Core Concept Conversation: What is wealth?
This is a Core Concept Conversation post. The topic is what wealth is and what it means to create it, largely based off of Paul Graham’s essay How to Make Wealth.
I’m not clear on what wealth actually is. PG seems to contradict himself in the essay. In footnote #4 he says:
There are many senses of the word “wealth,” not all of them material. I’m not trying to make a deep philosophical point here about which is the true kind. I’m writing about one specific, rather technical sense of the word “wealth.” What people will give you money for.
But he also defines wealth as the stuff that you actually want:
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.
This might be a nitpick, but I think there are some concrete differences between these two things.
One example PG mentions as making wealth is open source software (OSS). There is a lot of OSS that I use but wouldn’t pay for if it costed money. For example, I use the library lodash but if it wasn’t free I would just use underscore instead, which is extremely similar. So that’s a situation where you get value from something but wouldn’t pay for it because there happen to be similarly valuable products available for free.
I get the sense that the OSS would still be considered wealth though and that the question of whether people would spend money on it is moreso intended to be used as a proxy for whether they assign any value to it. If you assign some amount of value to something (greater than $0.01) in theory you’d be willing to spend some amount of money on it. Here the only reason people wouldn’t actually be willing to spend money on it is because there happen to be other libraries available for free. I don’t think this is uncommon though. For example, there are a lot of blog posts available for free. In a world where this wasn’t true I’d probably pay to read some of them, but in our world where it is true I would not.
Another question I have is about what wealth actually is involves the distinction between what people want and what they like. Consider Facebook. People want to continue doomscrolling but they don’t actually like it: it doesn’t make them happy. So is that wealth?
And how exactly does wealth relate to transient things? Consider a really good croissant. It’s something that you want, like and will spend money on, so it seems to fit the all of the potential definitions of wealth I’ve discussed so far. But after you eat it, it’s gone. Does that mean that you lost the wealth? That it only existed temporarily?
What about if Alice and Bob have a good conversation? Alice creates wealth by providing conversation to Bob that Bob enjoys and vice-versa? And if it’s a bad conversation would that mean Alice is taking wealth away from Bob or just pissing him off?
What about platforms? Facebook without the user generated content is nothing. So is Facebook making wealth, or is it enabling it’s users to make wealth? Probably both, I suppose. If there was user generated content but the news feed showed you stuff you weren’t interested in, that wouldn’t be wealth since you don’t actually want it, so I think it’s the combination of user generated content and presentation.
Something else I’m not clear on is when you are a step or more removed from the end product. Is that wealth generation? Ie. if I as a programmer refactor some code, that has zero impact on the end user (immediately after I finish) but it’ll enable me to move faster in the future and create more wealth. So did I actually create wealth with the refactor or did I enable my future self to create wealth more easily? I’m not clear on what the answer is.
And what about product managers and designers? Suppose a product manager comes up with a cool feature, the designer creates some mockups, and then I as the programmer code it up and deploy. The proximal cause of the new feature existing in production is me deploying it, but the work of the product manager and designer were distal causes. So did they create any wealth?
To continue that story, suppose we all go to the beach after work and enjoy swimming in the ocean. If wealth is the stuff we actually want (or like), is the beach wealth that we have access to for free? I think so, right?
I’m also interested in hearing about whether these are just PG’s ideas about what wealth is or if this it is commonly agreed upon, eg. by economists.
I see “wealth” not as a collection of desirable things but as a potential or a power. An individual who has some wealth has the potential or power to undertake certain things they would like to do, over and above basic survival. An individual with greater wealth has greater choice of the things they can choose to do. Such things might include eating Michelin 3 star food, or driving a Ferrari along the coast. They also might include a simple afternoon walk in the woods. In the latter case the “wealth“ required to undertake this activity comprises having the leisure time available for the activity, the personal good health that allows for enjoyable walking, clothing of suitable quality for the activity to be pleasurable, and a means of fairly effortlessly getting to the woods in the first place.
It follows that, whilst “wealth” might have a roughly linear relationship to “money”, the amount of surplus money one has to attain a certain “wealth” will be different for everybody, principally because we all different ideas of how we might use our wealth, some of which will cost more than others. Additionally, some wealth doesn’t necessarily cost any money to create or to acquire. Consider a coder who makes a compelling game and puts it out as open source. The coder has created “wealth” because they have created the potential for others to undertake something they would like to do, namely, play the game. The coder has used their own time and little else. If the creation of the game was an enjoyable activity for the coder then the wealth has been created at zero cost.
