What’s it called if I buy something like a sandwich, then consume it, and the net worth of society has now shrunk by 1 sandwich? Versus buying something that keeps its value.


Maybe a better example would be a country getting leveled in a war. All of the money is still there, but now everyone is poor and has no net worth. How does that work?

It seems kind of like losing that amount of money, even though we didn’t?

In: 3475

You’re talking products vs commodities.

Commodoties are what products are made from. You also have services, which connect the two.

As a product, the sandwich is replenished again and again. It’s value comes not from what it is, but from what it does: provides tasty, portable sustenance.

The city is the same thing. So long as people (paid or not) rebuild the city to the point that it serves its purpose (to house, employ, and entertain people), it will again generate value. A city is merely densely co-located products and services, which usually require commodities.

The money supply is a representation of the value of the productive assets of the country. Once it’s in ruins, so is the money supply. With a sandwich, the sale of the sandwich reduces the supply of the ingredients, but adds economic ability to the shop owner, farmer, cheese maker etc. That then incentivises the production of more bread etc, so it creates the conditions for the farmers and artisans to take the time to grow more and produce more.

With a war torn country, the civilian infrastructure is crippled, so the entire supply chain fails apart, mostly from service industry down to primary industries last. This depletes the earning potential of that sandwich, as no one within the supply chain can spend the value earned. One the sandwich is eaten, it’s not replaced, and THAT is what causes the economy under those conditions to shrink.

If you want to think of it this way, the value of the sandwich is “added” to you as a person.

If you engage in economic/productive activity, that consumed sandwich is the fuel that generates positive economic value.

Think of it as purchasing a tank of gas/petrol for a vehicle. If that fuel is used unproductively, that society’s total welfare has reduced but if it is used to generate even more value, then society’s total welfare has increased.

From an economics standpoint, eating the sandwich is consumption. Purchasing a plot of land is investment in an asset. Neither one is good or bad, they just do different things.

Some purchases seem to blur the lines. If you buy a house to live in, it’s both an asset and something that gets used. That gets accounted for by counting the house itself as an asset, and living in the house as consumption, since you could otherwise rent it out. (Passing up on this is called the opportunity cost.)

In practice, even though you could try to hold onto a sandwich and resell it, it’s treated as immediate consumption with an asset value of zero. Which I would endorse if you ever try to sell me a second-hand sandwich.

As far as “the net worth of society”, remember that the sandwich was only made to be eaten, because it was expected to be eaten. All the stuff and effort that went into making it won’t ever be used if people stop eating sandwiches. The “worth of society” won’t need to change. People will just start producing the stuff that replaced sandwiches.

Think of unconsumed goods and services as capital. The economy is made of people who acts as producers and consumers. There is a global amount of capital which you can quantify as a USD value. Imagine the world as a giant company with a giant ledger of assets.

Naturally the global amount of capital naturally increases (e.g. trees grow) and decreases (e.g. hurricanes kill animals). There is also fixed capital like oil reserves and fertile land which can only decrease.

Production by labour is the conversion of capital. A tree with labour can be converted into timber which can be converted into a chair. The easiest way to quantify capital is the USD value of goods. The value of the “man-hours” could be their salary.

People are consumers as well as producers. If the chair is sat on enough it will eventually become useless. In this case, as you say, the net capital of the world is decreasing.

Money is an economic tool, but is not at the essence of economics; finite resources (capital) and infinite wants. Money changing hands does not directly constitute an increase or decrease of capital.