David Deutsch tweeted the following:
David is right. The exchange of money for a painting is just a trade that does not alter the total amount of goods and services (resources) available in an economy. Person buying the painting acquires property rights over the painting, and the seller has the money–which represents claims on resources. The seller of the painting can do whatever he wants, including giving it to charity. The buyer could have given the money to charity instead of acquiring the rights to the painting.
In short, the sale of the painting, a commercial transaction, did not affect the economy at all.
In contrast to that, consider the sale of a cup of coffee. Coffee gets consumed and in the act of consumption, reduces the total amount of resources available in the economy. In what way does this affect the economy? The resources that went into making the coffee are consumed. Also, the ultimate aim of production is consumption. Buying coffee signals the market to produce more coffee.
Now consider the case of a stock purchase. The stocks of a corporation represents a claim on the future earnings of the firm. The buyer of stocks essentially becomes part owner of the firm and thus has a claim to firms profits. The earnings are not guaranteed of course. It could well be that the firm goes belly-up, and the stocks become worthless.
In all cases, the buyer could have spent the money on “good works” instead of the painting, or the coffee, or the stocks. That would have affected the economy in directing resources toward, say, feeding the hungry. That does affect the economy in ways that buying a painting does not. It signals to the market to produce more food, and less on producing fancy cars for the rich (if the alternative to feeding the poor was buying fancy cars.)
Paintings don’t involve the use of a lot of resources; just a bit of canvas and paints. Some painting sell for tens of millions of dollars. That’s not the case for a massive yacht costing tens of millions of dollars. Building yachts involves lots of resources, many millions of dollars. So the rich buying yachts is actually “wasteful” from a social (as opposed to private) point of view.
Cue ABBA. Money, money, money, Must be funny, In a rich man’s world. All the things I could do, If I had a little money, In a rich man’s world.
One thought on “Money”
Money,Money,Money from my most favorite movie, recipient of 8 Oscars–