There's a fallacy of composition here. Money is part of an individual's wealth because it's a generally accepted claim on goods and services. If my money doubled while everyone else's stayed the same, I'd be wealthier - my claim on society's output would rise. But in aggregate, people wouldn't be wealthier if everyone's money doubled. The currency's purchasing power would fall, since doubling the claims on a fixed stock of goods and services doesn't create more goods and services.
A nation gets wealthier by increasing its capacity to produce valuable goods and services: more factories, machinery, skilled workers, computers, housing, and transportation infrastructure would raise living standards. Doubling the money supply instead would just create more claims on the same amount of existing wealth. More money makes me richer. More money for everyone just makes everything cost more.
I think that Daniel was trying to get at my point with the following statement:
Daniel: But what if I magically double all the money? Your claim to real wealth (things that producers make or their services) will be cut in half. If money were true wealth, doubling the money would make society twice as prosperous. Instead, it just changes the numbers on the price tags.
He absolutely did get at your point with that statement. But he made other statements that are incorrect. For example, he said that if the feds refused to redeem paper money for gold, the paper money would be worthless. I pointed out that in 1933, FDR had done just that and that, while it lost some value, it did not become worthless. I read every comment Daniel made, of which there were many, and saw he steadfastly refused to admit this basic error.
You're welcome. And if your point was the only one he was making and if he had admitted that money is wealth for the individual, I would have quickly agreed and save a lot of time on the keyboard.
The increase in the gold supply due to the cyanide process may have contributed to Bryan's second loss to McKinley, but not to his first. The post-Civil War period of price deflation (returning prices to the 1860 level) ended in 1896, the same year as McKinley defeated Bryan the first time. The primary causes of Bryan's defeat were the ongoing depression that followed the Panic of 1893, which happened when Democrats controlled both the White House and Congress, and the defection of conservative, "gold" Democrats to the Republicans. The 1896 election is generally regarded as a "realigning" election, ending the period of rough partisan balance that began in 1874 and beginning the "third party system" of Republican dominance, which lasted until the Great Depression. Prices started to increase during McKinley's first term, due to the increase in the world gold supply. That eased economic conditions and helped solidify the realignment.
Great analysis!! Reminds me of Milton Friedman’s example of a primitive culture where money was underwater rock that no one could access but it still served as a store of value.
I'm pretty sure he won't. That gives the lie to his earlier statement that pieces of paper not backed by gold are worthless. Not worth less, which is plausible, but worthless.
I’m going to offer the wisdom and knowledge of the GOAT—Thomas Sowell.
Core Concepts of Sowell's Definition
1. Wealth is What We Create for Others
Sowell argues that true societal wealth expands when someone provides a good or service that others find valuable.
* The Zero-Sum Fallacy: Transferring money from one person to another does not create wealth; it is a zero-sum game.
* Real Wealth Expansion: Real wealth is created when entrepreneurs or workers invent or scale products that make life easier. For instance, Sowell notes that John D. Rockefeller's cheap kerosene added hundreds of hours of light to ordinary people's lives—that added light, not the money he made, was the true wealth created for society.
2. Physical Wealth vs. Human Capital
Sowell heavily emphasizes that physical things (like factories, machinery, or natural resources) are not the ultimate source of wealth. Instead, they are the products of human capital—the knowledge, skills, habits, discipline, and cultural prerequisites inside people's heads.
* The Post-WWII Example: He highlights that Germany's physical wealth was completely devastated during World War II. Yet, because the German people retained their centuries of accumulated human capital and technical skills, they rebuilt themselves into an economic powerhouse within a few years.
3. Wealth Must Be Produced, Not Just Distributed
A central theme in his book Wealth, Poverty and Politics is that wealth does not simply exist automatically.
* The Default Human State: Sowell argues that poverty is the default state of human history.
* The Production Pivot: Therefore, economists and politicians should not focus on how wealth is "distributed" (as if it were a pie waiting to be cut), but on the specific geographic, cultural, and political factors that allow wealth to be produced in the first place.
4. The Futility of Confiscating Wealth
Because real wealth is tied strictly to human productivity and capability, Sowell warns that governments cannot successfully redistribute wealth long-term through confiscation. Seizing physical assets or money merely consumes existing resources. Without the underlying human capital and productive incentives to maintain, repair, and replace them, the source of wealth quickly vanishes.
Now let’s think back on what happened during the Weimar Republic. They had hyperinflation and wives would collect their husbands’s pay in the middle of the day to buy whatever they could with that money because it would have less buying power at the end of the day.
