[rickydroll]

When your part in wealth creation is having your wealth acquired by somebody else.

Wealth creation only works when the the money available to buy wealth creating instruments is significantly less than the value of those instruments.

How would markets behave if investment accounts had more cash in them than there were investment vehicles? I suspect it would be like what we see today in private equity with illiquid funds and subpar returns. The response of a market in this condition would be to look for sources of liquid funds, get them to buy the illiquid funds so that the original investors could get out leaving the new investors holding the bag of crap.

Oh wait, isn't private equity doing just that trying to make PE acceptable investment vehicle for 401ks?

[WalterBright]

> When your part in wealth creation is having your wealth acquired by somebody else.

That's called "theft". In a free market, transactions are mutually agreed upon. Equal wealth for equal wealth.

> Wealth creation only works when the the money available to buy wealth creating instruments is significantly less than the value of those instruments.

Your statement presumes that "value" is some construct independent of the market. The only "value" in commerce is what someone is willing to pay for it. There is no other useful definition of value.

As for how wealth is created, I buy a canvas and some paint for $50, and paint a masterpiece that Ritchie Rich buys from me for $10,000. I created that wealth. Taylor Swift figured out how to turn her song skillz into a billion dollars. She created that wealth. Musk figured out how to turn hunks of metal into rockets that are quite profitable. He created that wealth. And so on.

> How would markets behave if investment accounts had more cash in them than there were investment vehicles?

Now that is a complex topic. But I'll make a simple take on it. When there is more cash than things to buy, then the value of the cash diminishes. We call that "inflation". Wealth creation does not cause inflation.

As for private equity, nobody is making you invest in it.

[srean]

In a hypothetical free market yes. But we don't have one. We have k-polies for small k.

I have come to doubt whether free market is even possible.

The rich will use their wealth to ensure (by corruption or otherwise) to bend the laws in their favor.

Wealth has power and they will exercise this power. Why wouldn't they ?

[rickydroll]

> That's called "theft". In a free market, transactions are mutually agreed upon. Equal wealth for equal wealth.

It's also called a Transaction with asymmetric information, or being in a position in an economic system where you cannot accumulate assets because the system is stacked against you.

I also think you're confusing wealth with value. Wealth is what you have; value is what you have is worth. You may have 50 billion in stock, but its value is what you can get away with Borrowing, spending, and dying.

> Your statement presumes that "value" is some construct independent of the market. The only "value" in commerce is what someone is willing to pay for it. There is no other useful definition of value.

But it is independent of the market. A company's stock is worth all of its assets divided by the number of shares. Anything else, such as anticipation of future earnings or expected losses, is a projection into the future. They don't exist until that moment arrives when the numbers have changed.

I learned a long time ago that the money's not real until the customer's check clears. We should be applying the same logic to valuing stocks and other financial instruments.

> As for how wealth is created, I buy a canvas and some paint for $50, and paint a masterpiece that Ritchie Rich buys from me for $10,000. I created that wealth. Taylor Swift figured out how to turn her song skillz into a billion dollars. She created that wealth. Musk figured out how to turn hunks of metal into rockets that are quite profitable. He created that wealth. And so on.

Elon Musk learned how to scam investors by selling them fantasies, projections, and wishes to raise money. But here's another way to create wealth. You ask for a loan. I give you the money and charge you interest. I did nothing, I made nothing, I just put an entry in a ledger, and all of a sudden, poof, wealth has appeared.

> Now that is a complex topic. But I'll make a simple take on it. When there is more cash than things to buy, then the value of the cash diminishes. We call that "inflation". Wealth creation does not cause inflation.

When too much money is chasing too few assets, and there is anxiety about the future, asset prices rise independent of fundamentals. Traders make increasingly poor decisions and take riskier bets to increase their portfolios' value. I've heard finance people describe this as the PE ratio as too high.

> As for private equity, nobody is making you invest in it.

If you have a pension, pension funds are one of the bigger investors in private equity, and you have no choice but to ride along with the fund's choices. The private equity industry is drooling at the thought of making a similar forced choice regarding employee 401 (k) plans.

[WalterBright]

> Transaction with asymmetric information

Asymmetric information is called "risk", and risk affects what one is willing to pay for it (i.e. its value). Have you ever noticed that "riskier" investments have higher rates of return?

> But it is independent of the market.

Value is entirely based on the market. And yes, it can and does change moment by moment.

> A company's stock is worth all of its assets divided by the number of shares.

No no no. A company's stock is worth what its expected future profits are.

> We should be applying the same logic to valuing stocks and other financial instruments.

That's never going to work.

> You ask for a loan...

You don't get a loan unless you put up collateral. So no wealth is created by the loan. Gawd, now I have to explain how banking works (!!!)

> you have no choice but to ride along with the fund's choices

People are fools to buy into defined benefit pensions.