Economics Questions

Re: How Does Government Destroy Wealth?

Connie — Tue, 05 May 2009 18:09:10 GMT

Think of it differently. The shoe isn't a consumable. It is a factor of production. It is capital formation. Without the shoes, the shoe's owner would find it hard to come and go. He would find it difficult to produce, therefore, and add to the communitie's wealth.

Re: How Does Government Destroy Wealth?

MatthewWilliam — Tue, 05 May 2009 17:51:38 GMT

There's also room here for the Hoppean time-preference argument; through taxation and inflation, the government can promote high time preference, thereby destroying the process of civilisation (which is built on savings/ low time-preference).

Effectively it's stealing from future humans.

Re: How Does Government Destroy Wealth?

nirgrahamUK — Tue, 05 May 2009 16:35:42 GMT

totally excellent comments thus far, I'd like to contribute by mentioning that as the benefits to investing in entrepeneural endeavours is eroded, by taxation and by regulation, there is a disincentivisation of entrepeneurial activity; so wealth that otherwise would have been created is never even brought into existance

Re: How Does Government Destroy Wealth?

Jon Irenicus — Tue, 05 May 2009 10:13:04 GMT

Diverting the production of services and goods from where consumers would want it to be, away from their effective demand.

Re: How Does Government Destroy Wealth?

Joel — Tue, 05 May 2009 05:26:14 GMT

Jonathan M. F. Catalán:

But, the bananas have not been destroyed. They have turned into energy to allow Person A to continue producing. And so the banana should be represented as labor.

This is where I'm getting at. There's a key difference between simply destroying and consuming in order to continue production.

If the banana was used merely to facilitate production, then it was a capital good (factor of production), not a consumption good. If I eat an expensive meal that is more than I need for mere sustenance to continue producing, then it's consumption.

Or you might have in mind a terminology similar to Jean Baptiste Say http://mises.org/story/2981

"Consumption is the opposite of production: it is a destruction of values produced."

But then, "We do not wantonly destroy things of value: what end is proposed in doing so? Either to procure an enjoyment or else to reproduce another value." The latter he calls "reproductive consumption", which, "consists in the industrious destruction of one value, so as to produce another in place of that which is destroyed, and which exceeds it in value sufficiently to pay for the industry employed in the operation."

Re: How Does Government Destroy Wealth?

Daniel Roe — Tue, 05 May 2009 04:32:22 GMT

Roy Munson:

A.I'm really talking about actual destruction of wealth, like extreme specifics like building roads to nowhere and lavish parties for politicians.

B.What does it take to run our government? Wages (paid to gov't employees) and buildings don't destroy wealth directly. There's office supplies, desks, chairs, computers, etc--right, those are all depreciating and are being destroyed over time, but how much could that possibly add up to??

How is A any different from B?

It's not, I was giving examples of what I was talking about.

Re: How Does Government Destroy Wealth?

Scott Jefferies — Tue, 05 May 2009 04:29:38 GMT

Daniel Roe:
Where is the wealth destruction?

There's wealth destruction in the opportunity cost of using privately owned tax dollars.

Re: How Does Government Destroy Wealth?

Roy Munson — Tue, 05 May 2009 04:24:02 GMT

A.I'm really talking about actual destruction of wealth, like extreme specifics like building roads to nowhere and lavish parties for politicians.

B.What does it take to run our government? Wages (paid to gov't employees) and buildings don't destroy wealth directly. There's office supplies, desks, chairs, computers, etc--right, those are all depreciating and are being destroyed over time, but how much could that possibly add up to??

How is A any different from B?

Re: How Does Government Destroy Wealth?

Jonathan M. F. Catalán — Tue, 05 May 2009 04:11:51 GMT

Maybe a better example would be that of a car. I buy a car, and theoretically, after I run it into the ground I have destroyed wealth. But, in the process I have created wealth by using my car to get to work, to produce, et cetera. It's an investment. In that sense, consumption is necessary to produce wealth.

This isn't Keynesianism. I am not proposing that government can stimulate aggregate demand, nor do I think that stimulating aggregate demand would "create wealth".

The example of the berries was one proposed by an Austrian economist himself. In his example he did not mention a destruction of wealth. Sure, the berries cease to exist. But their consumption allowed the production of the tool that will get Robinson Crusoe even more wealth.

Re: How Does Government Destroy Wealth?

nazgulnarsil — Tue, 05 May 2009 04:11:05 GMT

wealth is standard of living. when the government spends money on things that are actively inimical to your standard of living that is wealth destruction. the wealth was created by someone and turned right back around and used to destroy productive capacity.

Re: How Does Government Destroy Wealth?