Even if it doesn’t fall in value it’s not wealth. I’m not driving my money; I’m driving the car my money purchased. I don’t hang money on my walls (unless it’s the first dollar I made—that would be cool to hang up), I hang the art that my money purchased.
Again, I don’t hate money—it serves a useful and important purpose. It gives me a way to accumulate the value of my work until I spend it on something I want.
But you are not driving your shares of stock in a company, either.
Because remember, you didn’t merely claim that it is only the company and what it produces that is wealth. You claimed the SHARES you hold of that company are wealth, even though money is not.
[Note to readers: Money would not be wealth even if it was backed by gold. The actual gold is wealth.
To understand why gold-backed money itself isn't wealth, look at what happens when a government or bank breaks its promise.
Historically, nations on a gold standard frequently printed more paper bills than they had gold in their vaults to finance wars or spending.
If you hold a gold-backed $100 bill, but the central bank locks its doors and refuses to redeem it for physical gold, your paper bill instantly loses its value.
The money becomes worthless paper, while the wealth (the gold) remains valuable to whoever holds the keys to the vault.
This exact breakdown occurred globally in 1971, when the United States permanently ended the Bretton Woods system, halting the ability of foreign governments to exchange US dollars for physical gold.]
No, money is not wealth. Money is a tool used to transfer wealth, while wealth consists of the actual resources, assets, and things of value that people want.
Understand the Key Differences
Definition:
• Money: A standardized claim check on wealth.
• Wealth: The actual goods and services desired.
Primary Function:
• Money: Facilitates trade and measures value.
• Wealth: Satisfies human needs and wants.
Core Examples:
• Money: Cash, bank balances, and digital currencies.
• Wealth: Food, real estate, software, and knowledge.
Intrinsic Value:
• Money: Has no utility if society collapses.
• Wealth: Retains inherent utility regardless of markets.
See the "Desert Island" Example
Imagine being stranded alone on a deserted island:
• A suitcase filled with $10 million in cash is useless. You cannot eat it, wear it, or use it to shield yourself from the weather.
• A fishing rod, a freshwater stream, a sturdy cabin, and fruit trees represent true wealth because they keep you alive and comfortable.
Recognize Why the Distinction Matters
• Inflation Erodes Money: Governments can print more money, but printing currency does not create more food, factories, or houses. It simply makes each unit of money worth less.
• Focus on Value Creation: To build long-term financial security, you must convert money (a depreciating asset) into wealth-generating assets like businesses, real estate, stocks, or personal education.
Diamonds
A bag of diamonds on that deserted island would also fail to keep you alive. On a stranded island, diamonds suffer from the same flaw as paper cash because they cannot satisfy your immediate survival needs.
This highlights a profound economic insight: wealth is highly contextual.
(Aside: This aligns with value being subjective rather than objective. Time and place will change a thing’s value. Circumstances change how much a thing is worth.)
Understand Situational vs. Generational Wealth
• Situational Wealth (Survival)
• Defined by immediate utility.
• On an island, tools, water, and shelter are the only real wealth.
• Luxury items become worthless rocks when basic needs are unmet.
• Generational Wealth (Society)
• Defined by social consensus and trade.
• In a functioning civilization, diamonds are wealth.
• They hold value due to scarcity, durability, and high demand.
See the "Two Island" Comparison
Asset Type:
A Bag of Diamonds versus A Water Desalination Kit
Stuck on a Desert Island:
Diamonds are useless. They cannot be eaten or used as a tool.
On the other hand, a water desalination kit is ultimate wealth. It directly saves your life.
Back in Modern Civilization:
Diamonds are Wealth. They can be sold to buy houses, food, or factories. Water is only a minor asset. It is useful but cheap and easy to replace.
The Ultimate Definition of Wealth
True wealth is the ability to command resources that sustain and enhance human life.
• In nature, you command resources directly through tools and skills (fishing rods, farming knowledge).
• In civilization, you command resources indirectly through highly liquid, scarce store-of-value assets (like diamonds, stocks, or real estate) that other humans are willing to trade their labor for.
While money feels like wealth because you can instantly swap it for things you want, confusing the two leads to a major economic trap.
Understand the Civilization Distinction
• Wealth is the Destination
• Wealth consists of the actual things civilization produces.
• Examples include cars, houses, medical care, food, and software.
• If all factories and farms closed, money would buy nothing.
• Money is the Vehicle
• Money is the accounting system used to track who owes whom.
• It measures the value of wealth but holds no value itself.
• It allows a dentist to buy bread without finding a hungry baker with a toothache.
