undocumented category. | | The GDP-PPP of countries doesn't take this sort of thing into | account as far as I'm aware, but I'd like to know what would | happen to those numbers if everyone simply stopped doing | unpaid emotional labour. You could get a sense pretty quickly | of how much society is undervaluing it. | jkhdigital wrote: | The reason that the economy is defined in terms of | transactions that involve an exchange of money is that such | transactions can be quantified objectively. If no money is | exchanged, then assigning a valuation to an activity is | pure speculation. Of course, this doesn't stop bureaucratic | number-crunchers from attempting to do so anyway (e.g. the | inclusion of "owner-occupied implied rent" in CPI | calculations) but it's not hard to see the slippery slope | it creates. Assigning a name to something ("emotional | labour") doesn't mean that it somehow becomes quantifiable | in any tractable or objective manner. | geogra4 wrote: | Interestingly enough I believe this is partially why | there was a "wages for housework" movement[0] | | 0:https://en.wikipedia.org/wiki/Wages_for_housework | bojangleslover wrote: | What about the fact that she owns half of all marital | assets as they accrue? | pjc50 wrote: | Wasn't always true in all jurisdictions, and certainly | not in 1972 when the campaign started. | | Even today there's a distinction between "is | theoretically entitled to half the assets by court order | on divorce" and practical day to day access to that | money. | zakary wrote: | Absolutely agree. Still, it would be cool to see real | data about this stuff if it could be objectively | collected | SilasX wrote: | Emotional Labor is a horrible term for it, since it has | little to do with emotions. "Household" or "domestic" labor | would be better. | | Emotional Labor would be a better term for eg the stresses | of maintaining relationships. | WJW wrote: | It comes up commonly in discussions about how poor GDP is | as a measure of societal wealth. For example, if we would | strike a bargain to do each others' laundry for a trillion | USD per year each, the GDP would "magically" go up by two | trillion compared to if we would just do our own laundry. | However, no additional value is created compared to the | current situation. | rmah wrote: | GDP is not a measure of economic wealth (much less | "social wealth", whatever that is) and never has been. | GDP is a measure of economic _activity_. I.e. | transactions, spending. But since one year to the next, | the structure of a nation 's economy doesn't change | dramatically, it can be used as a _proxy_ for changes in | wealth. | | However, the longer time period you look look at between | two GDP figures, the less comparable they are. And | finally, since different nations have different economic | structures, a direct currency translation may be | misleading, hence PPP (which is misleading in a different | way, but <shrug>). | mkr-hn wrote: | While this is how the term is misused in some segments of pop | feminism, it actually refers to the (usually uncompensated) | emotional labor expected of employees in service industries. | | https://en.wikipedia.org/wiki/Emotional_labor | | It doesn't really make sense in this context unless you only | think of the emotional management homemakers do as labor and | not all the other stuff they do. You already provided a | perfectly suitable phrase in your post: "uncompensated | domestic labour" | rrrrrrrrrrrryan wrote: | Eh, I've mostly heard it used correctly in feminist | articles. E.g. "The rise of the gig economy is forcing a | lot of men to perform emotional labor for the first time." | | The most interesting part of emotional labor to me is its | connection to tipping culture in America. It's the reason | why you usually tip a waiter but not a bus boy, and why you | tip the room service person but not the delivery guy. The | rule of thumb is: if someone's doing a job where they're | expected to put on a smile even if their dog died that | morning, they're eligible to get compensated via tips for | that additional emotional labor. | rootsudo wrote: | While I agree these are "wealth creation" mechanisms, what the | blog describes is market (economy) inefficiencies that enable | arbitrage. | | So by spotting an inefficiency and exploiting it, you profit. | | tl;dr explore and exploit. | dandare wrote: | You are wrong in a very classical, meaning half of earthlings | believe this misconception. | | Trade can make both sides richer. Some would say any voluntary | trade makes both sides richer, but that depends on your | definition of voluntarism and exploitation of someone's | weakness. | | Anyway, for trade that makes both sides really richer in any | sense of that word see | https://en.wikipedia.org/wiki/Comparative_advantage#Ricardo'... | rootsudo wrote: | I disagree (again) because knowing something sells for a | lower amount in X but sells for higher in Y is classical | information arbitrage and opportunity cost. | eevilspock wrote: | This is such a patriarchal/capitalist/libertarian/white | supremacist take. | | What about the birthing and raising of children? What about the | schooling of children? Of course in a man's world this is never | assigned any value. | | What about slavery? America was built on chattel slavery, | indentured servitude, and lessor degrees of coercion and | exploitation that leverages asymmetries