Posted by: cjenscook | 04/26/2009

What is the Destruction of Wealth?

Robin Smith threw down a challenge this morning on his blog by asking the question “What is the Destruction of Wealth”?

gCO2e: What is the destruction of wealth?

Perhaps we could start with what is the creation of it.

Some examples from friends might be:

“natural products that have been secured, moved, combined, separated, or in other ways modified by human exertion, so as to fit them for the satisfaction of human desires”

Note that land titles, money, share certificates and other tokens of ownership are not wealth but documents relating to claims on wealth. I would add that nothing can be wealth that when added to does not increase the common stock of wealth, nor can anything be wealth that when taken away from does not reduce it.

So we have some idea that you have to do work on natural resources of some kind to make productive economic wealth.(Continues)

This led me back to the subject which has been interesting me for some time, and that is the re-basing of Economics, and the rebuilding of a new Economics upon firmer foundations than those now crumbling.

So I responded as follows …..

Location is maybe not wealth, but it is the basis of wealth, and it cannot be destroyed.

The use value of location, on the other hand IS wealth, in that it is something which individuals are prepared to pay for.

Where an individual improves a location, for instance, by draining a field, or improving the soil; or by building a house, then he is increasing the stock of wealth. But if he farms intensively, and ruins the soil; or fails to care for a building, then he is decreasing the stock.

Similarly, individuals collectively, aka Society, may increase the value of location – and hence the Common Wealth – by building transport infrastructure or utilities.

Strangely enough, we see fit to tax the former activity, whereby individual land/location owners earn the increase in value, but not the latter, where individual land-owners benefit at the expense of society.

Energy is also Wealth, and cannot be destroyed either, but may be converted into less useful forms.

So as we convert non-renewable carbon into useful electricity and heat, we should try to maximise the efficiency of the process and minimise the losses eg friction along the way.

Because we do not value finite non-renewables adequately we are pretty useless at conserving this Wealth.

So we busily destroy our non-renewable energy, while we fail to invest in harnessing the infinite Common Wealth of free renewable energy. We also fail to minimise waste by making best use of non-renewables, through investing in the cheapest energy of all – “NegaWatts” of energy saved.

But we can’t do this unless we value energy, and the approach I advocate is firstly to use energy as the standard by which we exchange value, on the one hand, and to create Units redeemable in energy use value such as kilowatt hours, on the other,and use these as currency. Bob Hahl shows how this can be done, here

About KiloWatt Cards

with an interesting discussion of the rationale for electricity both as currency and as a standard for exchange.

We should tax the destruction of the energy Commons, through taxing the energy value of carbon, and investing the proceeds in energy savings in a Carbon Pool fund denominated in energy.

We should then use this fund to make energy-denominated loans to build renewable energy – simply by buying Units redeemable in future production, and in energy savings, by collecting repayments out of energy saved via (say) Hot Water Rates assessed on property.

Finally, there’s Knowledge. This is interesting, because it is a form of Wealth which cannot be destroyed, only suppressed or forgotten.

This is a Commons, which may only be increased, which we incentivise by allowing private ownership, so that it may be developed and implemented by the creator.

Unfortunately the privilege of private ownership of knowledge is not restricted to mortal individuals so that they may keep themselves, but has been extended to immortal corporations,for the enrichment of rentier shareholders.

This privilege of ownership is not balanced by a payment to the society which grants that privilege. Such a payment would encourage the bringing of knowledge into use, thereby increasing the Common Wealth.

Our current combination of intellectual property rights and rentier middlemen may not actually destroy our Common wealth of Knowledge, but it unacceptably restricts its use and increase.

As I have said on my blog, we should work Towards an Economics of Common Sense, and in my view this requires Economics to be re-based.

I suggest that the Commons of Location, Energy and Knowledge are the bases of value, or “Factors of Production” which underpin the Economics of the real world.

I think that we must work to develop a new Political Economy through the creation of a new narrative – a new rhetoric – on this basis, rather than the corrupted basis we now use.

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Responses

  1. I’ve thought about energy as a measure of value, which is a strange idea because we already have a common measure of value that works very well as in cash and non cash money. Oh I see, you are suggesting making energy the common measure of value, hence common money. If so you will also have to find a way to make it the common means of exchange if you want it to succeed, because this must always come before it achieving status as a common measure of value

    Energy is is fixed supply, you cannot create or destroy it as you say.

    But is it not true that it is not the energy that has value when it is supplied to the user. It is the labour used to extract and supply the energy that creates the value and is really what people are exchanging? If you agree, then it is once again and always has been labour that gives something value, the toil and exertion required to produce something is the true measure at the bottom of it. And then it is that value that gives the thing it exchangeability? Labour


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