<p>GDP is not a measure of wealth. It's just how many times money was passed along to someone else. </p>

<p>Imagine that you and your friend find an empty island and each of you has 10 dollars in their pocket (so, \$20 in total). You stay in this island for one year, but you eat the fruits that the trees give you. What is the GDP at the end of the year? \$0. Why? Because you didn't pass the money to anyone.</p>

<p>Now, let's say that for the second year, you decide to become a lumberjack and cut wood to make fire. Your friend decides to buy this wood from you for \$8. So, this is exactly what you said, your friend's wealth went down in the same quantity that yours went up. What is the GDP in this case? \$8. Note that it's not \$20 (the total amount of money in the island), nor \$18 (the amount you have accumulated) but \$8 which is the money that he gave to you in a market transaction.</p>

<p>Now, let's say that he decides to take the wood and make it a chair. You like the chair, so you decide to buy it and pay him \$10. Now the GDP is \$18 (\$8 from the first transaction and \$10 from the new one). </p>

<p>Here's where it might get confusing (although not so much). He decides to make a new chair for himself and gives you \$8 in exchange for more wood. Now, the GDP is \$26 which is larger than the total amount of money in the entire island! Indeed, this happens in every country: the GDP is larger than the money in the country. </p>

<p>Without printing more money, you can basically keep money changing from one hand to the other infinitely. A growing GDP only means that the money is changing from one hand to the other faster. Not that people have more money in their pockets.</p>

CC BY-SA 3.0
2016-05-25T19:25:31.790Z
So, is it true that wealth only gets re-distributed and not newly created?
user45959
CC BY-SA 3.0
2016-05-25T19:46:42.713Z
No, wealth was created: both of you have chairs, even though the amount of money has not changed. It really comes down to what do you mean by wealth: goods and services? or money (financial wealth)? Now, in the real economies, central banks can print new money any time and inject it into the system. Increasing the amount of goods and services as well as money. In such a case, the wealth can increase for everyone without decreasing anyone else's.
Ulises Genis
CC BY-SA 3.0
2016-05-25T20:21:27.420Z
Here's what I'm trying to understand. Marxists argue for the redistribution of wealth to uplift the lower classes. Is redistribution the only way to uplift them? Isn't creation of new wealth also possible? If yes, how? Because, the way I see it, they can only use this new found wealth if they have some nominal claim against someone else (money), again implying redistribution rather than creation of wealth.
user45959
CC BY-SA 3.0
2016-05-25T20:21:58.533Z
Also, when central banks print money, who do they give that newly printed money to?
user45959
CC BY-SA 3.0
2016-05-25T20:41:33.133Z
Well, the problem is that you're seeing them as incompatible when in fact they are not: you can have both growth and redistribution at the same time. In fact, this happens in many countries and in many periods of time. The problem is what Marx called capital accumulation: the owner of the land has more rights than the workers. So he makes more money. So he buys more land. And he makes even more money. And then he buys more land. More money, more land, more money, more land... What Marx  found is that there is no mechanism (nor can be) to stop this accumulation.
Ulises Genis
CC BY-SA 3.0
2016-05-25T20:46:03.577Z
I'm not seeing them as incompatible. I'm asking if the re-distribution of wealth is necessary. In a free-market capitalist setting also, is the upliftment of the poor possible, through solely wealth creation?
user45959
CC BY-SA 3.0
2016-05-25T20:47:41.910Z
If you keep this going, you can see that the capitalist ends up with absolutely all the land. He said that if this was to happen, the best choice would be to make one single capitalist: the state. Now, why didn't we observe this absolute accumulation? Because of technological change (some argue), and human capital. That is, the land could be more efficient, so the capitalist didn't really need more land, but rather learn how to make the land he already had more productive. Besides, technology change occurred really really fast.
Ulises Genis
CC BY-SA 3.0
2016-05-25T20:49:16.043Z
Sorry, I ran out of characters trying to answer your questions. I continue...
Ulises Genis
CC BY-SA 3.0
2016-05-25T21:00:34.170Z
You know, what you're asking is not as easy as it may seem. I'm actually struggling to make my case properly. In theory, you could solve the problem of poverty without Robin-hood-like distribution. The problem is that it would take terribly long and it's not clear how can you do it. The fastest and efficient way of dealing with poverty would have to be with both growth and redistribution. The thing about recently created money is also a whole question on its own. Believe it or not, the central bank **sells** the money. It's very complicated. You should post it as a question here.
Ulises Genis
CC BY-SA 3.0
2016-05-25T17:32:05.720Z
2016-05-25T17:32:05.720Z
Ulises Genis
<p>There's no such thing as a law of conservation of wealth. Wealth is created and destroyed in many ways. It is created when society produces goods and saves them. It is destroyed in disasters, or consumed when we use up our savings.It is created when we create knowledge, software, etc.</p>

