Three distinct concepts

Money creation

is the creation of purchasing power, or the creation of the right to allocate economic resources.

Wealth creation

is the creation of assets that can be exchanged for money (or the increase in the worth of assets).

Value creation

is the creation of utility for others.

It’s possible to create value without creating wealth or money (e.g. Git or other open-source software), it’s possible to create wealth without creating value or money (e.g. asset bubbles), and it’s possible to create money without creating net wealth or value (e.g. lending).

Value creation & capture

can create wealth, by creating a stream of future cashflow that has

. The creation of wealth also creates assets

, which means that wealth creation can itself support money creation.

The economy is not a zero-sum game

Although there are a finite amount of resources, the utility that can be derived from these resources is (in principle) infinite. As a consequence, the economy is not a zero sum game. To “make money” (or more correctly, create value and wealth) you don’t have to take that “money” from somebody else, you can simply create it.

“The key insight of Adam Smith's Wealth of Nations is misleadingly simple: if an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”

Milton Friedman

Personal power

Any single individual person has the power to create value unilaterally, and therefore has the ability to create wealth unilaterally. This is a fact that is more obvious in some professions than others. It is evident to a woodworker, who starts with a pile of wood and through the application of their time and skill creates a table, that they create value & wealth. The table may create utility for the woodworker themselves, or otherwise they can trade that table with others in exchange for money. The creation of the table is the creation of a valuable asset. It is the creation of wealth.

In this sense, programmers are also similar to woodworkers - a programmer who writes a script that solves a problem has created a valuable asset. They have created wealth.

The power of teams

Whilst any person can individually create value & wealth, people can typically create more value & wealth by working together instead of working alone (

). Multi-disciplinary teams can work on solving bigger, harder problems, the solution of which can create disproportionately more value & wealth than if they worked alone. This is true for technology startups, and this is true for the teams that worked on formulating & manufacturing the coronavirus vaccines that are on-track to save millions of lives and restore the functioning of the global economy.

Summary

• Money creation is the creation of purchasing power.

• Wealth creation is the creation of assets that can be exchanged for money.

• Value creation is the creation of utility for others.

• Captured value creates wealth. Wealth can be exchanged for money or used as collateral for loans that create money.

• The economy is not a zero-sum game, it’s a positive-sum game, or a win-win.

• Anyone can create value and wealth.