in wealth and freedom. | While the first two are technically outlawed, the latter thrives | as strong as ever. If coercing resources out of the ground (#6) | is a wealth creation mechanism, isn't coercion of labor out of | human bodies to do the actual work of #1-6 another wealth | creation mechanism, even if it's one we don't want to admit, or | at least talk about honestly? | | What about Rentier Capitalism[1]? Is it something we want to | avoid talking about? | | --- | | [1] https://en.wikipedia.org/wiki/Rentier_capitalism | spaetzleesser wrote: | I sometimes have trouble with the idea of "creating wealth". I am | not sure if people like Bezos or Gates have created wealth but | instead have managed to funnel wealth into their pockets. They | may even have destroyed wealth by suppressing competition and | potentially better ideas. | | It seems the real wealth creators are inventors and scientists | who create new things . From then it's more if zero sum game | between different businesses. | Synaesthesia wrote: | It's all about how you define "creating wealth". So indeed in | todays liberal capitalist society we might say that an investor | who's share trades were ultimately a zero sum game is "creating | wealth" but a mother raising a child, which is hard work, is | not. | munificent wrote: | I think the main category the author misses is _providing | experiences_. He lumps "novelist, screenwriter, composer and | choreographer" as creating information that is "useful in and of | itself", but I think that's a _real_ stretch. | | Experiences can be directly subjectively enriching to the | consumer even if they don't provide any "useful information". By | "useful" here, I assume the author means something like "able to | be used to produce value later". | | If I take you on a boat to watch the sunset, I have given you an | experience that has value, so I have created some intangible | wealth. But I haven't given you anything you could reasonably | categorize as "information". It's not like you didn't know | sunsets were pretty already. | | I think this category is important because in many ways it is | both the most fundamental and also the most unlimited. Ultimately | most of the other categories of wealth exist to eventually | provide experiences. Why do I want things? So that I can | experience having or using them. Very few material objects in our | life exist for purely utilitarian reasons. | | But the real magic of experiences is that they can provide value | without using anything up. When I take you to see the sunset, the | sunset is still there for others to see too. When I read a book, | the book is still able to be read by others. | | This is important because as we get closer and closer to using up | the resources of the Earth, it's good for us to focus on | intangible experiences that don't actually consume anything. | jimhi wrote: | A long time ago I tried to categorize wealth mechanisms like | this. There are tons of concepts, depending on how high or low | you are generalizing. | | For instance, providing something only the wealthy have to the | masses (private drivers, smartphones, etc) | | I found on the highest level everything could technically be | boiled down to "paying money for a product or service to remove | uncertainty". (Buying a hamburger so you don't have to make it | yourself, insurance, everything) | johnnyo wrote: | Did anyone catch this in the comments below? | | > There is one major category of wealth-producing activity that I | just thought of that I did leave out. I'll leave it as an | exercise to see if anyone can figure it out :-) I'll post it in a | couple of days if no one gets it. | | That was over ten years ago, I don't see a followup. | davidlee1435 wrote: | He followed up here: | https://blog.rongarret.info/2009/10/wealth-production-mechan... | | > Producing, storing, converting, and transporting energy is | what I had in mind as the missing top-level category. | specialist wrote: | Nice. | | Synthesizing this list with Vaclav Smil's work would be cool. | https://en.wikipedia.org/wiki/Vaclav_Smil | | Maybe use TRIZ as a starting point. | https://en.wikipedia.org/wiki/TRIZ But recast to focus on | econometrics. | | I'm certain this already exists somewhere. Vaclav is pretty | dry reading, like reading an almanac, so I didn't get very | far into his works. | Stunting wrote: | Entertainment and distraction? A majority of theater, music, | and art provide a distraction without providing knowledge or | information. For the record, I think that is good. We need a | break from our lives. | asdff wrote: | >A majority of theater, music, and art provide a distraction | without providing knowledge or information | | Most art does provide knowledge or information. Look up the | word "Allegory." | bovermyer wrote: | This is a very long-lived, and actively maintained, blog. I'm | impressed. There aren't many out there like this. | lisper wrote: | Not so active nowadays I'm afraid. I'm going through a bit of | an existential crisis (thinking about climate change). | matmatmatmat wrote: | Would be great to get your thoughts on climate change when | you get the chance. | lisper wrote: | I'm debating with myself over whether to write it up. The | TL;DR is that I have come to believe that the situation is | much more dire than anyone seems to realize. The big short- | term problem is going to be changes in rain