On money and wealth, pt. 2

What is wealth?

Wealth is anything of value.

This is a broad definition but is useful because, in light on the previous post, it suggests a two-way subgrouping of the forms of wealth: things of transferable value based on a promise (i.e., money) and everything else (i.e., tangible things of transferable value, such as bananas and bicycles; ethereal things, such as love and friendship; and tangible things lying beyond traditional economic scope, such as the biosphere). I wrote in the previous post that the ideas I'm presenting are all unoriginal, and indeed, economics already has terms for these two subgroups of wealth; they are called virtual wealth and real wealth.

If all individuals were entirely self-sufficient then there would be no need for virtual wealth. We would surround ourselves only with things to satisfy our immediate needs and wants and would have no need for moneys such as pocket change, checking accounts, home mortgages, retirement portfolios, or annuities. This is an important point to keep in mind; any economy, no matter how prosperous it is, depends at its foundation upon real wealth, real things to satisfy real needs and wants. No matter how complex its markets, an economy must deliver real wealth to individuals for that economy to be considered well functioning. But individuals are not self-sufficient, and so we have virtual wealth in addition to real wealth in all but the most primitive of economies.

In the well functioning economy, trades involving both virtual wealth and real wealth are seamless. We rarely think how when trading greenbacks for bananas at the grocery store we are trading away something lacking intrinsic utility--paper bills (which are actually composed of cotton fiber)¹--to gain something possessing intrinsic utility--bananas. In a poorly functioning economy where cash has lost most of its value, we become intimately aware of the fact because the grocery store's shelves are empty and we cannot make such a trade. In the case of the well functioning economy, the trade between virtual and real wealth is viable because the promise on which the virtual wealth's value is based is worth as much as the real wealth's utility. In the poorly functioning economy, the promise is worth less if anything at all.

¹Actually, it's not entirely true that paper bills lack utility; they make great makeshift patches for bicycle tires that have suffered a blowout.