Some wealth is created. People build new things and sell them. Video Games or Programming Languages for example.
Some wealth is just transferred, like rent or interest.
It would be nice if everybody had somewhere to live for free, unfortunately, most people have to pay rent or interest on a mortgage to those that came before them.
An artist creates wealth by painting a beautiful painting. Then he exchanges that wealth for money.
At no point was wealth "transferred" to the artist.
McDonald's creates wealth by designing and building a system to deliver hamburgers. McDonald's then exchanges that wealth for cash from its customers.
BTW, who gives money to people who already have it? Not me. I doubt you do, either. I don't know anybody who does. The transactions are always exchanges - you are getting something in return.
The person who owns it bought it from person who created it.
The person who bought it then manages it, maintains it, organizes it, advertises it, pays taxes on it, etc.
And there's nothing wrong with that.
If rentable places were not allowed to be sold, very very few would exist. This is because people specialize - some build rentals, some manage them. Both are productive enterprises.
You can become a landlord if you want. Borrow the money, buy a rental, and rent it out. But you'll find out it's a lousy business.
I broadly agree with you, but there is really a point here about land ownership.
Although developments of the land do improve the value, and thus land ownership has significant utility economically by incentivizing this, there isn't really an economic justification for the owner receiving value for the land itself- why should someone have exclusive rights to a piece of land they didn't create? They bought it, sure, but why did the previous owner have perpetual exclusive rights?
I'd advocate for a small property tax as a replacement for other taxes, because the component that does tax "land value" won't cause economic harm, but all of income tax causes deadweight loss. (Note, Land Value Tax is great in theory, but impossible to define practically- property tax good enough, much harder to game!)
Note that in practice, the biggest abuser of land hoarding is local governments with extremely restrictive zoning that stops productive development of the land- from an economic perspective they own the land, and have sold (or in reality, seized) some but not all of the rights from the 'landowner'. Although this can have advantages to help with coordination problems, in practice it's caused enormous economic damage to many cities by preventing development. At its heart, it's a problem with land hoarding.
If I cut down trees to build a house, then I may have created "wealth" but I've also destroyed trees. Now the net affect may be that wealth has increased, but it may also have an effect which actually destroys wealth like for instance if those trees existed on a hill, and the roots were holding the soil in place, the act of cutting down
"Free market" economics does not capture this destruction of value. It only cares that some value was extracted out of the trees in the form of a new home sale, etc.
I'm sure all those slaves brought over to the New World created tremendous wealth, but I'm also pretty sure they would have rather preferred to stay in Africa.
Your first example is completely wrong. Trees are a renewable resource. In North America, most of the trees that are cut down to build houses were intentionally grown for that purpose and are selectively harvested in a way that preserves the long-term value of the land.
Meh, sort of. Today's construction lumber is nearly all farmed, true. But CITES exists for a reason. The demand for certain woods greatly outstraps supply, and deforestation and smuggling is a real problem that's difficult to solve. And that's even without considering deforestation that's done to open up new farmland.
Madagascar is the obvious example here highlighting both issues, but it's certainly not unique.
> "Free market" economics does not capture this destruction of value.
Oh, but it does. It turns out that people who own land take care of it, so that it keeps producing. People who own timber land tend to manage it so it continues to be productive.
Destruction happens with government owned land.
For a related example, why are we not running out of cattle, hogs, and chickens, despite slaughtering them on an epic scale? And why are we running out of fish?
They might take care of their land, but they don’t generally care what happens to other peoples land. So excess fertilizer creating dead zones downstream? Well sucks to be them I guess. Markets are not good at pricing in externalities such as those
Come on. Sometimes wealth gets created. Sometimes wealth just gets moved around. That is a fact.
Musk's wealth is mostly notional. Most of it is based on people's guesses about the future of electric cars and so forth. It's not clear yet whether that is creation or transfer or what.
Maybe a startup can have a high valuation for a while and ultimately be worth nothing. Maybe that has happened.
Maybe Musk will turn out to have created 10x more wealth than he has now. Maybe he will screw up and go broke.
Maybe both.
Where did Bernie Madoff's wealth come from before he got caught? Where did Sam Bankman-Fried's wealth come from? We can't just point to a unit of wealth and automatically applaud its legal owner as having created it. Maybe they created it. Maybe they stole it. Maybe we all wigged out and handed it to them voluntarily. It's case by case.
We all read Ayn Rand back in the day. And I can groove with that at a certain dosage, but you're taking way too much.
Excluding fraud, theft, and so forth, just by definition, means we're talking about a utopia. It's not a system, it's some beautiful subset of what's really going on. The subset would have to be carefully selected, using information we don't actually have until (maybe) much later. Maybe never.
This 'free market' is a bit like clean matter-antimatter power stations. They sound like a great idea. We could build them if we knew how.
I never claimed free markets were utopian. The purpose of government in a free market economy is to provide justice for acts of force or fraud, and provide enforcement of contracts.
There is no such thing as a perfect free market. However, history shows that the closer we are to them, the more prosperous the country is.
BTW, when the Soviet Union was formed, the communists did away with the police because there would no longer be a need for them. Oops.
No body (?) is contending that in a free market wealth is not created.
The contention is that when wealth is created it tends to head to other wealth.
When a bank lends capital and has a choice of lending to, say, Elon Musk or me, I think the bank will make that rational choice and lend to Elon. Thus once you have some wealth attracting more wealth is less difficult than from before you had wealth
Lending money is not transferring wealth, nor is it creating wealth. It nets out to zero.
This is clear when one does accounting. Accounting is based on the idea that (Equity = Assets - Liabilities). When one takes out a loan, the assets go up by the amount of the loan, and the liabilities also go up by the amount of the loan. The Equity stays the same. That this balances out is literally called "balancing the books".
BTW, banks are happy to lend out money to people that have a track record of paying it back. This includes poor people. Poor people have credit cards, too, which is how they borrow money.
Totally and utterly wrong, a complete misunderstanding of capitalism
Let me explain.
Access to capital is key. If you have it you can do business, if you do not you cannot, in general terms
There is more than one way to access capital, debt is very common.
And to get rich you have to do business
So if you are already rich getting more money, in a free market, is easier than getting started, in a free market
That is the point, and one small example,e. This pattern repeates o er and over. Once you have money getting more money is much easier than getting the first money
So in free markets the wealth divides tend to increase.
A Ferrari costs far, far more to maintain than a Ford, and doesn't last as long. I drove my used Ford Bronco II for 32 years before giving it to a scrap yard. Best bang for the buck car ever.
Expensive shirts wear out just as fast as cheap shirts. They just look nicer (and are often less comfortable).
P.S. I still regularly wear the combat boots my dad bought me 50 years ago. The boot black on them has long since disappeared, but they still keep my feet dry and warm.
The "Boots theory" of economics is garbage, just utter nonsense. I don't understand why people keep mentioning it here without applying any critical thinking. It simply doesn't apply to the vast majority of actual consumer products. Some of most durable, longest-lasting footwear I ever bought was also among the cheapest. By contrast the expensive stuff tends to be fussy, fragile, and impossible to repair. This generally applies to apparel, electronics, automobiles, appliances, bicycles, firearms, etc.
And where did Musk's money come from? Who did he transfer it from?