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.

Question

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

Answer 1

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.