You get it exactly right.
On Wed, Mar 11, 2009 at 05:04:59PM -0400, Rudy Fichtenbaum wrote:
> By and large the destruction of fictitious capital just represents a
> redistribution to the claims on real wealth and not the destruction of
> wealth itself. However, when the collapse of these claims begins to affect
> the real economy then there can be a destruction of real wealth. A good
> example is the mortgage crisis leading to foreclosures. If it were just a
> mortgage crisis it would only be about who actually owns the property. The
> problem is when you have foreclosures and houses are abandoned they are
> vandalized or pipes break and real wealth, the house itself is effectively
> destroyed. This has become a big problem is cities like Cleveland.
>
> However, I think the point you were trying to make is generally true which
> is the decline in the value of financial assets in an of itself does not
> represent the destruction of real wealth.
>
> Rudy
>
> michael perelman wrote:
>> This short essay briefly describes the financial side of my interpretation
>> that the crash reflected a disconnect between the underlying investment in
>> the economy and its financial representation -- what Marx called
>> fictitious capital. The stock market people call this realignment,
>> "destruction of wealth," even though what is destroyed is the illusion of
>> wealth. The illusion may have been capable of purchasing valuable things
>> so long as other people accept that illusion.
>>
>> Long ago people accepted the illusion as an illusion and went on with
>> their business. Here is what a former governor of Illinois wrote:
>>
>> Ford, Thomas. 1854. History of Illinois (Chicago: S. C. Griggs and Co.).
>>
>> 227: "Our Whig friends contended that the continual and violent opposition
>> of the democrats to the banks destroyed confidence; which, by-the-bye,
>> could only exist when the bulk of the people were under a delusion.
>> According to their views, if the banks owed five times as much as they
>> were able to pay and yet if the whole people could be persuaded to believe
>> this incredible falsehood that all were able to pay, this was
>> 'confidence'."
>>
>> Ordinary people understood what was happening. Here is an incident from
>> Chicago about the same time.
>>
>> More at:
>>
>> http://michaelperelman.wordpress.com/2009/03/11/what-is-the-crisis-about-fictitious-capital-or-the-destruction-of-wealth/
>>
>
> --
> Rudy Fichtenbaum
> Professor of Economics
> Chief Negotiator AAUP-WSU
> Wright State University
> Dayton, OH 45435-0001
> 937-775-3085
>
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-- Michael Perelman Economics Department California State University Chico, CA 95929
Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu michaelperelman.wordpress.com