Interesting. I like that point about potential. I think it is similar to what Ericf was saying about wealth and value. That wealth is the ability to continuously generate value.
If your house has a movie theater but you have no free time to enjoy it, I see how you might not want to count that as wealth because you don’t actually have an ability to derive value from it. But I’m hesitant. If you solve the free time problem, now the movie theater does generate value. So it’s better to have the movie theater than to not have it. That seems like it should count for something. After talking this through in the comments I’m seeing that ultimately there are a bunch of subtly different concepts out there and we don’t really have clear and widely known names for each of the concepts (it’s possible that in some subfield of eg. economics they’ve thought about these things and come up with terminology).
Interesting example. I think the movie theatre in practice always has value and counts towards wealth, because even if you don’t have time/inclination to use it, you could in principle sell the house to an appropriate movie buff, for more than you could if you didn’t have the theatre, and use the extra money to do more of what you want to do. So the “potential“ argument still works. This argument could also be applied to a heck of a lot of other things we might own but have little use for. On that basis, EBay is a great wealth generator!
In the process of trying to understand how the world works, I’ve learned that it’s essentially human capital that defines what society is all about, completely different context and take than my initial interest. I was mistaken because I was taught about the distractions from the wealth model just like everyone else is. That’s what I ended up focusing on because I had a stupid encounter with one of those distractions known as racism. I feel lucky that the system is able to show its true colors this way. I’m grateful for the lessons I’ve learned. The wealth model is very detached from your everyday human experience, which is why racism, innate tribalistic tendencies, is able to facade the wealth model that’s much harder to be seen and understood because you actually need to read a lot about different aspects of society. Wealth model is also based on a the very human nature of greed, but that’s more of a tendencies of the biological tendencies than tendencies that are strictly human since the conservation of resource is closely tied to survival as a living organism. Tribalism is just a derivative of this fundamental biological need.
Something I’m realizing in the comments is that different people seem to have notably different ideas about what wealth means. That makes me think that the concept of wealth itself is either too fuzzy or not taught well.
Etymology isn’t a reliable guide to what words mean now, but in a case like this one where there isn’t a universally agreed definition it seems like it might be worth a look.
The “-th” in “wealth” is the same as in growth, health, sloth (= slow-th), warmth, etc. And “weal” just means “wellbeing”; “weal” and “well” are originally the same word. So wealth is whatever confers or constitutes wellbeing. When the word “wealth” first existed, it was mostly pretty much synonymous with “wellbeing”.
But it was always also able to mean, more specifically, “worldly” goods, valuable physical possessions, especially ones that you could exchange for other things you value. So money (which is more or less by definition maximally exchangeable-for-other-valuable-things) is wealth, and so are things you can easily sell; possessions that for one reason or another you couldn’t easily convert into other valuable things are less-central examples of “wealth” (but were, from the outset, also considered varieties of wealth).
I’m leaning on the OED here, and here’s something informative: its sense 4.
So, according to Mill (and, according to the OED, according to most economists) wealth is anything that serves any human purpose and isn’t abundantly available without human effort being required.
Agreed.
Interesting! Thanks for explaining.
Not to shoot the messenger but this is starting to feel like a pretty different thing from wellbeing to me.
Thanks for pointing to this idea of centrality. From Similarity Clusters: “A dictionary is best thought of, not as a book of Aristotelian class definitions, but a book of hints for matching verbal labels to similarity clusters, or matching labels to properties that are useful in distinguishing similarity clusters.”. That’s an idea that I needed to be reminded of and seems very relevant here. Wealth appears to be a term that doesn’t actually have a precise definition. Instead there are various concepts that kinda form clusters and have some distance to whatever is at the center, the prototypical example of wealth.
Thanks for digging this up. Good to know.
I distinguish between Wealth and Value as concepts. Lots of things provide Value (a croissant, a free library app, refactoring code, project management), but Wealth is specifically things that provide ongoing value when used, without being used up. For example, a code base provides ongoing value to its owners, and a refactoring code base provides more ongoing value, so that increases Wealth. Living near a beach or other nice place is a form of Wealth. Money in the bank, or in stocks, that is generating enough income to outpace inflation is Wealth. Strong relationships is Wealth. Useful knowledge is Wealth. In summary, Wealth is anything that generates (not “is convered to”) Value over time.
This has the consequence that in a time of no economic growth money is not wealth, which you may or may not be comfortable with. (I personally think money is a paradigmatic example of wealth, so that any definition of “wealth” that doesn’t cover money is ipso facto not a definition I’d want to adopt.)
Ah, I like that! I’m going to adopt that as the way I think about wealth. Thanks.
