Imagine an island with with only one good: pineapples. Let’s assume everyone on the island has zero interest in anything besides pineapples. They’re uninterested in art, books, or getting off the island. In this economy, there is a fixed supply of wealth. The only thing that can provide value are the fixed number of trees themselves. If you don’t own a pineapple tree, you’re out of luck. If your neighbor has twenty pineapple trees, you can’t woo him with dental insurance for some of his pineapples. He’ll only sell you a pineapple for a pineapple. If you steal your neighbor’s pineapples, you’re just taking his wealth and making it yours. It’s a zero-sum game: for every wealth unit you get, he loses a wealth unit.
Fortunately, in a normal economy, there are essentially infinite things you can create/find/claim which contain inherent wealth. I can paint a picture that a farmer will pay lots of corn for. Someone else might be willing to give me a used car for it. If I provide a service desirable enough, such as a triple-bypass heart surgery, someone might even pay hundreds of acres of arid land for it. As long as someone wants a good, owning that good can be considered wealth.
The creation of any new technology means a net increase in the wealth of that economy. If a student creates a simple cancer cure in his basement, he’s just generated trillions of dollars out of thin air. This wealth is in the form of knowledge, or intellectual capital. This concept has interesting repercussions. Does this mean that you are wealthier than John D. Rockefeller, who is generally regarded as the richest person in history? Rockefeller couldn’t get on the internet to play Scrabble, and no subwoofers were compatible with his car. Wealth is not just measurable as a percent of the world’s net worth.
Many people make money by creating wealth. Many others make money by reshuffling existing wealth. Buying and selling real estate, for example, creates no wealth. An automated car wash generates wealth every time it’s used, as it increases the car owner’s wealth by means of a cleaner car. Designing, building, and running the car wash generates wealth. However, trading it as an asset on the open market is still reshuffling existing wealth. Of course, if capital investors were in on bringing the car wash to fruition, their provided wealth was an integral part of wealth generation. If investors buy the parts for space shuttles, then hire engineers to assemble them, the finished product they’ve created should be worth more than the sum of the parts and labor.
Holding onto property, however, is simply controlling, not creating, assets. The efficient-market hypothesis says that in an organized, reasonably transparent market, assets will trade close to their fair market value based on estimated risk and returns. The more income-generating assets you own, the greater return you make. Asset exchange is a non-wealth creating situation where it takes money to make money. You have to have money to buy stocks/bonds/commodities to get returns on them.
However, often it takes little money to generate wealth. You can research information for a book relatively cheaply and then provide a well organized wealth of knowledge for others. You can play the guitar incessantly for years, and then sell copies of the created wealth as brain food. You can invent a medical procedure which provides a tangible health benefit to patients. Of course, as time goes on, technology gets more complex, requiring greater knowledge capital and other resources to push forward. Unfortunately or not, creating a Pac-Man clone today will just cost you time. If you’re not already in a position to trade valuable assets, modern society requires even more skills. Just remember that you’re actually creating the wealth you acquire.