Economists have come up with graphs to explain how wealth is created, and they’ve coined some terms they like to use to describe it, and these terms can be confusing to the non-economist. But it’s really quite simple.
If you’re a buyer/consumer: If you purchase something and pay less for it than you’d be willing to spend on it, you are wealthier.
If you’re a seller/producer: If you create and sell something for more than it cost you to create and sell it, you are wealthier.
Any time a voluntary transaction takes place, wealth is created on one or both sides of the deal.
(A side note: Newton’s laws of motion start to break down in certain situations, but they are still applicable and accurate to most of the phenomena we can experience or describe in the physical world. In the same way, there are of course some caveats to trade and wealth which I have no intention of addressing here, because in the vast majority of cases what I’ve written above is applicable and accurate.)
Next post: wealth inequality.
Because I’m a Social Psychologist, my mind immediately began to apply the concepts you presented here to interpersonal interactions (non-monetary, but certainly qualifying as a “voluntary transactions” in which “wealth is created on one or both sides of the deal”). I was so stoked about some of the mental products that I immediately printed this article and the associated graph and filed it in my “Things To Work On” folder.
While applying economic principles to social interaction is nothing new (Social Exchange Theory) my mind was particularly blown, because I’ve never read anything that explained wealth in such a succinct and insightful way as you have here.
So thanks!
Hey — thanks! Traditionally, economics has dealt with the realm of monetary “things,” and I think most non-economists think that’s *all* economics deals with. But there are a variety of sub-fields that deal with non-monetary ideas… Freakonomics is a famous book, now, but if you haven’t read it you might enjoy it. I’d also strongly recommend The Myth of the Rational Voter and Sex and Reason.