<p>In a toy example: when a society starts out without any saved food, it produces food, eats half and saves half, then it is richer at the end. The accumulated food is an asset. </p>

<p>There's all kinds of wealth in a society: patents, ideas, buildings, roads, cars, computers, education, etc.</p>

<p>What does not get created or destroyed are nominal claims that we have against each other: if I give you a paper promising to pay you 10, that makes you 10 richer and it makes me 10 poorer but that's it. This means that its pretty had to figure out what is a society's total wealth, because there's all kinds of claims, explicit or implicit that are hard to value. </p>

CC BY-SA 3.0
2016-05-25T20:20:02.483Z
Here's what I'm trying to understand. Marxists argue for the redistribution of wealth to uplift the lower classes. Is redistribution the only way to uplift them? Isn't creation of new wealth also possible? If yes, how? Because, the way I see it, they can only use this new found wealth if they have some nominal claim against someone else (money), again implying redistribution rather than creation of wealth. Am I making it clear where my confusion lies?
user45959
CC BY-SA 3.0
2016-05-26T06:18:14.473Z
Wealth can be created or destroyed in many ways. It can also be redistributed in many ways. If you think wealth is unfairly distributed, then you might think that a good way forward to improve total welfare is to redistribute existing wealth instead of trying to crete new wealth for those that don;t have any. It might work, or it might not. Clearly, confiscating people's wealth makes it unreasonable to work hard for society in order to accumulate wealth. But you could also argue that a lot of wealth is not accumulated through hard work for society but through socially unbeneficial activities.
Fix.B.
CC BY-SA 3.0
2016-05-25T20:06:06.927Z
2016-05-25T20:06:06.927Z
Fix.B.
<p>I have read that the GDP of the world is growing. I do not understand how this is possible. If I make profits out of a commodity or a service, somebody pays me for it. Hence, their wealth has to drop. So, shouldn't wealth only get redistributed? If so, how is it possible for the world GDP to grow?</p>

<macroeconomics>
Why is the total wealth of the world not a conserved quantity?
user45959
# Why is the total wealth of the world not a conserved quantity?

(Asked by: username_0 on 2016-05-25)

I have read that the GDP of the world is growing. I do not understand how this is possible. If I make profits out of a commodity or a service, somebody pays me for it. Hence, their wealth has to drop. So, shouldn't wealth only get redistributed? If so, how is it possible for the world GDP to grow?

**Tags:** macroeconomics


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## 2 answers

### Answer by username_1 on 2016-05-25. Score: 0 | Accepted answer

GDP is not a measure of wealth. It's just how many times money was passed along to someone else.

Imagine that you and your friend find an empty island and each of you has 10 dollars in their pocket (so, \$20 in total). You stay in this island for one year, but you eat the fruits that the trees give you. What is the GDP at the end of the year? \$0. Why? Because you didn't pass the money to anyone.

Now, let's say that for the second year, you decide to become a lumberjack and cut wood to make fire. Your friend decides to buy this wood from you for \$8. So, this is exactly what you said, your friend's wealth went down in the same quantity that yours went up. What is the GDP in this case? \$8. Note that it's not \$20 (the total amount of money in the island), nor \$18 (the amount you have accumulated) but \$8 which is the money that he gave to you in a market transaction.

Now, let's say that he decides to take the wood and make it a chair. You like the chair, so you decide to buy it and pay him \$10. Now the GDP is \$18 (\$8 from the first transaction and \$10 from the new one).

Here's where it might get confusing (although not so much). He decides to make a new chair for himself and gives you \$8 in exchange for more wood. Now, the GDP is \$26 which is larger than the total amount of money in the entire island! Indeed, this happens in every country: the GDP is larger than the money in the country.

