Monday, August 08, 2005

Wealth Creation and Destruction - don't throw it away

Wealth is created every time value is added to a product or service. General Motors forms metal and plastic into cars, transforming cheap raw materials into expensive autos. Value is added and wealth is created. Everyone understands that.

What doesn't occur to many people is that when we junk that car, value is subtracted and wealth is destroyed. A valuable vehicle becomes raw materials and landfill.

In fact, everything we throw away, consume or burn is wealth destroyed. A beer bottle has value as a container until the beer is consumed and the bottle is chucked in the trash. Gasoline has value as "stored energy" until we burn it.

The wealth of an economy is constantly changing. It increases as new value is added. It decreases when we use stuff up.

It's easy to see how manufacturers create wealth, but retailers create wealth too. Value is added to a store's inventory by bringing it to the customers and by holding it until the customers are ready to buy. Most of the time the retailer doubles the value of the inventory (as reflected in the difference between the wholesale and retail prices).

Do retailers also destroy ? Yes. Merchandise arrives in cartons, which we throw away. Wealth destroyed. Light fixtures use electricity. Wealth destroyed.

We can all help increase the total wealth of our economy by slowing the destruction of wealth. Install efficient lighting and HVAC units. Encourage wholesalers and manufacturers to ship merhandise in reusable containers. And most importantly -- sell products that are long-lasting and retain their value.


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