See the "Double the Money" Experiment
To prove money isn't wealth inside a civilization, look at what happens if a government changes the money supply:
1. The Scenario: Imagine a magical event doubles every bank account and cash bill overnight.
2. The Illusion: Everyone feels twice as rich when they wake up.
3. The Reality: The number of houses, grocery stores, and workers remained exactly the same.
4. The Result: Prices simply double. This is inflation.
If money were true wealth, doubling the money would make society twice as prosperous. Instead, it just changes the numbers on the price tags.
Compare Cash to Wealth-Generating Assets
In modern society, holding paper currency is actually a poor way to preserve wealth because it loses purchasing power over time.
Asset Type:
$10,000 Cash
An Apartment Building
Shares of a Company
Is it Money?
The cash is money but the apartment building and shares are NOT.
Is it Wealth?
Money is NOT. It is an idle claim check. Inflation slowly erodes what it can buy.
The apartment building is because it provides shelter (a direct human need) and generates income.
The shares are because it represents a piece of a factory or team producing goods.
“Do you consider a portfolio of shares in corporations to be wealth? What if their nominal value falls in half and there has been no change in prices of everything else. Do your shares suddenly cease to be wealth?”
Of course my shares are wealth. They represent my ownership of something of subjective value (I happen to actually own a company, and I own exactly half of it.)
If my shares’ markets value falls by half, my wealth has been reduced by half.
“Challenge: Because you believe that your paper dollars are worthless, please send all of them to me.”
No. Money is a claim on wealth (or if you prefer a way to store it). In other words, I produced real wealth (something that someone else subjectively valued) and in exchange they gave me money (which I presumed was exchanged for some product or service someone else subjectively valued more than those pieces of paper—now usually in a digital form).
I will try one last time to get my point across. None of us work or produce goods and services to end up with money; we all work to make money because of the stuff that it can buy now and in the future. If money was wealth we’d all leave it alone until we need to buy stuff, but we don’t because it isn’t stuff; it is the thing that can buy stuff. We try and we try to preserve our money’s buying power so that when we need to buy stuff in the future it will have the same buying power (plus or minus the economic forces of supply and demand). If you thinks its wealth, I invite you to hold it and not invest it until you need some stuff in the future.
You’d be crazy to do that. That’s why people invest money or buy gold (or even digital assets like bitcoin) because money is a terrible store of value but a necessary part of financial wealth because it functions as a medium of exchange for stuff (now and in the future). There’s no other way to store the value of wealth than some form of money, but that doesn’t make it wealth; it also doesn’t make money valueless—hence the idea of store of wealth.
I’m fine with being in disagreement on this subject. But I’m will to play survivor with anyone who wants bring a trunk full of money. I will bring my survival skills and engineering knowledge. One month anywhere in the world.
Wealth is something that anyone produces or provides as a service. If I print money and each of you keep giving me something of value to me then I am happy to call money wealth.
We’re obviously talking past each other. Even Thomas Sowell doesn’t agree with you. Money is a financial tool in a civilized society but not real wealth. I have enjoyed our discourse very much.
“We’re obviously talking past each other. Even Thomas Sowell doesn’t agree with you.”
Your first sentence is likely correct.
Your second sentence is almost guaranteed not to be.
I do *not* claim ChatGPT to be the last word on any subject, but perhaps you will find some value (😏) in this (I include as a link rather than copying and pasting to annoy less anyone else perusing these comments and not interested):
“So the correct distinction is: money is not real wealth for society in the sense that printing it cannot make society richer. But money held by an individual is part of that individual’s wealth because it is a claim on goods and services.“
Food to any man has value (less if he’s full). Knowledge of almost any kind has value. That’s how I make money by producing things that others want to buy.
Money is a medium of exchange and store of value (and a unit of account). The fact that it stores value doesn’t make it wealth. Again, I am not saying it’s worthless. But its purpose is utilitarian thus it doesn’t have any value in itself.
Something that is not worthless by definition HAS value!
Period.
You are again here imputing that there is something intrinsic about value. But there isn’t, as even much of your own words throughout this comment section have acknowledged.
Wrong! Shares are no different than your certificate of title to your car or your deed to your house or any piece of paper that represents ownership in something, which money isn’t!
A private bond is no different than shares. But you keep insisting a bond is not ownership in something. But it is. It is ownership of a stream of financial assets owed (money), and in the case of a corporate bond is backed by the other assets said corporation has.
The same assets that create the money to pay dividends. The same assets your “shares” are backed by!
Again, why is a claim of partial ownership of something specific - and that is all shares are, a partial claim on “something specific” - wealth, but a claim on something nonspecific not wealth?
Money isn’t an ownership share: it’s claim on wealth. Whatever a property owner will exchange his property for (at the time of exchange is the amount of money you will have to pay). Today gas costs X; tomorrow maybe it costs X plus $0.25.
