The biggest lesson in economics is that one man’s profit is another man’s profit. We need to have filthy rich people, because a wealthy person’s wealth has no value to that wealthy person unless he buys something with it, and when he does, he gives some of that wealth to the person he is buying from, making that person better off.
So then how does wealth become created if things are changing hands? If the only reason that I have money is to give it to someone else, and that person’s money only exists to be given to another person, then how is the wealth actually created? How is net wealth created instead of having one fixed pie exchanging hands without having any new wealth created?
The answer is in the products. The products themselves are the wealth. The products make processes required to make other products easier, which means that less money is going to labor, and more money is going to someone else that would have otherwise not had it before. So products are created to obtain profit, and the profit is used to obtain the products. As the products improve, wealth is created. Products cut down costs and save labor time, resulting in those cut costs being spent on other things, which helps out the new seller, which in turn helps out his seller, and the process continues forever. The saved labor time means more time to create other businesses, which have the potential to create new profits, which means new profits for all of the sellers to which the profits are spent, then more profits to the sellers from whom the first seller’s profit were spent, etc. etc.
The products create the new wealth because they cut down on costs and provide more free time: money and time that will be spent on new things that they would not have been before. This is how wealth is created: through the actual products themselves.
The products are what constitute creating wealth for both the producer (who cuts down on costs and has more free time, which means that his new profits will go to someone else) and the consumer, who has new products to buy because of the producer wanting to create wealth for himself (i.e., he doesn’t get paid by you unless you believe his product will make you better off, i.e. “wealthier”), and you do not receive his product unless your payment will make him wealthier as well.
This is how wealth is created: by exchanges (because no one will buy something unless what he buys will make him better off (i.e., “wealthier”) and likewise, no one will sell something unless he believes to be better off, i.e. wealthier, by doing so). When you do not allow one seller to obtain wealth, all you are doing is destroying the potential wealth that he would have given to those from whom he bought his products from. Therefore, when you destroy one person’s wealth, you are also destroying the wealth of all of the people he would have bought his products from.
Economies build wealth for one reason: because everyone is trying to become wealthier. I will not buy something unless I believe to be better off (i.e. “wealthier”), you will not sell or buy something unless you believe you will be better off, and the same goes for everyone. Everyone is trying to obtain wealth, and that is exactly how the wealth is created.
August 19, 2013.
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