Wealth is only useful if it increases the net options of the wealth holder. In the case of housing wealth - if base level housing is expensive - then owning a home is less of a measure of wealth than it is a balwark against the cost of renting and a bet on the ongoing increase in the cost of housing.
If you sell your house the only option is to re-enter the housing market through a different, equally expensive, door. You can't repurpose the money for any other purpose.
The only time it becomes "wealth" is when parents die, leaving their children with a suddenly valuable asset.
Wealth is most definitely not a conserved quantity.
Think of the equity of a typical household. It includes some equity in their flat, which has a current market value. Down the street a developer buys a whole building block at a slight premium to rid itself of extant tenants and in so doing drives up the estimated value of local real-estate, including our household's equity. They've just gotten richer. They could even remortgage their house and monetise that increase in wealth. They could sell it and buy a bigger flat in another part of town.
So no: wealth is not conserved. Quantified (maybe), but definitely not conserved.
It’s not wealth if you are still paying off a mortgage on the rental unit. Even if you owed the rental unit outright the “it’s wealth” argument is foolish. What’s the point? Sell your only source of income and live off the money until you become homeless or die?
It’s like saying a farmer is wealthy because he owns a tractor and a plot of land. Absolutely asinine.
Only if you're measuring it in dollars. Wealth, fundamentally, are durable assets that provide benefit to a standard of living or efficiency (to you individually or to society)
Let's say you have a solar installation nominally worth $10k in year X. Due to a temporary rise in labor costs, someone comes along in year X+2 and says, "Golly gee, now your installation would cost $15k to install, so you have gained wealth!"
Then, as labor costs normalize again, in year X+4 you do a home appraisal, and your installation comes in at $10k again.
Have you lost wealth in this scenario? You still have the same installation that generates roughly the same amount of energy for you and lets you be less dependent on the grid.
The reason it's silly to measure large amounts of wealth in dollar values is that it generally doesn't get traded in cash in these amounts, ever. Even when companies are bought for billions, they are usually purchased with exchange of stock, and only partly with cash and financing.
What's made up is not wealth, but the dollar valuation of large amounts of wealth. In the real world where people need to eat food every day and run their HVAC on stable electricity, wealth is anything but made up.
They do increase wealth, it’s just that the prices of your preferred consumption basket (houses in this case) increases even faster (an important nuance).
Wealth is defined as the purchasing power across all possible consumption baskets - not just the one that you want though. So if you measure the value of your house in bananas, or oranges, or bars of chocolate, it’s value has definitely gone up.
No place for comments on the post, so I'll reply here.
I think the definition of wealth that is quoted at the top, and the one I normally use, is different from the one you are using (at least at some points).
As far as I understand the definition, (material) wealth refers to the physical things that you can own or enjoy that are good and useful. So that includes cars, houses, clothes etc. But not things are purely money generating things (like stocks and shares). A house is a good and useful thing in its own right because you can live in it. Stocks and shares, and money itself, are not (apart from the sheer pleasure of seeing a large number on your bank account).
You might also include 'things' that are not quite in the same category as physical possessions, but are things that can be enjoyed - like holidays and gym membership.
In that sense, money and wealth are almost opposites - you have to give up money to get wealth. At the extremes:
You can have millions in the bank and have no wealth - if you refuse to spend it, you'll die of starvation in cold, broken down house; and you can also have no money but plenty of wealth if, for example, you are the owner of a large, entirely self-sufficient farm, with servants etc. who are all paid via the produce of the land and live in buildings you own. Neither are very likely in our economy.
It seems you are mixing into that definition of wealth the ability to get money/wealth. I'd agree that is a form of wealth (in that you would say that person is in an enviable position), but, like money, it is more "potential material wealth" and not really physical/material wealth itself. And the ability to be happy with little material wealth is the best form of wealth, but, by definition, not a part of material wealth itself.
Ok, now this is getting interesting. You raise some interesting points that make me question the deeper meaning of what wealth really is. Perhaps we simply disagree about the definition of wealth. From Wikipedia:
the meaning of wealth is context-dependent and there is no universally agreed upon definition. At the most general level, economists may define wealth as "anything of value" which captures both the subjective nature of the idea and the idea that it is not a fixed or static concept.