On an island many things become worthless—remember, value is subjective. Value is also contextual. Diamonds versus water. In civilization, diamonds hold great value, water has little value, but on an island (deserted) their respective values reverse: water holds the value of life and diamonds have zero value.
if you have a $100 dollars, what do you own?—nothing until you trade it for something. If you hold shares in a company, what do you own?—whatever percentage of that company those shares represent.
"Everything has zero intrinsic value." -- Though I would suggest that money is legally defined as 'legal tender' and with that one can extinguish a debt or other existing financial obligation. Of course this is not an obligation to accept money for goods and services in the future.
If you’re marooned on a desert island, would you rather have a million dollars in cash (or even in gold) or a pocket knife?
Money is a claim on other people’s future cooperation. It only has value because you expect to be able to trade it to someone else who’ll give you real goods or services in return.
So, your definition of wealth is anything that people value. Change the circumstances and what they value changes. Produce more of a good - whether paper dollars or farm tractors - than people want, and the good’s value drops.
"If money were true wealth, doubling the money would make society twice as prosperous."
Would he say that stocks are not wealth because a one for two stock split doesn't double the market cap of a company? Stocks are claims on future dividends, and a $20 bill is a claim on future transactions services performed by the currency note.
I think perhaps the proper answer is in the opposite direction. It should make one pause that doubling of something doesn’t make the nation more wealthy, much less twice as wealthy. Our definition of “wealth” must be a bit off if we can double the amount of a type of stuff we want but not increase wealth.
If something’s only value is as a relative claim on something else, such that doubling the amount of claims does not get you any more of what is claimed, then calling it wealth seems wrong. Possibly it still has value but should not be classed as wealth if the only value it holds is as a claim or exchange?
Think of it this way. Suppose that having a system of money is worth 5% of GDP. If you double the quantity of money, it doesn't change the fact that you still have one system of money. That system is still worth 5% of GDP.
Would you say that because a one-for-two stock split doesn't change total market cap means that stocks are not wealth?
This is eerily similar to the conversation I have with students when we talk about fiat vs. commodity money in class. It really is like you're repeating the conversation I have every Fall semester, beat for beat. Weird.
I usually conclude with something like "Money is a social construct. It has value because we believe it has value. If everyone suddenly decided that gold was ugly and stupid (and maybe if it stopped working in electronics), it would cease to be valuable. If everyone decided they did not want to accept paper money in trade, it would cease to be a medium of exchange and therefore cease to be money. If you believe that your fiat currency has no value because it's not backed by gold, I will gladly take it off your hands."
There's a fallacy of composition here. Money is part of an individual's wealth because it's a generally accepted claim on goods and services. If my money doubled while everyone else's stayed the same, I'd be wealthier - my claim on society's output would rise. But in aggregate, people wouldn't be wealthier if everyone's money doubled. The currency's purchasing power would fall, since doubling the claims on a fixed stock of goods and services doesn't create more goods and services.
A nation gets wealthier by increasing its capacity to produce valuable goods and services: more factories, machinery, skilled workers, computers, housing, and transportation infrastructure would raise living standards. Doubling the money supply instead would just create more claims on the same amount of existing wealth. More money makes me richer. More money for everyone just makes everything cost more.
True. I was responding to Daniel Melgar's claim that money isn't wealth even for the individual.
I think that Daniel was trying to get at my point with the following statement:
Daniel: But what if I magically double all the money? Your claim to real wealth (things that producers make or their services) will be cut in half. If money were true wealth, doubling the money would make society twice as prosperous. Instead, it just changes the numbers on the price tags.
He absolutely did get at your point with that statement. But he made other statements that are incorrect. For example, he said that if the feds refused to redeem paper money for gold, the paper money would be worthless. I pointed out that in 1933, FDR had done just that and that, while it lost some value, it did not become worthless. I read every comment Daniel made, of which there were many, and saw he steadfastly refused to admit this basic error.
Got it. Thanks.
You're welcome. And if your point was the only one he was making and if he had admitted that money is wealth for the individual, I would have quickly agreed and save a lot of time on the keyboard.
*he was making*
The increase in the gold supply due to the cyanide process may have contributed to Bryan's second loss to McKinley, but not to his first. The post-Civil War period of price deflation (returning prices to the 1860 level) ended in 1896, the same year as McKinley defeated Bryan the first time. The primary causes of Bryan's defeat were the ongoing depression that followed the Panic of 1893, which happened when Democrats controlled both the White House and Congress, and the defection of conservative, "gold" Democrats to the Republicans. The 1896 election is generally regarded as a "realigning" election, ending the period of rough partisan balance that began in 1874 and beginning the "third party system" of Republican dominance, which lasted until the Great Depression. Prices started to increase during McKinley's first term, due to the increase in the world gold supply. That eased economic conditions and helped solidify the realignment.
