Wealth Creation

[Selling up]

I want to examine something I read here time and again; where it seems to me that even posters I otherwise admire lapse into confusion and inconsistency.

Again and again I read that the private sector 'produces wealth' and the public sector does not. But nobody ever explains what they mean by this phrase.

It seems to me that 'Producing wealth' has at least 3 relevant meanings: 'increasing the amount of money', 'making a profit (IE transferring money from one person to another)' and 'producing a beneficial effect'.

First consider 'producing a beneficial effect', which would include producing goods and services: It is clear that many human activities are can generally be considered to be beneficial: Baking bread, healing the sick and defending borders might all be considered beneficial to the citizens of a country. Other alleged goods and services might be of doubtful benefit: Heroin manufacture and diversity enforcement come in this camp. One can (and some will) quibble over the exact balance of costs and benefits, but it appears self-evident that there is no clear dividing line here between 'private enterprise = beneficial' and 'state-funded = non-beneficial'.

Next consider 'increasing the amount of money'. Neither private enterprise nor state enterprise does this in general; only two activities do so: banks making loans and governments printing money. As it happens, the making of bank loans in the UK has historically been a private sector activity, but now that the government is a major shareholder in at least one bank, it can be seen that the making of loans can equally be a state-owned operation. Therefore there is obviously no clear dividing line here between 'private enterprise = creates money supply' and 'state-funded activity = does not increase money supply'.

Most problematically, consider 'making a profit'. This means the transfer of existing money from one person to another. It does not increase the amount of money in circulation (except for the special case of profitable bank loans); it does not imply that beneficial activity is occurring (as witness the fact that I believe heroin manufacture for street use to be a remarkably profitable activity), nor is it a prerequisite for beneficial activity to occur (consider charities and free childcare by grandparents). I concede that private sector activity is more likely to 'make a profit'. But if economic liberals want to praise private enterprise on this ground alone, they will need to explain further why making a profit should be considered a good thing of itself, when it has no necessary connection with the production of beneficial effects.

(By the way, I think there is a lot to be said for private enterprise, and I think it will often be more efficient than state activity. The quarrel I have is with the peculiar idea that the private sector alone 'produces wealth'.)

Edited May 30, 2010 by Selling up

[Injin]

The state takes an equivalent amount of wealth as it spends from the private sector.

Add in the cost of transfer and it's always wealth destroying.

Edited May 30, 2010 by Injin

[Selling up]

The state takes an equivalent amount of wealth as it spends from the private sector.

Add in the cost of transfer and it's always wealth destroying.

Clarify please: how are you defining 'wealth'?

[Selling up]

The state takes an equivalent amount of wealth as it spends from the private sector.

For instance, if by 'wealth' you mean 'money' then this is evidently true. But it's equally true of any private sector business. Which takes in money from one group of people (customers) and hands exactly the same amount to another group (employees, suppliers and investors). So the transfer of money does not distinguish between a public and private sector enterprise. Both are redistributing a fixed amount of money. Along the way, either may or may not engage in beneficial activity.

Edited May 30, 2010 by Selling up

[Injin]

Clarify please: how are you defining 'wealth'?

Wealth is real world objects that people have a positive value for.

Example 1

5 peop;e voluntarily build a small house because they want tot This is wealth creation..

Example 2

1 person forces 4 other people to build a house that is exactly the same as the one in the first example.

This is wealth destruction. I hope I do not have to outline why, nor explain which example is the state.

[winkie]

IMO the public sector find it very easy to say 'yes' to spending money that is not theirs...when they get used to the idea that there is not an infinite supply of money to waste as they wish, they will then learn to provide value for money...wealth is created by prudence not waste.....both in the public and private sector.

[Stars]

Clarify please: how are you defining 'wealth'?

Wealth means (approximately) benefit-convenience-comfort-ease-what is prefered

[Lepista]

Wealth is real world objects that people have a positive value for.

Example 1

5 peop;e voluntarily build a small house because they want tot This is wealth creation..

Example 2

1 person forces 4 other people to build a house that is exactly the same as the one in the first example.

This is wealth destruction. I hope I do not have to outline why, nor explain which example is the state.

Where injin falls down, is that slaves CAN produce wealth - just not for themselves.

[Stars]

For instance, if by 'wealth' you mean 'money' then this is evidently true. But it's equally true of any private sector business. Which takes in money from one group of people (customers) and hands exactly the same amount to another group (employees and investors). So the transfer of money does not distinguish between a public and private sector enterprise. Both are redistributing a fixed amount of money. Along the way, either may or may not engage in beneficial activity.

You have missed out the important bit

The people paying the money are doing so because the company is providing value (which it creates) in return

Edited May 30, 2010 by Stars

[Stars]

Where injin falls down, is that slaves CAN produce wealth - just not for themselves.

But he is right that the net effect of this is wealth destruction. Wealth is taken from some and given to others and the transfer reduces the total amount of wealth even though some are now more wealthy than they were before.