Without printing more money, you can basically keep money changing from one hand to the other infinitely. A growing GDP only means that the money is changing from one hand to the other faster. Not that people have more money in their pockets.

> **Comments:**
> **username_0**: So, is it true that wealth only gets re-distributed and not newly created?  
> **username_1**: No, wealth was created: both of you have chairs, even though the amount of money has not changed. It really comes down to what do you mean by wealth: goods and services? or money (financial wealth)? Now, in the real economies, central banks can print new money any time and inject it into the system. Increasing the amount of goods and services as well as money. In such a case, the wealth can increase for everyone without decreasing anyone else's.  
> **username_0**: Here's what I'm trying to understand. Marxists argue for the redistribution of wealth to uplift the lower classes. Is redistribution the only way to uplift them? Isn't creation of new wealth also possible? If yes, how? Because, the way I see it, they can only use this new found wealth if they have some nominal claim against someone else (money), again implying redistribution rather than creation of wealth.  
> **username_0**: Also, when central banks print money, who do they give that newly printed money to?  
> **username_1**: Well, the problem is that you're seeing them as incompatible when in fact they are not: you can have both growth and redistribution at the same time. In fact, this happens in many countries and in many periods of time. The problem is what Marx called capital accumulation: the owner of the land has more rights than the workers. So he makes more money. So he buys more land. And he makes even more money. And then he buys more land. More money, more land, more money, more land... What Marx  found is that there is no mechanism (nor can be) to stop this accumulation.  
> **username_0**: I'm not seeing them as incompatible. I'm asking if the re-distribution of wealth is necessary. In a free-market capitalist setting also, is the upliftment of the poor possible, through solely wealth creation?  
> **username_1**: If you keep this going, you can see that the capitalist ends up with absolutely all the land. He said that if this was to happen, the best choice would be to make one single capitalist: the state. Now, why didn't we observe this absolute accumulation? Because of technological change (some argue), and human capital. That is, the land could be more efficient, so the capitalist didn't really need more land, but rather learn how to make the land he already had more productive. Besides, technology change occurred really really fast.  
> **username_1**: Sorry, I ran out of characters trying to answer your questions. I continue...  
> **username_1**: You know, what you're asking is not as easy as it may seem. I'm actually struggling to make my case properly. In theory, you could solve the problem of poverty without Robin-hood-like distribution. The problem is that it would take terribly long and it's not clear how can you do it. The fastest and efficient way of dealing with poverty would have to be with both growth and redistribution. The thing about recently created money is also a whole question on its own. Believe it or not, the central bank **sells** the money. It's very complicated. You should post it as a question here.  

---

### Answer by username_2 on 2016-05-25. Score: 1

There's no such thing as a law of conservation of wealth. Wealth is created and destroyed in many ways. It is created when society produces goods and saves them. It is destroyed in disasters, or consumed when we use up our savings.It is created when we create knowledge, software, etc.

In a toy example: when a society starts out without any saved food, it produces food, eats half and saves half, then it is richer at the end. The accumulated food is an asset.

There's all kinds of wealth in a society: patents, ideas, buildings, roads, cars, computers, education, etc.

What does not get created or destroyed are nominal claims that we have against each other: if I give you a paper promising to pay you 10, that makes you 10 richer and it makes me 10 poorer but that's it. This means that its pretty had to figure out what is a society's total wealth, because there's all kinds of claims, explicit or implicit that are hard to value.

> **Comments:**
> **username_0**: Here's what I'm trying to understand. Marxists argue for the redistribution of wealth to uplift the lower classes. Is redistribution the only way to uplift them? Isn't creation of new wealth also possible? If yes, how? Because, the way I see it, they can only use this new found wealth if they have some nominal claim against someone else (money), again implying redistribution rather than creation of wealth. Am I making it clear where my confusion lies?  
> **username_2**: Wealth can be created or destroyed in many ways. It can also be redistributed in many ways. If you think wealth is unfairly distributed, then you might think that a good way forward to improve total welfare is to redistribute existing wealth instead of trying to crete new wealth for those that don;t have any. It might work, or it might not. Clearly, confiscating people's wealth makes it unreasonable to work hard for society in order to accumulate wealth. But you could also argue that a lot of wealth is not accumulated through hard work for society but through socially unbeneficial activities.  

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