Do you know if that is some sort of agreed upon way of thinking about it, or just something you came up with and find useful? Not that there’s anything wrong with the latter.
I think there is a remaining question about whether value is wanting or liking. If you have access to Facebook it gives you the ability to doomscroll any time you have can use a web browser. You want to doomscroll but you don’t actually like it. So is the access to Facebook wealth? I guess we need two different terms, one to address wanting and the other to address liking.
I don’t see refactored code or a project manager on staff as providing value. I see value as the thing the end user experiences, like the ability to pay their credit card online. But it makes sense to me to consider the refactored code and PM on staff as adding wealth. Each generates value over time. And I like how this addresses my question about indirect/distal causes of value to end users: it doesn’t matter that it’s indirect, it still helps to generate value over time.
if the code base for Google Search represents wealth, but is itself a critical component of Google-the-company’s success, then doesn’t that mean that for any financial instrument based on Google (i.e. Google stock, bonds issued by Google), to consider it also a form of wealth would be to double count that code base?
i’m skeptical that money can be both a claim on wealth and also a form of wealth. it seems like it should be strictly one or the other, else you end up with a bank owning a bank owning a bank owning … with each additional layer of ownership somehow resulting in more wealth, and that seems questionable to me.
Let us introduce a third vocabulary word: Asset. An Asset is something that is consumed to provide Value, like cash in a mattress, food in a refrigerator, or the portion of a house or car that is depreciating as it is used. One of the miracles of the modern age is the ability of banks to turn Assets into Wealth many times over. It’s a bit of technology built on societal trust. In the stock market example, it isn’t double-counting, just different perspectives. Stock shares are a claim on the company, so the Google code is included in the Wealth of Google, and stock ownership is counted in the Wealth of the individual owners, but it’s like saying “there are 20 legs in my dining room, and there are 4 legs on the table”—it’s an error of logic to add the 20 to the 4.
Life requires physical consumption: oxygen, water, food. Consumption also includes deterioration through use, for further life-required values like clothing, shelter, transportation, security. Even highly abstract values like art/music/software/friendship/justice all rest on a foundation of consumable physical objects. Production is transformation of physical matter into consumable form.
Wealth is everything produced but not yet consumed. Money is easily exchangeable wealth.
The idea of wealth can be extended into intellectual or spiritual or poetic realms. But the root of the idea of wealth is the physical requirements for life.
Hm, that doesn’t seem true to me. With friendship people derive value from simply sharing space and engaging in conversation, neither of which involve consumable physical objects.
What about things that we want but that don’t require production, like swimming in the ocean or enjoying the sound of birds chirping?
PG calls out that money isn’t actually wealth. Is he using a non-standard definition? Does a standard definition even exist?
Space for conversation is a form of shelter. But I will concede to condense a highly-condensed line of argument further to remove the trickiest examples: art/music/software
/friendship/justice. Software is abstract; it’s also not physical in an obvious sense. It does rest on a foundation of physical objects (chips, wiring) capable of using electricity in a controlled and orderly way.Ocean swimming and birdsong hearing are values but not wealth. ‘Values’ and ‘wealth’ both depend on ‘life’, and they overlap, but they are not synonyms. Wealth is fundamentally physical. It is fine to extend the concept into areas like software and intellectual property because the underlying physicality is always present. Also, people can and do use ‘wealth’ as metaphor. I avoid this particular metaphor for conceptual and communication clarity.
Like metaphors, people use all different kinds of word definitions. Some definitions are only synonym, some only description, some even contradict. Some people prefer fuzzy thinking and decline to define. My definition preference is the genus/differentia pattern (Aristotelian?): group to which [word] belongs and what distinguishes [word] from others in the same group. The genus of ‘wealth’ is ‘thing’, the genus of ‘money’ is ‘wealth’.
I believe the above definitions ‘wealth’ and ‘money’ are the most clear, and therefore the most cognitively useful. I prefer the most useful definition also be the standard one, but that’s a falling-star wish. [I’m fine with metaphor, just not the ‘wealth’ one. =D]
One way that Buddhism might deconfuse this concept of wealth is to say that it wasn’t “not meeting your needs” that was causing suffering in the first place, it was grasping. The better you get at meeting your needs, the more you think that’s a solution, but it actually causes more grasping.
Hence your realization that wealth doesn’t seem to make people happier. Not only does wealth not make people happier—it’s fairly plausible that e.g. hunter gatherers were actually more happy than agrarians.
