Wealth is created.

Whether on a small or large scale, when someone creates a valuable good or service, they have created wealth. How valuable that product or service is will be determined by the market and their ability to claim their portion of that value.

Nearly all of the wealth in the world is tied to the speculative value of privately owned assets. These assets are privately owned businesses and real estate. Most wealthy people would attribute most (nearly all) of their wealth to a business that they own. These businesses (their owners) create wealth by combining a materials to create a product more valuable than the parts. This product may not be a physical product but often a service.

If I’m a real estate investor and I buy a $300,000 property and spend $100,000 to improve it and then sell it for $500,000, I’ve created $100,000 in wealth. That wealth was created and distributed into the economy, it didn’t cost anybody anything. Somebody was happy to sell me their house for $300,000, they got what they wanted. A contractor and home depot were paid $100,000 to make the improvements. Somebody else was happy to buy the home for $500,000. This is a simple example, there would also likely be a realtor, bank, several vendors, title company, and designer getting part of the deal. The $100,000 profit that I got to keep was due because I was able to use my expertise and resources to combine a variety of parts to create a more valuable product, the finished house.

Often I hear people claim that the wealthy exploit the poor. This is rarely true. If a business exploits its employees, investors, suppliers, etc, they quit, and the business fails. You may think that in the in the house example that the original seller should have gotten more, the contractor should get paid more or the buyer should have gotten a better price, everyone got a fair deal though. You may think that all I did was push paper. None of these parties could complete the deal on their own. The seller needed to liquidate. The contractor and Home Depot aren’t in the home buying business. The buyer wanted a finished house, not one that’s old and run down.

Situations like this is how wealth is created. Nobody stole anything. Nobody got exploited. In the end every party got what they wanted in a mutually beneficial arrangement.

To learn more about how people create wealth and stimulate the economy, check out Easy vs Hard Money

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