"Corpania’s Theory of Productive Wealth (P*Wealth)”

"Corpania’s Theory of Productive Wealth (P*Wealth)” Karl Marx got it wrong but for some of the right reasons. Capitalism is more efficient and productive than a totalitarian state (regardless of its intentions). Capitalism’s best argument is with the analogy of 10 people making pies. The theory is that the poorest guy, who would get 1% of the 5,000 pies made in a capitalist economy, is better off than that same guy getting an equal 10% share of the only 100 pies made in a communist society. Capitalism's free market is akin to the Darwinian jungle. In the jungle the strong kill the weak and species die out. In contrast, in every just democracy every citizen is endowed with equal rights & powers (voting). But these two concepts are inherently at odds (which isn't entirely bad). Equality is simply not Darwinian. Let's escape the metaphor and return to political reality. Capitalism is preferable to the extent it is more productive balanced by one's concept of equality and fairness. A Libertarian wants as much freedom with a minimum of "government redistribution". A Totalitarian Communist values equality so strongly that rights, freedom and productivity are sacrificed. Depending on one's values and principles one places oneself somewhere on that spectrum. This is all well tread ground. With this foundation established, let's get to my take on "Productive Wealth". Hypothetical: Zeke constructs a new 4-story building (to hold 16 tenants) in an up and coming neighborhood for $2 million in costs. It was estimated to last for at least 40 years without major repairs. Yanni the real estate developer sees the climbing prices and offers Zeke 3 million dollars with he takes. Zeke has just made a 1 million dollar profit that is part of the GDP. Yanni then spends $500k leveling the building so he can erect a 10-story building (at a cost of 4 million dollars) which will hold 50 tenants for at least 40 years. Yanni has thus spent $7.5 million when Xena comes along and offers $10 million which Yanni accepts (making a $2.5 million profit which adds to the GDP). Xena then sells each of the 50 units for $300k each totaling $15 million (for a $5 million profit). Now let's look at the macro economics. On the same parcel of land $8.5 million in profit was made while $6.5 million was spent in the local economy in construction and leveling and construction again. The non-money productivity result (aka "productive wealth") was 50 housing units that would last for 40 years. So it cost $6.5 million in non-profit costs to build 2000 "housing unit years". Which translates to $3,250 per housing unit year. Nothing particularly unusual about this situation.

But consider the alternative. If Zeke's 4-story building were left standing and Yanni built his 10-story building somewhere else then $500k in demolition costs could have been saved and another 640 "housing unit years" (16 units times 40 years) would have existed. This would have resulted in a per housing unit year cost of only $2,273 (= $6 million / 2640). A free market proponent would validly argue that the individuals involved made their own choices and that's exactly what "freedom" is. However, the net result in productivity is the same. Because of the free market these individuals were allowed to make choices that were NOT optimally productive nor efficient. Less "pie" was created. This is contrary to the fundamental benefit of capitalism, its productivity and efficiency.

"Productive Wealth" is profit that results in a larger pie (independent of how that pie is distributed). Zeke's venture created "p*wealth". Yanni's venture also yielded p*wealth but subtracting the "destroyed wealth" of demolishing Zeke's building Yanni's net p*wealth created was 1360 building unit years (=2000 - 640). Xena's business dealings yielded no p*wealth but did create profit. My conclusion is that a GDP that considers only profit (and not p*wealth) vastly distorts the true view of the economics as it practically applies to people. A quick second example: One has "personal music player needs". If one pays $200 for an iPod and it lasts 4 years then one is paying $50 per year. If Apple decides to make the iPod shoddier so that it will likely break after 2 years then Apple could potentially sell twice as many iPods. Hopefully the market wouldn't let that happen because such a drop in quality should result in less sales. However, consider the flip side. What is Apple's incentive to create an iPod that lasts 5 years or 10 years? "Planned Obsolescence" is common description of this dynamic. It ties directly into my concept of p*wealth. If iPods were made more durable the labor wasted on re-making the personal music player could have been used creating more p*wealth. Just like not destroying Zeke's building.