Great analysis!! Reminds me of Milton Friedman’s example of a primitive culture where money was underwater rock that no one could access but it still served as a store of value.
Thanks, Joy.
Yes, that was a great story. It was on the island of Yap. Milton tells the story in his book Money Mischief, a delightful book.
Thanks for reminding me of the name Yap. Yes, it's a great book.
David,
Thank you for writing this post. I’m enjoying my 15 minutes of fame.
David,
I answered your question. My money has value as a claim on wealth. That doesn’t make it wealth.
But no answer to his second question? Are you going to give David your paper dollars?
I did answer in the negative and explained my answer.
I'm pretty sure he won't. That gives the lie to his earlier statement that pieces of paper not backed by gold are worthless. Not worth less, which is plausible, but worthless.
You're welcome.
I’m going to offer the wisdom and knowledge of the GOAT—Thomas Sowell.
Core Concepts of Sowell's Definition
1. Wealth is What We Create for Others
Sowell argues that true societal wealth expands when someone provides a good or service that others find valuable.
* The Zero-Sum Fallacy: Transferring money from one person to another does not create wealth; it is a zero-sum game.
* Real Wealth Expansion: Real wealth is created when entrepreneurs or workers invent or scale products that make life easier. For instance, Sowell notes that John D. Rockefeller's cheap kerosene added hundreds of hours of light to ordinary people's lives—that added light, not the money he made, was the true wealth created for society.
2. Physical Wealth vs. Human Capital
Sowell heavily emphasizes that physical things (like factories, machinery, or natural resources) are not the ultimate source of wealth. Instead, they are the products of human capital—the knowledge, skills, habits, discipline, and cultural prerequisites inside people's heads.
* The Post-WWII Example: He highlights that Germany's physical wealth was completely devastated during World War II. Yet, because the German people retained their centuries of accumulated human capital and technical skills, they rebuilt themselves into an economic powerhouse within a few years.
3. Wealth Must Be Produced, Not Just Distributed
A central theme in his book Wealth, Poverty and Politics is that wealth does not simply exist automatically.
* The Default Human State: Sowell argues that poverty is the default state of human history.
* The Production Pivot: Therefore, economists and politicians should not focus on how wealth is "distributed" (as if it were a pie waiting to be cut), but on the specific geographic, cultural, and political factors that allow wealth to be produced in the first place.
4. The Futility of Confiscating Wealth
Because real wealth is tied strictly to human productivity and capability, Sowell warns that governments cannot successfully redistribute wealth long-term through confiscation. Seizing physical assets or money merely consumes existing resources. Without the underlying human capital and productive incentives to maintain, repair, and replace them, the source of wealth quickly vanishes.
Holding money is holding a claim on wealth.
Now let’s think back on what happened during the Weimar Republic. They had hyperinflation and wives would collect their husbands’s pay in the middle of the day to buy whatever they could with that money because it would have less buying power at the end of the day.
You keep coming back to examples where the value of people's money falls. You seem to think that that means money isn't wealth.
Even if it doesn’t fall in value it’s not wealth. I’m not driving my money; I’m driving the car my money purchased. I don’t hang money on my walls (unless it’s the first dollar I made—that would be cool to hang up), I hang the art that my money purchased.
Again, I don’t hate money—it serves a useful and important purpose. It gives me a way to accumulate the value of my work until I spend it on something I want.
“I’m not driving my money;”
But you are not driving your shares of stock in a company, either.
Because remember, you didn’t merely claim that it is only the company and what it produces that is wealth. You claimed the SHARES you hold of that company are wealth, even though money is not.
Unless something new happens, I've had enough. This has turned into a time-waster for me.
I apologize and appreciate your time.
Thanks. That's gracious of you.
I doubt most anyone reading this blog would dispute your or Sowell’s claim that redistribution does NOT *create* wealth.
And multiple folks have specifically agreed that printing more money decidedly does not create any more wealth.
The discussion is not about what *creates* wealth.
The discussion is whether holding money is holding wealth.
And whether holding money makes one wealthy.
FWIW, I don’t think that Sowell would claim that gold creates wealth either.
But I’m pretty darn sure he would agree that holding gold is holding wealth, *and* that holding money is holding wealth.
And even more sure that the chances of him agreeing that holding gold is holding wealth but holding money is not holding wealth are zero.
Not that we seem likely to agree on these last claims, of course… 😏
“What is your definition of wealth?”