So it seems a lot of the discussion in this thread revolves around semantics, mainly about what defines wealth.
So what exactly is your definition of wealth? I don't understand the logical basic behind your arguments.
For example: Actually, the bartender would be richer in this case. I bought money, that action alone increased my wealth the same way buying a car increases my wealth. I have something now that I didn't have before. What I do with that money is really irrelevant, in the same way that how fast I drive the car is irrelevant.
You exchanged your money for a car. You could now be wealthier in the sense that the car brings you happiness or functionality that you didn't have before, enabling you to be more productive. But what if you already owned a car and were simply indulging yourself? What if this was your 5th car that you didn't need? So you could keep on buying cars forever, and you'd be continually increasing your wealth?
I don't understand why buying the car automatically makes you wealthier. If you give a hobo $10,000 to buy an hour of him walking in circles, you've increased your wealth of entertainment perhaps, but it is a stretch by any definition of wealth to say you've created it.
If I physically burned the money, sure. But the same is true if I physically burn my house down. Of course this too adds to the economy."
Assuming your house was functioning and adequate then the economy is poorer without your house. That is wealth destruction not creation. For now you have to pay for a new house. Someone has to use the materials and labor to build that house. You pay him your money to do so. Now you have less. Wealth was not created here. It was shifted around from your pocket to the construction company's.
No, the more wealth doesn't mean the "more you can make". A majority of people own homes, for instance. And these homes usually go up in value. But no tax authority comes to your house and starts taxing you on how much the value of your home has increased. You pay taxes on the profits when you sell your home, not when you sit in it. Same thing goes for shares in companies. In both cases, the home and shares, owning something that has increased in value doesn't mean you have a stack of cash in your hand. You might once you sell your assets, at which point you pay taxes in both cases.
What good is wealth if you are living in a boring old town with nothing to do? Also this would obviously not be true if you have a family because kids are a money sink.
'Wealth' is too nebulous a term to discuss anything socioeconomic related. When 'wealth' is measured in material- land, housing, money... these are all finite. You seem to be creatively measuring 'wealth' as immaterial things like ideas and actions. Be precise.
That wealth is mostly an unhelpful value based on number of shares in businesses multiplied by that business's share value today. Those businesses are valuable because they do useful things. We can't release that wealth to pay for things. This is the problem with the word "wealth".
I think there is a problem with using money to measure wealth. Maybe a better question may be to check how land or housing is distributed among people? If 10% wealthiest decided one day to e.g. purchase land, the effect would be: 1) equity/bonds or whatever they are using to store their wealth would plummet and crash 2) land price would skyrocket. So suddenly they would not be that rich. I think much of the wealth is overvalued currently, it is like with Bitcoin, the price is crazy because not much people are willing to sell.
yes, that's true. on the flip side, if the meaning of wealth is to have what you want when you want it (apart from ownership), then we're getting closer to an understanding of wealth apart from having $$$, and sometimes this is worthwhile to remember.
This isn't very convincing one way or the other. As the title suggests there are two components to the issue, 'income' and 'wealth'. This argument only looks at the income half and in the process conflates the two terms. Income can't tell the whole story by itself.
For example if you own your home outright, your living costs will be substantially lower than someone who has to rent or has a mortgage. In other words having wealth allows you to substantially lower the income you need for the same standard of living. This argument doesn't account for wealth at all as I'm reading it.
Indeed, and in 2021 I think it’s pretty clear that owning a residence means you have a reasonably liquid asset.
But more to the actual point. To the extent a concept of “paper wealth” exists it should be confined to things that are genuinely unable to be converted into real money at all. For example stock options in a seed stage company are genuinely illiquid and may never be worth anything ever to anyone.
People living in a million dollar house and saying it’s not really wealth and shouldn’t count sound pretty out of touch to the rest of the world that doesn’t get to live in a million dollar house.
If you sell your house the only option is to re-enter the housing market through a different, equally expensive, door. You can't repurpose the money for any other purpose.
The only time it becomes "wealth" is when parents die, leaving their children with a suddenly valuable asset.
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