Stop Confusing Money with Wealth
Even as production of goods and services has declined as a result of the reaction to covid-19, governments have been issuing larger and larger amounts of money.
The fact that this seems reasonable to many people stems from a common and understandable misconception: namely, that money is wealth. After all, aren’t people with a lot of money considered wealthy? However, while wealth and money are often found together, they are very different in their character and importance.
Wealth is in most respects more tangible and therefore easier to understand than money. Useful goods and services and, perhaps more crucially, the productive resources needed to create useful goods and services, are wealth. A loaf of bread is wealth, as are the farms, factories, and human labor and ingenuity that are needed to grow and process the crops necessary to produce it.
Money, meanwhile, is best understood as a tool used to transform wealth from one form into another. For instance, your skills and ability to perform work are a form of wealth. So is the food you eat. The money paid to you in wages which you in turn pass along to the grocery store performs the simple yet crucial task of efficiently transforming your labor into food.
From this, it should be clear that the amount of wealth in an economy is much greater than the amount of money, as wealth only periodically and for a short time period turns into money before, usually, being turned into another form of wealth. To illustrate, imagine a small business owner who retires and sells her business. She is unlikely to
Article from Mises Wire