Socialist Fallacies

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Money is not wealth.

If you want to create wealth, it will help to understand what it is. Wealth is not the same thing as money. Wealth is as old as human history. Far older, in fact; ants have wealth. Money is a comparatively recent invention.

Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. You can have wealth without having money. If you had a magic machine that could on command make you a car or cook you dinner or do your laundry, or do anything else you wanted, you wouldn't need money. Whereas if you were in the middle of Antarctica, where there is nothing to buy, it wouldn't matter how much money you had.

Wealth is what you want, not money. But if wealth is the important thing, why does everyone talk about making money? It is a kind of shorthand: money is a way of moving wealth, and in practice they are usually interchangeable. But they are not the same thing, and unless you plan to get rich by counterfeiting, talking about making money can make it harder to understand how to make money.

Money is a side effect of specialization. In a specialized society, most of the things you need, you can't make for yourself. If you want a potato or a pencil or a place to live, you have to get it from someone else.

How do you get the person who grows the potatoes to give you some? By giving him something he wants in return. But you can't get very far by trading things directly with the people who need them. If you make violins, and none of the local farmers wants one, how will you eat?

The solution societies find, as they get more specialized, is to make the trade into a two-step process. Instead of trading violins directly for potatoes, you trade violins for, say, silver, which you can then trade again for anything else you need. The intermediate stuff-- the medium of exchange-- can be anything that's rare and portable. Historically metals have been the most common, but recently we've been using a medium of exchange, called the dollar, that doesn't physically exist. It works as a medium of exchange, however, because its rarity is guaranteed by the U.S. Government.

The advantage of a medium of exchange is that it makes trade work. The disadvantage is that it tends to obscure what trade really means. People think that what a business does is make money. But money is just the intermediate stage-- just a shorthand-- for whatever people want. What most businesses really do is make wealth. They do something people want. [4]

The Pie Fallacy

A surprising number of people retain from childhood the idea that there is a fixed amount of wealth in the world. There is, in any normal family, a fixed amount of money at any moment. But that's not the same thing.

When wealth is talked about in this context, it is often described as a pie. "You can't make the pie larger," say politicians. When you're talking about the amount of money in one family's bank account, or the amount available to a government from one year's tax revenue, this is true. If one person gets more, someone else has to get less.

I can remember believing, as a child, that if a few rich people had all the money, it left less for everyone else. Many people seem to continue to believe something like this well into adulthood. This fallacy is usually there in the background when you hear someone talking about how x percent of the population have y percent of the wealth. If you plan to start a startup, then whether you realize it or not, you're planning to disprove the Pie Fallacy.

What leads people astray here is the abstraction of money. Money is not wealth. It's just something we use to move wealth around. So although there may be, in certain specific moments (like your family, this month) a fixed amount of money available to trade with other people for things you want, there is not a fixed amount of wealth in the world. You can make more wealth. Wealth has been getting created and destroyed (but on balance, created) for all of human history.

Suppose you own a beat-up old car. Instead of sitting on your butt next summer, you could spend the time restoring your car to pristine condition. In doing so you create wealth. The world is-- and you specifically are-- one pristine old car the richer. And not just in some metaphorical way. If you sell your car, you'll get more for it.

In restoring your old car you have made yourself richer. You haven't made anyone else poorer. So there is obviously not a fixed pie. And in fact, when you look at it this way, you wonder why anyone would think there was.

Money = wealth, true that it is a false claim (misusing the word fallacy is not going to help the guy's point). But I've seen this misconception to be common among capitalist again.

The one about the pie.... I don't think it is really true that you can create wealth. Mater and energy cannot be created and there will always be trade offs. To claim that restoring a car makes you wealthier and does not make others less wealthy, it does not see the big picture. To restore the car you had to use materials and chemicals, and those things are not unlimited. By restoring a car, you make the needed materials drop in amount and the person that was in the least position in the group of people hoping for those materials, will lose her access to them.

And the actual work you invest in restoring the car. That's time you could have used to get other wealth. This is called the opportunity cost. With this perception, when you choose to restore your car you are not increasing in wealth , you are just deciding between two kinds of wealth (increasing your car's value or going to your work place and increase you actual money so that you could buy another kind of wealth)

If anything it's the Right that thinks that wealth is nothing but money, that a country cannot rebuild by printing money to pay people to do the work of rebuilding that adds value (Yugoslavia post 2000 when the NATO-financed G17 Plus howled with outrage that they were rebuilding without NATO's permission by printing money and the hyperinflation they portended was nowhere in sight) but instead need the permission of Mr Moneybags abroad to lend this gold for this purpose... that money outside of sovereign government control confers veto power over all.

As for this idea of the pie, wealth may not be a zero-sum game but power is. That is, for someone to gain power someone else has to lose it. The increasing wealth of the wealthy compared to everyone else allows them to take power in the political arena at the expense of everyone else and establish a plutocracy. There's also this myth promoted on the Right that high growth requires high inequality and that attempts to create equality will reduce growth. The experience of the Western world post-World War II shows that the period of greater equality was in fact the period of greater growth. The Right says that more inequality causes higher growth rates causes greater gains for the majority, but this depends on the inequality causes growth claim which is a false one but is so essential that it's drilled in people's heads constantly.

Exactly!! !