Daniel Roe — Tue, 05 May 2009 04:08:05 GMT

Jonathan M. F. Catalán:

But, the bananas have not been destroyed. They have turned into energy to allow Person A to continue producing. And so the banana should be represented as labor.

This has just turned from an economics question into a thermodynamics one. Somebody needs to make the argument that Keyensianism accelerates energy's progression to a higher state of entropy.

And what if instead of using my banana-wealth energy to produce, I use it to type messages on Austrian Economics forums. Is that not wealth destruction?

Re: How Does Government Destroy Wealth?

Jonathan M. F. Catalán — Tue, 05 May 2009 03:57:32 GMT

Joel:
You are dangerously close to something like the broken window fallacy (or even Keynesianism).

No I'm not. In the broken window fallacy the crook smashes the window. The argument is that the new window would create more wealth, but it doesn't, because the original window is shattered. So, still only have one good for the price of two. My example doesn't come near this fallacy.

Let's take your example step by step:

Person A produces a shoe. Wealth was created.

Person A sells it to B in exchange for money. This is just an exchange of goods.

Person C produces bananas. Wealth was created.

Person A exchanges money to C for 3 bananas. This is just an exchange of goods.

Now person A has 3 bananas, person B has a shoe, and person C has the money. No consumption has taken place.

Then person A consumes his 3 bananas. Wealth was destroyed. Person A gains the satisfaction of consuming the bananas and then A is 3 bananas poorer.

But, the bananas have not been destroyed. They have turned into energy to allow Person A to continue producing. And so the banana should be represented as labor.

The difference between government spending and private spending on non-durable goods is that government is subsidizing industries that are not producing. That is where the destruction of wealth comes in. So, let's say that Person D (the person that the government is subsidizing) is fed three bananas in order to allow him to work, because his products have not sold and he needs money. But, his products aren't selling, and so to subsidize him to continue producing the same product that isn't selling is merely destroying wealth. He is not producing anything out of his consumption.

This is where I'm getting at. There's a key difference between simply destroying and consuming in order to continue production. In the broken window example, the first window was shattered. It's "consumption" did not translate into it helping produce anything. On the other hand, if that same window was removed and used to create a bigger product then it was not wealth destruction.

This is the idea behind the Robinson Crusoe example provided by de Soto. In the example Robinson Crusoe saves berries so that he can produce a stick to "produce" (or gather) more berries. These are capital-goods. Crusoe is using is consuming to create greater wealth.

Re: How Does Government Destroy Wealth?

Joel — Tue, 05 May 2009 03:46:09 GMT

Jonathan M. F. Catalán:

Joel:
Consumption is the destruction of wealth.

No, it's not.

Person A produces a shoe and sells it to Person B, so that Person A can then buy consumables. And so Person A consumes three bananas produced by Person C. That is not the destruction of wealth. Person C has just gained money that he or she can consume, save or invest. In either case, there has no destruction of wealth.

You are dangerously close to something like the broken window fallacy (or even Keynesianism).

Let's take your example step by step:

Person A produces a shoe. Wealth was created.

Person A sells it to B in exchange for money. This is just an exchange of goods.

Person C produces bananas. Wealth was created.

Person A exchanges money to C for 3 bananas. This is just an exchange of goods.

Now person A has 3 bananas, person B has a shoe, and person C has the money. No consumption has taken place.

Then person A consumes his 3 bananas. Wealth was destroyed. Person A gains the satisfaction of consuming the bananas and then A is 3 bananas poorer. Person B will wear his new shoes around, wearing them out over time (consuming them). In this process, wealth is destroyed. Once the shoes are worthless, then B is that much poorer than when he had new shoes.

Consumption is the destruction of wealth (utility), not merely the purchase of consumption goods (which, of course is something that a shipping company or retailer, for example, does.).

Re: How Does Government Destroy Wealth?

MatthewWilliam — Tue, 05 May 2009 03:39:53 GMT

Jonathan M. F. Catalán:

Joel:
Consumption is the destruction of wealth.

No, it's not.

I'm willing to side with Joel here.

Although consumption is the ultimate aim of all production, once you have consumed something you can't consume it again, nor can you save and invest it. In short - consumption is weath destruction. Nobody on earth has ever enriched themselves by consuming more.

Re: How Does Government Destroy Wealth?

Daniel Roe — Tue, 05 May 2009 03:36:21 GMT

Jonathan M. F. Catalán:
Person A produces a shoe and sells it to Person B

The wealth was the money, and the shoe.

The shoe lost value as soon as person B walked out of the store with it. Over time that shoe will have no value.

That's consumption, and it's destruction of wealth. It started out that Persons A and B had an equal amount of wealth. After the shoe was destroyed, only person A was left with wealth.