Money is not Wealth
HI edited by Melgar du Poseidon
[Note to readers: Money would not be wealth even if it was backed by gold. The actual gold is wealth.
To understand why gold-backed money itself isn't wealth, look at what happens when a government or bank breaks its promise.
Historically, nations on a gold standard frequently printed more paper bills than they had gold in their vaults to finance wars or spending.
If you hold a gold-backed $100 bill, but the central bank locks its doors and refuses to redeem it for physical gold, your paper bill instantly loses its value.
The money becomes worthless paper, while the wealth (the gold) remains valuable to whoever holds the keys to the vault.
This exact breakdown occurred globally in 1971, when the United States permanently ended the Bretton Woods system, halting the ability of foreign governments to exchange US dollars for physical gold.]
No, money is not wealth. Money is a tool used to transfer wealth, while wealth consists of the actual resources, assets, and things of value that people want.
Understand the Key Differences
Definition:
• Money: A standardized claim check on wealth.
• Wealth: The actual goods and services desired.
Primary Function:
• Money: Facilitates trade and measures value.
• Wealth: Satisfies human needs and wants.
Core Examples:
• Money: Cash, bank balances, and digital currencies.
• Wealth: Food, real estate, software, and knowledge.
Intrinsic Value:
• Money: Has no utility if society collapses.
• Wealth: Retains inherent utility regardless of markets.
See the "Desert Island" Example
Imagine being stranded alone on a deserted island:
• A suitcase filled with $10 million in cash is useless. You cannot eat it, wear it, or use it to shield yourself from the weather.
• A fishing rod, a freshwater stream, a sturdy cabin, and fruit trees represent true wealth because they keep you alive and comfortable.
Recognize Why the Distinction Matters
• Inflation Erodes Money: Governments can print more money, but printing currency does not create more food, factories, or houses. It simply makes each unit of money worth less.
• Focus on Value Creation: To build long-term financial security, you must convert money (a depreciating asset) into wealth-generating assets like businesses, real estate, stocks, or personal education.
Diamonds
A bag of diamonds on that deserted island would also fail to keep you alive. On a stranded island, diamonds suffer from the same flaw as paper cash because they cannot satisfy your immediate survival needs.
This highlights a profound economic insight: wealth is highly contextual.
(Aside: This aligns with value being subjective rather than objective. Time and place will change a thing’s value. Circumstances change how much a thing is worth.)
Understand Situational vs. Generational Wealth
• Situational Wealth (Survival)
• Defined by immediate utility.
• On an island, tools, water, and shelter are the only real wealth.
• Luxury items become worthless rocks when basic needs are unmet.
• Generational Wealth (Society)
• Defined by social consensus and trade.
• In a functioning civilization, diamonds are wealth.
• They hold value due to scarcity, durability, and high demand.
See the "Two Island" Comparison
Asset Type:
A Bag of Diamonds versus A Water Desalination Kit
Stuck on a Desert Island:
Diamonds are useless. They cannot be eaten or used as a tool.
On the other hand, a water desalination kit is ultimate wealth. It directly saves your life.
Back in Modern Civilization:
Diamonds are Wealth. They can be sold to buy houses, food, or factories. Water is only a minor asset. It is useful but cheap and easy to replace.
The Ultimate Definition of Wealth
True wealth is the ability to command resources that sustain and enhance human life.
• In nature, you command resources directly through tools and skills (fishing rods, farming knowledge).
• In civilization, you command resources indirectly through highly liquid, scarce store-of-value assets (like diamonds, stocks, or real estate) that other humans are willing to trade their labor for.
While money feels like wealth because you can instantly swap it for things you want, confusing the two leads to a major economic trap.
Understand the Civilization Distinction
• Wealth is the Destination
• Wealth consists of the actual things civilization produces.
• Examples include cars, houses, medical care, food, and software.
• If all factories and farms closed, money would buy nothing.
• Money is the Vehicle
• Money is the accounting system used to track who owes whom.
• It measures the value of wealth but holds no value itself.
• It allows a dentist to buy bread without finding a hungry baker with a toothache.
See the "Double the Money" Experiment
To prove money isn't wealth inside a civilization, look at what happens if a government changes the money supply:
1. The Scenario: Imagine a magical event doubles every bank account and cash bill overnight.
2. The Illusion: Everyone feels twice as rich when they wake up.
3. The Reality: The number of houses, grocery stores, and workers remained exactly the same.
4. The Result: Prices simply double. This is inflation.
If money were true wealth, doubling the money would make society twice as prosperous. Instead, it just changes the numbers on the price tags.