[Injin]

But he is right that the net effect of this is wealth destruction. Wealth is taken from some and given to others and the transfer reduces the total amount of wealth even though some are now more wealthy than they were before.

yes, one guy apparently makes a profit but actually everyone gets poorer.

[Lepista]

yes, one guy apparently makes a profit but actually everyone gets poorer.

Everyone but the slavemaster.

Are horses wealth destructing?

[Injin]

Everyone but the slavemaster.

Are horses wealth destructing?

Nom the slavemaster gets poorer as well, relative to the situation where everyone was free.

[Stars]

Are horses wealth destructing?

Do you mean; is the wealth of horses reduced by their enslavement to mankind?

Probably - i think this is drifting into the social issues area that Walt Disney usualy deals with in his films

Edited May 30, 2010 by Stars

[Stars]

Nom the slavemaster gets poorer as well, relative to the situation where everyone was free.

Not neccesarily true.

This is where you let hope defeat reason

[Injin]

Not neccesarily true.

This is where you let hope defeat reason

No, it's definitely, empirically true.

[rolf]

A few years ago I said to someone, "why is growth considered a good thing?"

i.e. why the obsession with growth? Why do we need it? What if the economy just stays the same size?

I don't see how these things benefit us.

[Authoritarian]

A few years ago I said to someone, "why is growth considered a good thing?"

i.e. why the obsession with growth? Why do we need it? What if the economy just stays the same size?

I don't see how these things benefit us.

Growth means an increase in output, if you can do this whilst keeping inputs the same then in theory it means that we can either have:

1) more stuff using the same amount of effort, or

2) the same amount of stuff using less effort.

Unfortunately productive growth tends to get mixed up with the unproductive and damaging 'growth' in house prices, so it's often treated with contempt.

Edited May 30, 2010 by Chef

[Authoritarian]

Again and again I read that the private sector 'produces wealth' and the public sector does not. But nobody ever explains what they mean by this phrase.

Wealth creation (for me) means the application of labour to land which results in an increase in value of some sort. So an example would be planting an orchard on a fertile piece of land which results in higher yields.

If you're able to harvest more apples than you consume whilst creating those apples then you've made a profit. This is one of the major differences between the public and private sectors, the public sector doesn't have to create a profit whereas the private sector does, which is why the private sector is more efficient at resource allocation.

The market value of the operations provided by the NHS could easily be dwarfed by their costs, but because they're the NHS it doesn't matter. They're still creating value, but they're not creating any net value, and the deficit needs to be made up from somewhere.

Edited May 30, 2010 by Chef

[rolf]

Growth means an increase in output, if you can do this whilst keeping inputs the same then in theory it means that we can either have:

1) more stuff using the same amount of effort, or

2) the same amount of stuff using less effort.

Unfortunately productive growth tends to get mixed up with the unproductive and damaging 'growth' in house prices, so it's often treated with contempt.

I see what you are saying, greater efficiency basically. I don't see how it improves the quality of life though.

Is growth something that even socialists want too?

I used to be ridiculed for saying "why do we need growth" but events of the last couple of years have vindicated me.

"Growth is good" morphed into Gordon Gekko's favourite phrase "Greed is good".

[Stars]

Is growth something that even socialists want too?

I used to be ridiculed for saying "why do we need growth" but events of the last couple of years have vindicated me.

"Growth is good" morphed into Gordon Gekko's favourite phrase "Greed is good".

Growth on its own means more goodies - less scarcity

Unfortunately, in our economy it presently arranged, growth comes with real estate inflation which transfers the benefits of growth to the owners of real estate and away from producers .

[Injin]

Growth on its own means more goodies - less scarcity

Unfortunately, in our economy it presently arranged, growth comes with real estate inflation which transfers the benefits of growth to the owners of real estate and away from producers .

Only because of violence and the FRB fraud.

Hack roots, please.

[Authoritarian]

I see what you are saying, greater efficiency basically. I don't see how it improves the quality of life though.

Is growth something that even socialists want too?

I used to be ridiculed for saying "why do we need growth" but events of the last couple of years have vindicated me.

"Growth is good" morphed into Gordon Gekko's favourite phrase "Greed is good".

I also find it quite useful to question everything, but unfortunately it does tend to invite ridicule by those who are happy to let others think for them.

Growth is just a means to an end. So in general I would say that humans would prefer to be richer than poorer, and growth is one way of obtaining this desirable state of affairs. Growth isn't really an end in itself, despite what the meeja and mainstream economists would try and have us believe.

[Authoritarian]

Only because of violence and the FRB fraud.

Hack roots, please.

Your root hacking would kill a lot of natural wealth and make us all poorer, it's needs to be targeted rather than used with reckless abandon.

[Stars]

Only because of violence and the FRB fraud.

Hack roots, please.

FRB is not the huge issue - I think some people would love it to be the issue because it tidies things away from substantial and unaddressed issues of simple human liberty. Frankly, i think the money issue has done a pretty good job of stratifying and confusing people who would otherwise probably be nearly on the same side

Violence is a more complex political problem than you seem prepared to accept at the moment.