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Wherever you read business material it is stated as a fact that wealth is 'created'. It is often stated as a fact on this board. But how is it created through the activities of most ordinary businesses?

Lynn- replace the word "wealth" with the word "benefits" and the concept should make more sense. In any free market transaction between two rational parties, both parties will perceive a benefit greater than what they perceive they have to give up.

The reason this happens is that there is a difference between the benefit buyers will receive and the amount they have to pay (consumer surplus) and there is a difference between the cost to produce something and its market price (producer surplus).

For instance, you might be so hot and thirsty one day that you are willing to pay $50 for a Coke. You walk into a store and they have ice cold cokes for $1. The seller is willing to sell this because the cokes only cost them 50 cents.

Together, you and the seller are carving up the $49.50 difference between what it costs to obtain the coke and the benefit you receive from drinking it.

In a sense, the benefits you receive from a good or service is the true "wealth" of the good or service. A Van Gogh doesn't do anybody any good locked away and forgotten in an obscure basement somewhere in the world. But if it's on the wall of a museum and 10 million people get to see it then it can produce a great deal of benefits.

If you accept the premise that benefits = wealth, then there are several ways in which you as a retailer "produce" wealth:

1) Retailers Add Efficiencies To The Market. If you live in Podunk, it does you absolutely no good that somewhere in Atlanta there's a warehouse filled with bottles of Coke. For you to benefit, the things you want to buy have to be available for purchase. Conversely, it does no good to the owner of the warehouse full of Coke in Atlanta that someone in podunk is thirsty and looking to spend some money. The retailer acts as a conduit between the person who has something they are looking to sell and the person who wants to buy something. This is an invaluable part of the process of producing benefits and hence, wealth.

2) Retailers Compete With Other Retailers To Increase Consumer Benefits It may not be much fun, but the best way for a retailer to get rich is to figure out how to get the consumers more things they want for less money. Your customers will only buy something if they want to buy it. That is, if they think that buying it will benefit them more than it costs. AND they will also only buy from you if there is a benefit to be had buying from you and not some other guy. Maybe your stuff is cheaper. Maybe you have a better selection. Maybe you offer more service after the sale. Maybe your cashiers are friendlier and better looking. Maybe they're too lazy to walk across the street.

Most likely it's a combination of several factors. But the fact is that even if you were the greediest bastard on the face of the earth, the best way for you to get filthy stinking rich would be to provide more benefits for more of your customers than anyone else. Drive past a Wal-Mart on a busy saturday afternoon and you'll see that they are producing huge benefits for their customers. They got stuff people want to buy at prices they want to pay.

3) Retailers Provide Liquidity For Producers Let's go back to your original premise. Say you're a corn farmer. Corn is wealth. You plant corn and it grows and it produces more corn and hence you have "created" wealth. Let's say it will cost you $40 to produce X amount of corn. Will you do it?

Maybe, maybe not. But you are much more likely to do it if you know in advance that someone will buy that pile of corn for $50. You might even lock into some sort of contract where they agree to buy the corn for $50 on a certain date if you deliver it to a certain place. Because of this guarantee, you are able to buy whatever inputs it will cost you to manufacture the corn. Hence, the fact that someone is willing and able to buy your goods and/or services for a specified amount gives you the ability to manufacture the good or service in the first place. Hence, retailers are instrumental in the process of creating wealth by providing a liquid market for goods and services.

If we apply this logic to other "producers of wealth", we might see a publisher publishing a book only if they believe they can sell a certain number of copies at a certain price to a certain number of stores. Or a toy manufacturer might only make a toy if they think they can sell so many units for so much money.

4) Retailers Accept Risks On The Behalf Of Producers And Consumers If you make a pair of shoes, it might not sell, but a retailer might have to bite the bullet when it turns out that nobody in your town is a size 12 who desires day glow orange platform shoes. Conversely, if you are able to find an unusual item for sale in a store, it is only because the retailer decided to carry it.

You might not realize when you wake up on saturday that you will desperately need a certain Star Wars toy, but when your kids inform you that it is absolutely vital to their well being, it will be a retailer that helps you out in the pinch. On the other hand, if it turns out you never needed the toy, who'll get stuck with the thing? The retailer. The risks retailers take have the potential to benefit both consumers and producers. Again if benefit = wealth, then this process produces wealth.

In the abstract, there are three basic ways I've identified to acquire wealth:

1) Add value
2) Get Lucky
3) Steal it

A lot of people think that economics is a zero sum game and therefore wealth is created primarily through #2 and #3. Some people who did get lucky or stole their money might think that they actually added value somehow (for instance a politician might think that raising taxes adds value, even when he's just stealing money).

What gums up the works is that in most cases there is overlap between the three. For instance, John D. Rockefeller did get some lucky breaks and he did acquire some wealth through heavy handed means, but for the most part, the reason he was rich was because his companies produced benefits for the consumers.

Similarly, you might own a retail store and think that you're not "creating wealth", but in fact all economic activity in a free market increases the perceived benefits of the parties involved. If that's not wealth creation, I'm not sure what is. Not all wealth is tangible, and it's not always easy to quantify, but the wealth is there just the same. I hope this helps to clarify things. Good luck!
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