Thursday, February 17, 2011

The difference between Wealth and Money

Economically speaking, what is the difference between wealth and money?  Here's how I look at it.  Wealth is all of the valuable goods and resources that you want in the world.  Whether it's a gallon of gas, or a video game, both are examples of things that people desire andor use.  Money is worthless pieces of paper and even more worthless numbers in a computer.

Looking at an entire economy, wealth is a measure of all the goods and services produced by that economy.  Those include any goods anybody was willing to pay for.  Such as: cars, homes, bread.  It also includes any services anybody was willing to hire.  Such as: Medical, education, and fixing broken goods.  Money, on the other hand, is still worthless pieces of paper and even more worthless numbers in a computer.

Wealth is what we desire: goods and service. Money is a tool we use to exchange those goods and services between each other. The point of this post to acknowledge the difference between the two. Giving everyone more money does not necessarily result in everyone getting more wealth. The wealth is created when people start trading that money with each other in exchange for more goods and services.  So money changing hands can create wealth, but the act of having money doesn't do it.  Some people hoard money to obtain future wealth.  This is a bad idea because unless it is earning interest, the money will lose value overtime due to inflation.

The biggest thing that I want to emphasize is that money is a tool, and is not a typical commodity.  Granted, it sometimes behaves like a commodity, but it has no intrinsic value.   Creating wealth should always be the goal, and money should be seen as nothing but a tool used to achieve that goal.
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