22-01-2003 08:42									#151
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All wealth depreciates by virtue of its existance except for money, and money is only valuable by virtue of wealth. Taking away wealth is essentially the same as adding money, and thus leads to inflation; money in effect depreciates due to inflation.

And I'm going to let Adam Smith take a rest, because he's just making this argument tougher.

	22-01-2003 09:12									#152
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Let me start with a definition from The Economy Today a college textbook.


wealth represents a stock of potential purchasing power


This definition satisfies me. This includes anything that is storing value whether the owner intends it to store value or not. It includes tangable items (land, factories, buildings, houses etc.), and financial items (stocks, bonds, loans, and yes sometimes money). Keep in mind that I'm speaking in net terms. With a loan you have a creditor and a debtor. The debtor is decreasing wealth and the creditor in increasing wealth. When the two are in different countries you have a change in wealth.

I assume that we are considering a wealth tax because we want to increase the GDP. So I'll discuss GDP too. Wealth is not included in GDP. From The Economy Today GDP is



The market value of all final goods and services produced within a nation's borders in a given time period.

GDP has 4 components; Consumer Goods, Investment Goods, Government Services, and Net Exports.

Investment Goods is of interest here too, because they have been confused with wealth.

From The Economy Today investment is

Expenditures on (production of) new plant, equipment, and structures (capital) in a given time period, plus changes in business inventories

I should say that stocks, bonds, money (taken out of circulation), and land are not included.

Wealth is accumulated in two differenct ways. Investment can only be considered wealth in the same year that it is produced. After that it is only considered wealth. The other way that wealth can accumulate is by savings (or lack of consumption). This is Keynesian so keep in mind that I don't assume Savings to Equal Investment. I'm talking about savings as a leakage from the economy. Those of you who are against taxes and imports may be able to relate to it by comparing savings to those things, because taxes and imports are also leakages from the economy. From The Economy Today a leakage is

income not spent on domestic production

This income is spent on some item that will store value, or I say that it becomes wealth.

Now investment and savings compete with each other, because savings can pay a return (the price of the item goes up) just as investment can.


That's enough for now and more than I really wanted to do.

	22-01-2003 09:14									#153
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quote: Originally posted by Goingonit And I'm going to let Adam Smith take a rest, because he's just making this argument tougher.

Ok, I will too.

	22-01-2003 09:23									#154
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I agree with all of those. I would like to stress that, though stocks and bonds represent wealth, all wealth represents actual goods by proxy - stocks represent parts of goods.

And buying a stock is contributing to the production of capital goods - it's just doing so at one remove. Even moreso with bonds, which are sold directly for the purchase of capital goods by a company. There is also precious little out-of-circulation money, which is why savings=investment in economics. If you give your money to a bank, it will give it to a company that will use it to buy capital goods. You will receive a percentage of the prospective income that may result from that capital expenditure - thus, you are investing at two removes.

The main point I'm trying to make is that stocks, bonds, other equities, et cetera are connected intimately to the production of capital goods.

quote: The other way that wealth can accumulate is by savings (or lack of consumption).

That's just ridiculous. As soon as a new car gets made by Ford, it becomes wealth. When you buy it, you are not saving any money, yet you still have the same amount of wealth as you did before.

That car has potential purchasing power because you can exchange it for capital goods. Wealth is thus, by that same definition, anything that can be exchanged for capital goods.

And I assume you mean that "investment can only be considered GDP in the same year that it is produced". I agree with this. GDP is a flow, a rate: it measures how fast things circulate. Unless wealth changes hands, it is not flowing.

	22-01-2003 09:27									#155
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And I just found out something interesting. According to the student resources for The Economy Today, in the glossary for chapter 33, wealth is defined as "The market value of assets". This can be found at http://highered.mcgraw-hill.com/sit.../key_terms.html

	22-01-2003 10:03									#156
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quote: Originally posted by Goingonit I agree with all of those.

We agree on a lot

quote: Originally posted by Goingonit I would like to stress that, though stocks and bonds represent wealth, all wealth represents actual goods by proxy - stocks represent parts of goods. And buying a stock is contributing to the production of capital goods - it's just doing so at one remove.

All kinds of money is pumped into the stock market. Only some of the money that is obtained from the first sale of the stock goes to the production of goods and services. The rest of the money that is pumped into the stock market is from leakage from the productive sector of the economy.

quote: Originally posted by Goingonit There is also precious little out-of-circulation money, which is why savings=investment in economics. If you give your money to a bank, it will give it to a company that will use it to buy capital goods. You will receive a percentage of the prospective income that may result from that capital expenditure - thus, you are investing at two removes.

True, but I would say that usually there is only precious little out-of circulation money. When you have a lot out-of-circulation money you have big trouble in the economy.

quote: Originally posted by Goingonit The main point I'm trying to make is that stocks, bonds, other equities, et cetera are connected intimately to the production of capital goods.

We disagree on the leakage from the economy for speculative purposes. Can I say at least that you only assume that there is no leakage in the economy due to speculative wealth? After all, you have done this yourself I'm sure. You have some baseball cards, gold coins, antiques or some other collectable. You don't honestly think that the price for those items are based on the value of the production of them. No, the price for those items increases because people take money out of the bank and buy those items, thus taking money out of the productive economy.

We should disagree on the significance of this leakage not whether Savings actually always equals Investment. Anyway, I think you already said before that that is only generally true.