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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: bull_derrick who wrote (22568)	12/7/2004 12:13:17 AM
From: Sun Tzu	Read Replies (1) \| Respond to of 23153

The only reason your math seems that way due to the design of your example. If you were to take the export/import portion out of the example by using another American factory instead of Chinese, you would see that based on your example the total wealth would stay the same.

To: bull_derrick who wrote (22568)	12/7/2004 1:05:27 AM
From: kodiak_bull	Read Replies (1) \| Respond to of 23153

Derrick, Let's examine your example: I think you are confusing "wealth" with "cash". It is true that, in the beginning, you have a finite amount of cash, $5, and you have a product sitting in China. But so far, we have no wealth creation. At the end of the 3 transactions, though, you will have created much greater "wealth" than $5, or else none of the transactions will get done. The wealth is created by a change in beliefs and possession of goods/cash. The Chinaman values his product at less than $1, otherwise he would not sell it for $1. Right? So let's say he values it at $0.70. If he is offered 0.65 he won't sell it. So, $1.00 is a good price for him. He is a happy Chinaman. He has now increased his wealth from 50 cents to $1.00. Net surplus of plus 50 cents. Now WMT values the product at between $1.00 and $1.25, but because of its strength, always gets the best price. It knows it can sell it for $5.00. So WMT has now, by buying the good for $1.00 (which it would have paid $1.25 for), increased its wealth, and when it sells it to Joe Smith for $5.00, finds out that it's wealth has increased, as you noted, by $4.00 (gross, we haven't paid the heating, electric, advertising yet). The consumer we know, values the product at more than $5.00. In fact, he would probably pay $8.00 for it, and it is an easy sale to him at this great every day low price. With this product he will do great things (okay it's a shovel for his garden). But Joe Smith's wealth has now increased from $5.00 to $8.00. So, the Chinaman gains 50 cents, WMT gains $4, and the consumer gains $3.00. Total gain of $7.50. Add to it the raw cost of 50 cents and you get a total wealth effect of $8.00. Kb