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To: Gregg Powers who wrote (16133)	10/7/1998 7:17:00 PM
From: Joe NYC	Respond to of 152472

Greg, OT OT OT If you bought $15,000 worth of Microsoft stock at the IPO and went into a cave, you would come out today with a (pretax) net worth in excess of $1.6mm...clearly "wealth" had been created. Yes wealth has been created, but I think you are looking for it in all wrong places - Nasdaq. It was created in Redmond, Wa. Wealth has been created when new software was written and sold to millions of users. When MSFT assembled first rate marketing, engineering and customer service team. It was created when MSFT hired best and the brightest and put this brainpower to productive use. As a result, your $15,000 worth of shares own a chunk of this enterprise, and other investors are willing to trade these shares today for $1.6mm. They are willing to put this new price on this financial asset. I think wealth and dollars are 2 somewhat different units of measure. Assume that all the goods and services etc. combined are some number of units (x) of wealth (lets call the unit W). So you have xW of wealth. Suppose the amount of wealth created in one day equal to the amount that is destroyed or used up. (You drink a bear, go to the bathroom or your car gets one day older, but more cars and beer is produced). So from one day to next, the total wealth remains xW. But on this day, you have a market crash and all financial assets become worth 50% of previous prices in $ terms. If all the financial assets were worth half of all the wealth the distribution of wealth in $ terms was: 0.50x W of financial assets 0.50x W of non-financial assets On the next day the distribution in $ terms was: 0.25x W of financial assets 0.75x W of non-financial assets If dollar was a true measure of wealth, the price of beer and cars would have to go up, to compensate for drop of you MSFT stock. But dollar is fixed to typically to non-financial assets. Since price of beer and cars didn't change on the day of the crash, you have this huge number of dollars seemingly disappearing. But Fed can take care of that. The number of dollars out there is what Fed makes it. But on the next day after the crash, at Microsoft some programmers will go happily about fixing bugs, other creating new ones, the marketing will issue a new series of press releases, people buy more licenses to use MSFT software, people will go have a beer, Heinecken will happily produce more. The true wealth stays the same, even though supply of dollars shrunk by 25%. If you think in wealth terms, not in dollar terms, on the day market drops 50% you can say "Wow, I got a raise. My salary can buy twice as many shares as yesterday" Wealth is like air in a balloon, prices are like its shape. You can squeeze on end, but the other end will get larger. Joe

To: Gregg Powers who wrote (16133)	10/7/1998 7:34:00 PM
From: Sawtooth	Read Replies (1) \| Respond to of 152472

<<I disagree with your conclusion regarding wealth and share prices. If you bought $15,000 worth of Microsoft stock at the IPO and went into a cave, you would come out today with a (pretax) net worth in excess of $1.6mm...clearly "wealth" had been created.>> At the risk of belaboring what has become a topic of discussion nearly akin to "if a tree falls over in a forest and no one hears it, does it still make a sound when it falls?" (or, if one prefers, "if a man is speaking in a forest and no woman hears him, is he still wrong?") would the 1.6mm not only be realized when someone else was willing to transfer that amount of assets to the person in exchange for the stock? Which is why financial statements show equity investments at cost instead of market value (or the lower of the two)? Nice to hear from you again. ...Tim