patterns, which | will cause crop failures, which will result in world-wide | famines, which will lead to political unrest, which will | lead to WW3, and that all this could happen in my lifetime. | The really scary part is how fast things are changing. I | live in northern California, and the changes we've seen | here just in the last ten years are dramatic. People think | about climate change as playing out over centuries or maybe | decades, but it's not. Things are changing year-over-year. | The scariest thing is that even if we cut emissions to zero | tomorrow (and obviously that is not going to happen) that | would not solve the problem. We have to actually go to net | negative emissions to avoid catastrophe. So an actual | solution seems out of reach in any realistic scenario. | We've taken carbon that nature has sequestered over a | period of hundreds of millions of years and released it in | a period of a few hundred. That genie will not go quietly | back in her bottle. | | There is literally nothing that would make me happier than | to have someone convince me that I'm wrong about this. | bovermyer wrote: | OK, but... so what if the world ends? The universe won't | care. | alan-crowe wrote: | On the issue of rain fall in California, I'm reminded of | "However, imagine that California had to get its entire | water supply of 35 million acre-feet per year by | desalinating sea water at the Santa Barbara price. This | would come to $70 billion per year, which is on the order | of ten percent of the state's GDP. We'd survive, but it | would be a blow to our standard of living, and the | arguments about whose fault it was and how the cost | should be allocated would be exciting." | | from http://www- | formal.stanford.edu/jmc/progress/water.html | | which agrees with you about political unrest, but not | about famine. Before I read that, I assumed that | desalination was only for drinking water, and far to | expensive for agricultural use. That is probably about | right for poor countries, but rich countries might get | through the total failure of the rains without famine | (and without WW3). | state_less wrote: | You're not alone lisper. I thought of another way to grow | your wealth to add to your list, risk reduction. If you | can reduce the risk of losing wealth, you stand to gain | more wealth. | | For example, it's great to have crop lands, healthy | national parks and coastal cities, but if you don't | address risks to this wealth, you stand to lose it. When | you lose wealth, you also forfeit gains you might have | otherwise had from them. So taking care of your downside | also adds to your upside. | alan-crowe wrote: | I think it is missing something foundational. People have | preferences over both production and consumption. Perhaps Mr A | likes to consume X, but hates the work involved in producing X. | Meanwhile Mr B likes to consume Y but hates the work involved in | producing Y. Rather that A doing without X and B doing without Y, | they could team up, swapping chores. Mr A makes Y for Mr B and Mr | B makes X for Mr A. That clearly makes them better off, and needs | to be on the list of wealth-creation mechanisms. | | But it sits awkwardly with the materialistic focus of the | catalog. There are two people, producing the same things and | consuming the same things, but with two scenarios with different | levels of wealth. Ron's catalogue aggregates preferences; no | difference in what work gets done? No difference in wealth. | | That raises an awkward question about language. Do we say that | wealth comes from diversity of preferences? Or do we say that | wealth comes from specialization and trade? Sometimes the two | mechanisms operate conjunctively. A diversity of preferences does | not, in itself, generate wealth. The wealth only comes if, in | addition, one does the trading to exploit the diversity of | preferences. But that specific kind of trading only generates | wealth if there is a suitable diversity of preferences to | exploit. | | That makes me doubt the value of a catalogue written as linear | list. One needs to catalogue the package deals (for example: | preference diversity AND trade). | jkhdigital wrote: | From what I recall, this distinction was the subject of | vigorous debate among early economists formulating theories of | value, especially among the Austrians. The "textbook" | undergraduate explanation is that diversity of productive | endowments leads to gains from specialization and trade, but | the subjective theory of value perhaps enriches this notion: | the "cost" of using up a scarce productive resource may be | subjectively determined, which means that two humans who appear | to have the same productive endowment nonetheless may have | different preferences of what to produce. | | Also, your comment about package deals strongly reminds me of | stuff I recently read in Thomas Sowell's *Knowledge and | Decisions. | lumost wrote: | I think the challenge here is that when people think about | wealth creation they directly associate it with a net | productive activity. | | In theory A & B can satisfy their own needs in the above | scheme. Or we could have a village where everyone satisfies | exactly one other persons material needs. These activities do | not result in net wealth creation. | | On the other hand if A makes X and X is consumed by B through Z | then A has freed up B through Z to do something other