In a recent thread the question arose as to who creates wealth in a society. There was some debate as to what was created wealth and what was in fact recycling of existing money. I feel this might be worthy of its own thread as we did not come to a satisfactory conclusion and we started to derail the other thread.
The argument goes that if a shopkeeper has €100 of goods and sells them for €110 then he has created €10 of wealth. I stated that he hasn't as someone else has lost €10 within the economy thus meaning no new wealth has been created. THe argument was that the shop keeper pays wages and tax out of his profit thus creating wealth but has he?
In my view to create wealth you must either dig something out of the ground, grow or manufacture something and export it or provide a service in exchange for foreign wealth (either through service industry or tourism) at a profit thus creating wealth for the Irish economy. In otherwords I set up a widget factory tomorrow making widgets for €100 and selling them to the chinese for €110 thus adding €10 to the wealth of Ireland. Therefore wealth creators are a small enough group with the rest of us taking turns passing around the money they add to the system.
Now obviously we need shopkeepers/teachers/accountants/ firefighters as they are part of the supply chain/educate our populace making FDI more likely/help business maximise profit and pay tax/stop the widget factory burning down and without them we would not be able to buy stuff and manufacturers would not be able to sell stuff.
That raises the question if some people might be destroying wealth by selling things such as cars as the vast bulk of the money is sent out of the country.
Then there is the question of perceived wealth. A good example would be the independent media group who have seen their share value drop down to next to nothing. Does this destroy wealth in the country or is it the perception that does the damage. The same with the property bubble. Someone somewhere did well out of it. If Joe bought a house for €50,000 and sold it for €300,000 in 2006 then Joe is a lot richer and some poor sod (me) is a lot poorer. Surely that money is still out there somewhere being sat on or something?
Finally why do we insist on measuring our wealth on a solely financial basis? We should also take in to account the intangibles such as security and happiness to measure the wealth of our nation.
I am sure this is hugely simplified and I certainly don't profess any expertise on the matter but I don't see how swapping money around in a closed system creates wealth. I've heard about industry having a multiplier effect on the economy but again if we just sell things to each other how does this create new wealth.
I found this lecture by a professor Reinhard in princeton most interesting http://www.princeton.edu/%7Ereinhard...ay-15-2010.pdf
I would be very interested to hear the views of other posters on here about this subject.