I think truly grasping this (and it’s obvious when you look at the decoupling between happiness and wealth, as you do here), really erodes some of the foundations of the humanist/transhumanist philosophy that underpins much of the rationality community
I think of wealth as a top level bucket/concept. Like others have mentioned, I consider wealth that which allows me to satisfy my wants and needs. That can be by engaging others to make or trade things or my ability to make/do something myself.
I also separate out two main subsets: elements of my wealth that are largely consumables and elements of my wealth that are put to productive uses with the intent of maintaining or increasing my wealth (capital).
The core concept of wealth is “the ability to motivate many humans to satisfy your demands”. In non-monetary societies, kings and tribal elders were wealthy, because they can order others to do their bidding. In modern fungible-money economies, the wealthy are those who can control enough of the economy to be able to direct many people in their activities. This includes both production activities (which presumably generate MORE money for the wealthy, in addition to generating some for the followers) and consumption activities (which are a net drain on the wealthy, but still generate income for the followers).
That sounds like a type of power to me. I remember learning in college that, at least in the social sciences, power is about influence. You can influence people in various ways: the pen, the sword, the threat of the sword, etc. But influencing people to satisfy your demands is just one of many ways you can influence them. Same with influencing many people vs one.
Agreed. Wealth is one type of power. Or maybe some types of power are wealth.
In fact, both wealth and power are pretty vague, or at least context-dependent words. They’re not a precise description of anything, and probably should be avoided if you want to actually communicate. Like so many of these discussions, don’t try to narrow down a definition of a common term that’s difficult, instead just use more words to describe what you want to describe.
Yeah I think that’s my takeaway here. Going into this I figured that there was in fact some sort of decently narrow definition of “wealth” that I wasn’t understanding but now I’m pretty confident that there isn’t.
wealth is physical goods and services, information connections to others, etc. money attempts to track wealth; often, however, money results in the destruction of wealth, relabeled as the creation of it. stock market crashes are often a result of wealth creation in the hands of someone unexpected, and can even occur when no destruction occurred at all.
In the essay PG talks about how when you generate wealth you make the pie larger. So like if I invented some sort of spice rub that you could rub on any food and make it taste 50% better and sold it for an amount that’d cost people $1/day, that seems like it’d make the pie larger. For $30/month you get 50% more enjoyable food. I envision mostly everyone in developed countries making that trade.
But on the other hand I just have trouble visualizing this. What does a bigger pie actually mean? Happiness? That doesn’t feel right. We’ve supposedly created a ton of wealth over and over throughout the centuries but are we a corresponding amount happier than we were? I’m skeptical.
If it doesn’t mean happiness maybe it means something more like, if you take the things we have now, we’d be more willing to spend money on them than the things people had 100 years ago. I’m having a hard time thinking concretely about this. Like, Arthur in 1923 has an amount of things that he’s willing to spend $X on but Aiden in 2023 has an amount of stuff that he’s willing to spend 5X inflation-adjusted dollars on? Something feels wrong about that.
I have not read the essay but wondering if perhaps Graham was perhaps focusing on social wealth rather than just individual wealth.
Nah he talks about individual wealth.
Seems like that would be more what I consider capital than what I consider as wealth.
But perhaps he was also thinking, but not really articulating, about things like network effects Smithian external economies. Your wealth increases, which increased the total wealth in society, which increases the size (extent?) or the market, which shifts the margins on specialization and increases in specialization result in further increases in productivity....
“Making the pie bigger” feels to me simply like there’s more stuff (= wealth?) to choose from. If everything would cost money, that would mean you have more options to spend your money on, either because new things are invented or because existing things get cheaper so you have to spend less of your money on them.
Imagine if the other OSS package(s) you’d use instead also didn’t exist. How much would you pay for one of them to exist or be available to you? Maybe not very much, but whatever amount that is, is a benefit you have from the item(s) existing, and that benefit is part of “wealth” the way he is using the term.
Ok yeah, I get that sense as well.
But then you get into the facts that there are some things people wouldn’t spend any money on even though it makes them happy and vice versa. I see three different possibilities:
This theoretical willingness to spend money on something that you’re describing is what makes it count as wealth.
The theoretical willingness to spend money is just a proxy for wanting, and it’s the wanting of a thing that makes it wealth.
Wanting isn’t actually wealth. Think: doomscrolling on Facebook. Liking is what matters.
I think humans are complex, and don’t have coherent desires. At the same time, most things people want they enjoy. More enjoyment and liking things is from more wealth.
The fact that we’ve invented weird corner cases by optimizing too hard on engagement (facebook), or on taste (empty calories), doesn’t change the fact that there are lots of things we like and benefit from.