Compare Cash to Wealth-Generating Assets
In modern society, holding paper currency is actually a poor way to preserve wealth because it loses purchasing power over time.
Asset Type:
$10,000 Cash
An Apartment Building
Shares of a Company
Is it Money?
The cash is money but the apartment building and shares are NOT.
Is it Wealth?
Money is NOT. It is an idle claim check. Inflation slowly erodes what it can buy.
The apartment building is because it provides shelter (a direct human need) and generates income.
The shares are because it represents a piece of a factory or team producing goods.
“Do you consider a portfolio of shares in corporations to be wealth? What if their nominal value falls in half and there has been no change in prices of everything else. Do your shares suddenly cease to be wealth?”
Of course my shares are wealth. They represent my ownership of something of subjective value (I happen to actually own a company, and I own exactly half of it.)
If my shares’ markets value falls by half, my wealth has been reduced by half.
The late, great economist Walter Williams liked to call money “certificates of performance”. I thought that was a great way to explain the concept.
https://fee.org/articles/walter-williams-at-fee/
“Challenge: Because you believe that your paper dollars are worthless, please send all of them to me.”
No. Money is a claim on wealth (or if you prefer a way to store it). In other words, I produced real wealth (something that someone else subjectively valued) and in exchange they gave me money (which I presumed was exchanged for some product or service someone else subjectively valued more than those pieces of paper—now usually in a digital form).
I will try one last time to get my point across. None of us work or produce goods and services to end up with money; we all work to make money because of the stuff that it can buy now and in the future. If money was wealth we’d all leave it alone until we need to buy stuff, but we don’t because it isn’t stuff; it is the thing that can buy stuff. We try and we try to preserve our money’s buying power so that when we need to buy stuff in the future it will have the same buying power (plus or minus the economic forces of supply and demand). If you thinks its wealth, I invite you to hold it and not invest it until you need some stuff in the future.
You’d be crazy to do that. That’s why people invest money or buy gold (or even digital assets like bitcoin) because money is a terrible store of value but a necessary part of financial wealth because it functions as a medium of exchange for stuff (now and in the future). There’s no other way to store the value of wealth than some form of money, but that doesn’t make it wealth; it also doesn’t make money valueless—hence the idea of store of wealth.
That’s all I got. Peace!
Gotta run and do some honey do stuff. I can’t play anymore, but I promise to respond to your comments later.
I’m fine with being in disagreement on this subject. But I’m will to play survivor with anyone who wants bring a trunk full of money. I will bring my survival skills and engineering knowledge. One month anywhere in the world.
Wealth is something that anyone produces or provides as a service. If I print money and each of you keep giving me something of value to me then I am happy to call money wealth.
Thank you. You've finally admitted that money is wealth. As you know, people ARE willing to give you something in return for your pieces of paper.
We’re obviously talking past each other. Even Thomas Sowell doesn’t agree with you. Money is a financial tool in a civilized society but not real wealth. I have enjoyed our discourse very much.
“We’re obviously talking past each other. Even Thomas Sowell doesn’t agree with you.”
Your first sentence is likely correct.
Your second sentence is almost guaranteed not to be.
I do *not* claim ChatGPT to be the last word on any subject, but perhaps you will find some value (😏) in this (I include as a link rather than copying and pasting to annoy less anyone else perusing these comments and not interested):
https://chatgpt.com/share/6a42c1f1-6050-83ea-8588-d523dced10c1
The punch line:
“So the correct distinction is: money is not real wealth for society in the sense that printing it cannot make society richer. But money held by an individual is part of that individual’s wealth because it is a claim on goods and services.“
That statement is true as far as it goes.
Glad you acknowledge that money held by an individual is part of that individual’s wealth.
Since that literally is the biggest part of DRH’s claim.
So you're NOT happy to call money wealth, even though you said you were. We're not talking past each other. You're talking past yourself.
If I called it wealth I made a mistake (a typo). I believe I called it “financial wealth”.
Food to any man has value (less if he’s full). Knowledge of almost any kind has value. That’s how I make money by producing things that others want to buy.
Money is a medium of exchange and store of value (and a unit of account). The fact that it stores value doesn’t make it wealth. Again, I am not saying it’s worthless. But its purpose is utilitarian thus it doesn’t have any value in itself.
Something that is not worthless by definition HAS value!
Period.
You are again here imputing that there is something intrinsic about value. But there isn’t, as even much of your own words throughout this comment section have acknowledged.
Having value is not the defining characteristic of wealth.