than | making X. Even then there is an argument to be made that some | forms of production are self-limiting in that society as a | whole cannot continue to be more productive if everyone is | involved in specific kinds of high labor, low scalability | activities which do not lend themselves to improvements over | time. | awillen wrote: | This seems like it's covered under 3 and 9a. Mr. A has a demand | for X and Mr. B has a demand for Y. Wealth can be created by a | combination of 3 (making whatever it is they have a demand for) | and 9a (creating a marketplace that matches their demands with | whoever can supply them). | alan-crowe wrote: | Number 3 exhibits the over simplification that I claim misses | something important. Number 3 leads you down the path of | thinking that society can only get more wealth by more | transformation. Nothing in 3 allows for creating wealth by | swapping jobs round to make workers happier. | | 9a does not, in itself, go beyond the Marginal Revolution. In | the basic version of marginalism, the demand curve slopes | down because every-one, uniformly, has less appetite for | extra when they are already well supplied. And the supply | curve slopes up as production is pushed to include less | fertile land or to refine from less concentrated ore. | | Diverse preferences over production and consumption are an | extra twist to the story. | pjdemers wrote: | I would add to 9, "Move and store information". That's what most | of us here in HN do. | eevilspock wrote: | But what is actually being _paid for?_ Who is ultimately paying | "our" salaries? Why? | | _"The best minds of my generation are thinking about how to | make people click ads. That sucks."_ | | ~ Jeff Hammerbacher, fmr. Manager of Facebook Data Team, | founder of Cloudera. http://daltoncaldwell.com/an-audacious- | proposal | | _" It is difficult to get a man to understand something, when | his salary depends upon his not understanding it!"_ | | ~ Upton Sinclair | darkerside wrote: | I don't see anywhere that Automation fits into that list. We can | create value by automating many of the other items on the list. | Relevant today is the automation of serving information (web | developers!), but automating transformation (factories) was a | game changer for industry. | | Also, > Google makes money via 9a, not 9c. I don't think that's | true. Google makes most of its money on ads, not market making. | While there is an aspect to ad serving that is market making, I | think it's fair to characterize their primary revenue stream as | money-for-eyeballs, which is very much monetization of | Information. | barneysversion wrote: | I think Google does make money via 9a based on who pays for it. | Consumers don't pay for the information. Advertisers do pay for | matching their ads to likely buyers. | [deleted] | zakary wrote: | I think automation could probably be considered a subset of | each item. Automation is a process not really a product. At | least in this context the fundamental unit of wealth is the | value to people. Automation per se doesn't really have value to | people, it's the fruits of that automation that has value. If | use a robot which uses automation to make a car, then the car | is the thing that has the 'created' value. | | If I write an automation program for some computer task like | sending people information that they want, then it's really the | info that drives the wealth creation in this context. The | Automation is just a means to an end, not the goal by itself. | | Having said all that, I think Automation is absolutely the main | driving factor in the massive acceleration in the amount of | wealth being created. What will be really interesting is if we | ever get to a point where whole industry verticals are entirely | automated. If there is no human input or labour involved in | mining, manufacturing and distribution of a product, especially | if that product is only used by other autonomous system; what | value can we as humans place on that item? Does it add value in | any tangible way? | yetihehe wrote: | > If there is no human input or labour involved in mining, | manufacturing and distribution of a product, especially if | that product is only used by other autonomous system | | Creation, energy and maintenance of machines are not free. | People who provide this things to site need money too, so it | adds to price of mined items. Then moving and | transforming/smelting those things costs too. Watch springs | are several orders of magnitude more valuable per kg than raw | mined iron. | [deleted] | jkhdigital wrote: | > 8. Find entirely new ways of doing any of the above more | efficiently or effectively. This is "research" or "invention." | | I think automation fits squarely into #8. | ninly wrote: | I agree, but would add the importance of #3. You can't | transform/manufacture things without some process for doing | so (or doing so more efficiently or effectively than was | previously possible), and the physical means to this itself | needs to be created/manufactured. It's 'tooling' and there's | a kind of chicken-egg thing going on. Also related to the | distinction between algorithms in the abstract sense and the | infrastructure (software or otherwise) that enables their | implementation. | darkerside wrote: | Yup, good point. ___________________________________________________________________ (page generated 2021-10-07 23:00 UTC)