The+Nature+of+Wealth

The+Nature+of+Wealth - Buttonwood The nature of wealth Oct...

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Buttonwood The nature of wealth Oct 8th 2009 From The Economist print edition The world confused financial assets with real ones AT THE heart of the current crisis is a fundamental confusion about the nature of wealth. Think about it from the perspective of a Martian. Were an extraterrestrial to be shown a room full of gold ingots, a stack of twenty-dollar bills or a row of numbers on a computer screen, he might be puzzled as to their function. Our reverence for these objects might seem as bizarre to him as the behaviour of the male bowerbird (which decorates its nest with shiny objects to attract a mate) seems to us. Wealth consists of the goods and products we wish to consume or of things (factories, machinery, an educated workforce) that give us the ability to produce more such goods and services. Financial assets arise from the desire to postpone consumption so that money can be saved, either for precautionary reasons or to invest so that more goods and services can be consumed in the future. Looked at in that way, financial assets are not “wealth” but a claim on real wealth. If those claims multiply or rise in price, that does not mean aggregate wealth has increased. If a pizza is
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This note was uploaded on 02/08/2011 for the course ECONOMICS 101 taught by Professor June during the Spring '08 term at Rutgers.

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The+Nature+of+Wealth - Buttonwood The nature of wealth Oct...

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