Except that it is!
https://www.merriam-webster.com/dictionary/wealth
Merriam-Webster defines wealth as:
1: abundance of valuable material possessions or resources
2: abundant supply
3 a: all property that has a money value or an exchangeable value
3 b: all material objects that have economic utility,
especially “the stock of useful goods having economic value in existence at any one time”
Wrong! Shares are no different than your certificate of title to your car or your deed to your house or any piece of paper that represents ownership in something, which money isn’t!
And now you contradict yourself.
A private bond is no different than shares. But you keep insisting a bond is not ownership in something. But it is. It is ownership of a stream of financial assets owed (money), and in the case of a corporate bond is backed by the other assets said corporation has.
The same assets that create the money to pay dividends. The same assets your “shares” are backed by!
How is a “store of wealth” not… wealth?
Same question: how is holding a store of wealth not… holding wealth?
Please see my explanation of what wealth is.
You wrote elsewhere in this comments section:
“Of course my shares are wealth. They represent my ownership of something of subjective value”
You claim your shares of company stock are wealth. How are those “shares” any different from money?
Note that I’m not asking about the buildings or any physical assets of the company in question; I’m only asking about the *shares*.
If the shares are wealth, then why isn’t money wealth?
Now if you change your answer and equally argue that your shares are not wealth either, then you’re at least being consistent.
Again, shares are ownership in something specific; money is a claim on nonspecific wealth (at the market price).
Again, why is a claim of partial ownership of something specific - and that is all shares are, a partial claim on “something specific” - wealth, but a claim on something nonspecific not wealth?
Because in one case money, you own nothing (not until you find a trading partner). In the other case, you own something—a percentage of a company.
Money isn’t an ownership share: it’s claim on wealth. Whatever a property owner will exchange his property for (at the time of exchange is the amount of money you will have to pay). Today gas costs X; tomorrow maybe it costs X plus $0.25.
In your long example above you point out that diamonds and paper money on a desert island do you no good.
Well, your *shares* of company stock will do you no good there either.
So how is paper money not wealth but *shares* are?
On an island many things become worthless—remember, value is subjective. Value is also contextual. Diamonds versus water. In civilization, diamonds hold great value, water has little value, but on an island (deserted) their respective values reverse: water holds the value of life and diamonds have zero value.
if you have a $100 dollars, what do you own?—nothing until you trade it for something. If you hold shares in a company, what do you own?—whatever percentage of that company those shares represent.
"Everything has zero intrinsic value." -- Though I would suggest that money is legally defined as 'legal tender' and with that one can extinguish a debt or other existing financial obligation. Of course this is not an obligation to accept money for goods and services in the future.
If you’re marooned on a desert island, would you rather have a million dollars in cash (or even in gold) or a pocket knife?
Money is a claim on other people’s future cooperation. It only has value because you expect to be able to trade it to someone else who’ll give you real goods or services in return.
I would rather have a knife. Further evidence for the point that values are subjective.
You write: "It only has value because you expect to be able to trade it to someone else who’ll give you real goods or services in return." Exactly.
So, your definition of wealth is anything that people value. Change the circumstances and what they value changes. Produce more of a good - whether paper dollars or farm tractors - than people want, and the good’s value drops.
Excellent post. Regarding this:
"If money were true wealth, doubling the money would make society twice as prosperous."
Would he say that stocks are not wealth because a one for two stock split doesn't double the market cap of a company? Stocks are claims on future dividends, and a $20 bill is a claim on future transactions services performed by the currency note.
I think perhaps the proper answer is in the opposite direction. It should make one pause that doubling of something doesn’t make the nation more wealthy, much less twice as wealthy. Our definition of “wealth” must be a bit off if we can double the amount of a type of stuff we want but not increase wealth.
If something’s only value is as a relative claim on something else, such that doubling the amount of claims does not get you any more of what is claimed, then calling it wealth seems wrong. Possibly it still has value but should not be classed as wealth if the only value it holds is as a claim or exchange?
Think of it this way. Suppose that having a system of money is worth 5% of GDP. If you double the quantity of money, it doesn't change the fact that you still have one system of money. That system is still worth 5% of GDP.
Would you say that because a one-for-two stock split doesn't change total market cap means that stocks are not wealth?
Thanks, Scott and good point about stock splits.
This is eerily similar to the conversation I have with students when we talk about fiat vs. commodity money in class. It really is like you're repeating the conversation I have every Fall semester, beat for beat. Weird.
I usually conclude with something like "Money is a social construct. It has value because we believe it has value. If everyone suddenly decided that gold was ugly and stupid (and maybe if it stopped working in electronics), it would cease to be valuable. If everyone decided they did not want to accept paper money in trade, it would cease to be a medium of exchange and therefore cease to be money. If you believe that your fiat currency has no value because it's not backed by gold, I will gladly take it off your hands."
Nicely said.