The horizon is not so far as we can see, but as far as we can imagine

Money Is Not Wealth

Money is something you can (sometimes) exchange for wealth, but it’s not wealth itself.

When I say sometimes I mean that there are things you can’t buy: what those things are change from place to place and time to time. The classic formulation of the preconditions for capitalism includes the ability to buy land, labor and capital. In most places and times you couldn’t actually hire most people to work–they were bound to the land, their clans, or whatever or they could support themselves and sure didn’t want to work for someone else.

Likewise most land was inherited or in the commons and definitely not for sale. You couldn’t buy it.

Wealth is what you control (not own, control) that can be used to make something, grow something or support violent people.

Violent people are what enable you to retain control, and this is as true now as it was in feudal times or ancient Sumeria. Property law and contracts and taxation and so on are all ultimately backed by the fact that if you don’t obey, unpleasant men with guns will show up and do horrible things to you.

In the dark and middle ages, those with a lot of money had sharp limits on how much power they had. The King of France famously destroyed the Knights Templar to get out of his debts to them and to steal their wealth. Henry the Eighth of England dissolved the monasteries and stole all their lands and wealth. Rich merchants regularly had their noble or royal patrons default on their debts and often wound up dead as a result.

Nor could they buy much in the way of land, or hire too many people. Right up to the middle of the 19th century, the standard pattern for a rich merchant was to either marry their heirs into the nobility or buy a patent of nobility, then get some land, and become a noble and give up most of their mercantile enterprises. These were sharp customers, they did this because they felt it was the only way to be secure and truly take care of their descendants.

In the modern world, when new money is created without an increase in actual productive ability (goods, resources, improvements in land, improved real productivity) wealth hasn’t been created. Wealth is only created by increases in money if there is unused productive capacity and that capacity is being held back by lack of money (i.e. it’s available, but not being used by the people who would use it productively) and that money gets to the people who would use it productively AND those people then get control of those resources and use them productively. (That’s a lot of “ands”.

We’ve been pumping a ton of money into the economy ever since 2008. It mostly, in the West, has not been used to increase production, it has been used either in attempts to gain control of already existing productive resources or to loot said productive resources, burning them to the ground, as with much of private equity. A good example is Toys’R’Us, which was entirely profitable till it was bought and larded up with debt by the buyers.

Money isn’t wealth. Sometimes, in some times and societies, it seems like it, but at best it is a proxy for wealth.

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  1. StewartM

    By handing control of our business firms to a capitalist class who doesn’t know how to actually produce goods or deliver services, and indeed considers doing these secondary to increasing the value of “money” listed on a sheet of paper (or an excel spreadsheet) we have created a form of capitalism that actively destroys wealth with money. ToysRUS is just one example of many of a complete destruction, and many more firms have had their actual business capabilities gutted by the ownership class.

    Thus the whole moral justification for capitalism (wealth generation) has been undercut.

  2. Purple Library Guy

    The private equity bunch have currently spotted a lot of possibilities in the US private health care sector. They’ve been buying up hospitals and stuff, saddling them with debts, making them sell the land they’re on to the PE people for a song so they can lease it back to them for high rents, generally killing them off for whatever golden eggs happen to be in them at the moment. As a result, the US health care sector is getting even worse than it was.

    Definitely agree with the general point. One situation that makes it particularly noticeable is disasters in places where society isn’t very cohesive–suddenly some things are ten times as expensive, some things are suddenly worthless, and some things you literally can’t buy, nor can you pay someone not to point a gun at you and take them away.

  3. Feral Finster

    Money is not *capital*.

    I learned that lesson living in Ukraine.

  4. GrimJim

    How much inflation is due to the collapse of real production and decline in services, rather than monetary inflation?

    More dollars chasing fewer goods and services always increases the prices… even if most folks don’t actually have any of that money..

  5. GrimJim

    Ack. That should have been, the *same number of dollars* chasing fewer goods and services still increases prices…

  6. Adam Eran

    You’re describing something as old as money. It’s called “Midas Disease”… more prevalent than any pandemic.

    Alfred North Whitehead calls mistaking money for wealth the fallacy of misplaced concreteness. His analogy is having a restaurant diner devour the paper menu.

    The Hebrew Bible calls it “idolatry”… being devoted to symbols rather than the genuine article.

  7. different clue

    I have tried now and then to devise theoretical grade-school level experiments which someone could actually perform to test some mystical beliefs about money.

    ” Make your money grow”. Does money grow? Why not plant some quarters in the garden and see if they grow. Maybe quarters are not strong enough. Maybe some bigger stronger money would grow if you plant it in the garden. So . . . take a hundred dollar bill and plant it in the garden. Make a super-wonderful planting hole for it, filled with fertilizer, glacial rock dust, seaweed meal, and all kinds of good pro-growth things.
    And plant the hundred dollar bill in the hole. Will it grow?

    ” Make your money work for you.” Does money work? Can money perform work?
    Put a quarter in a hamster wheel and see how fast the quarter can run in the hamster wheel. Oh, it didn’t run? It didn’t even move? Maybe you didn’t use enough strong-enough money. Put a gold krugerrand in the hamster wheel. Gold is supposed to be the purest strongest money there is. Will the krugerrand run in the hamster wheel? Will it make the hamster wheel spin?

    A bunch of money is worth whatever you bought with the money. Really? Try this experiment . . . go scuba diving with a tank full of compressed air. Then, go scuba diving with a tank full of gold coins. Which one works out better to go scuba diving with?

    Supposedly a Wise Old Indian once said . . . ” When the last salmon has been fished from the last river, then the White Man will discover he can’t eat money.”

    Food will get you through times of no money better than money will get you through times of no food.

  8. bruce wilder

    Money is symbolic. (So, yes, it invites idolatry.) Money is a means of score keeping and a way of playing games. A fiction. The stuff of virtual reality.
    The fantastic and continuing explosive growth of debt, public and private, is instructive in the stories told about that growth. “The deficit doesn’t matter.” Modern monetary theory.
    As I grow older, I come more and more to realize that economics exists to prevent public discussion and understanding of the economy.

  9. capelin

    Money is Wealth if you don’t got any. But point taken.

    Re eating money, any asset can be useless in the wrong context. Try buying something you need if all you have is a bunch of food. But point taken.

  10. bruce wilder

    Money can be insurance and, as such, a means to manipulate the distribution of financial risk and with risk, the distribution of income.

    Money at base is debt, fictional obligations. A whole system of finance can be built using money, a system that enables insurance, leverage and the fictionalized redistribution of risk. Financial systems run in the public or general interest will be managed to improve individual decision-making in an economy of distributed and decentralized choice, by dampening risk aversion and making desperate gambles less appealing. Socialism in other words. In a corrupted political system, the financial system will be used to multiply rather than dampen risk, creating crises to shakedown most people. Also, finance will enable and reward concentration of power and decision-making, instead of enabling decentralization.

    I think our politics is too damn stupid to understand any of this, let alone act on it to make the world better. The impulse to demand that money and finance be simpler, to be something like gold tokens in Hogwarts Bank, is this stupidity. So is the cavalier call to overthrow “capitalism” in a revolution. A common understanding of money in realistic terms — not in the esoteric terms of finance professionals, I am not saying that is necessary — sufficient to call b.s. on policies of deregulation and macro prudential oversight seems too much to ask for.

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