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- Nov 13, 2014
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- 2,487
You are thinking about it completely wrong. Abstract.
Money is literally paper. It is only a placeholder we use instead of bartering. Ignore it. It doesn't exists, it's a useless variable here.
Wealth is created by creating new value*.
You have a wood log you bought from a passing merchant. It's a good log. Pretty and solid. Nice color. Smells like forest in September.
Now, you are Geppetto, so you know it could be more than what it is. You work on it and it becomes a majestic chair, with rounded armrests fit for a King . It's still the same wood - but now you can sit on it and it's pretty comfortable. That makes it more valuable. It also speaks, giving wonderful business advice, and has a tendency to bite when you take bad financial decisions.
As a craftsman, you know that the peculiarity of your chair might be useful to the most powerful man in town, Mangiafuoco. Hell, the guy is scary, but you're sure about this: the chair would be awesome in his office, and its advice could make him even more powerful than he is.
Also, he's pretty fat, and the chair is made with top shelf wood.
So you bring the chair to him. He looks at the chair and offers you good money, honest price.
But wait, you say. This chair is much more valuable. So you ask him to keep the chair for one business day and, if after that day he doesn't want to pay a hundred times the price he offered, you'll take it back.
That afternoon, Scrooge comes by to finalize a deal with Mangiafuoco. But when they are getting ready to sign, the chair bites. And it bites hard. Surprised, Mangiafuoco jumps on his feet. Then the chair explains why Scrooge is a scammer, and Mangiafuoco is stunned: this wooden chair has just saved him a lot of money and grief. He is a smart guy, so he immediately knows the amount of money he will make with that chair under his bottom.
After kicking Scrooge's a$$, he comes to your shop, and pays you not only 100 times the initial price - he throws in a lifetime free entry to his puppet show. With that money, you never have to build a coffin ever again!
The difference between the value of the talking chair and the value of the log is wealth that didn't exist before. You created it.
Congrats!
* - You could actually argue that wealth is never actually created anew, only transformed from something that can't be quantified or valued to something that can. For example, you could argue that whatever you do, you are actually transforming your time, money, expertise and energy in new wealth.
But this is simply irrelevant to understanding how wealth is created in the real world. Let's leave it to the big tenured professions.
Money is literally paper. It is only a placeholder we use instead of bartering. Ignore it. It doesn't exists, it's a useless variable here.
Wealth is created by creating new value*.
You have a wood log you bought from a passing merchant. It's a good log. Pretty and solid. Nice color. Smells like forest in September.
Now, you are Geppetto, so you know it could be more than what it is. You work on it and it becomes a majestic chair, with rounded armrests fit for a King . It's still the same wood - but now you can sit on it and it's pretty comfortable. That makes it more valuable. It also speaks, giving wonderful business advice, and has a tendency to bite when you take bad financial decisions.
As a craftsman, you know that the peculiarity of your chair might be useful to the most powerful man in town, Mangiafuoco. Hell, the guy is scary, but you're sure about this: the chair would be awesome in his office, and its advice could make him even more powerful than he is.
Also, he's pretty fat, and the chair is made with top shelf wood.
So you bring the chair to him. He looks at the chair and offers you good money, honest price.
But wait, you say. This chair is much more valuable. So you ask him to keep the chair for one business day and, if after that day he doesn't want to pay a hundred times the price he offered, you'll take it back.
That afternoon, Scrooge comes by to finalize a deal with Mangiafuoco. But when they are getting ready to sign, the chair bites. And it bites hard. Surprised, Mangiafuoco jumps on his feet. Then the chair explains why Scrooge is a scammer, and Mangiafuoco is stunned: this wooden chair has just saved him a lot of money and grief. He is a smart guy, so he immediately knows the amount of money he will make with that chair under his bottom.
After kicking Scrooge's a$$, he comes to your shop, and pays you not only 100 times the initial price - he throws in a lifetime free entry to his puppet show. With that money, you never have to build a coffin ever again!
The difference between the value of the talking chair and the value of the log is wealth that didn't exist before. You created it.
Congrats!
* - You could actually argue that wealth is never actually created anew, only transformed from something that can't be quantified or valued to something that can. For example, you could argue that whatever you do, you are actually transforming your time, money, expertise and energy in new wealth.
But this is simply irrelevant to understanding how wealth is created in the real world. Let's leave it to the big tenured professions.
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