The following appeared in today’s Parade Magazine column from Marilyn vos Savant:
Investors recently lost a large amount of money. But if others were not enriched by the same amount, where did the money go? —O. Slavinsky, Kansas City, Mo.
Marilyn did a fine job addressing the notion of how gains on paper aren’t necessarily attached to real value, and how market capitalization numbers are often skewed. Her answer was lacking, however, in denying a fundamental premise to the question: That people only get rich by making others poor.
In this case, the questioner from Kansas City phrases the supposition in the reverse case: one can only lose money if another gets rich. We already know this is not the case, because there is no one celebrating when a house fire wipes out a family’s value and wealth.
It is commonly misunderstood – and to great societal detriment – that rich people get wealthy by making others poor. Wealth is created when people trade.
Let’s say you have a rock that is worth $10 to you, but it is worth $20 to me. I give you $15 for the rock. According to your balance sheet, you just made $5. According to my balance sheet, I just made $5. Wealth is created through trade.
Why is this so?
People in a freely trading society are empowered to do the things they are truly good at, and not waste their time trying to duplicate the efforts of others who are better at that activity. This is how the baker can make biscuits all day long and make a better living than if he tried building his own walls, and the mason can build walls all day and not worry about teaching his son to read, and why the teacher can touch books all day and not worry about starving.
When each of us produces goods and services wanted by others, we can be richer than if we divided the “chores” up evenly. Society has more bread, more bricks, and more brains when people specialize.
Wealth is measured by the increasing value accrued every time we freely trade, buy, barter or purchase. Since both parties are in agreement, they are each getting more value from the trade than before, and society benefits. The Wealth of the State increases. The pie gets bigger. You can have a smaller slice of a bigger pie, and have more than you can eat. Wealth and money are not “zero-sum.”
“Getting rich” does not, by definition, come at the expense of making someone else poor.
Marliyn – you would do us all a greater service if you helped others understand why such fallacies and worldviews are dangerous. Class envy is a tool employed by professional politicians to fuel dreams that “we can all get our fair share,” if we only gang up on the rich. When class envy is invoked, the only people who gain are politicians.
Sure, it isn’t a zero-sum game. But it doesn’t automatically follow that wealth comes only from actions completely harmless to those with less capital. Redistribution happens in many ways in our economy; “trade” and “beggaring thy neighbor” (your and her examples, respectively) were the false debate in 19th century economics. Today, for example, stagflation is a huge redistributional tool; it is real, it can be measured, and while it isn’t a fairy that takes coins from poor pockets and puts them in a money bin (who thought it did), there _is_ macro-level wealth transfer.
Brad, I didn’t mean to imply that there weren’t transactions with a clear “winner” or “loser,” but the existence of such instances is not proof that all economic transactions are such.
The question in Marilyn’s column is based on a zero-sum premise for all situations. That is the piece I am challenging.