There’s a deep and surprising sense in which money can’t be “wasted” from a bird’s eye perspective – only resources and people’s time can be wasted.
If someone “wastes” $100, someone else now has $100 extra to spend. Even burning bills deflates the currency, making other bills more valuable.
But people’s time genuinely can be wasted. The tragedy of someone spending hundreds of millions of dollars building a yacht is not the dollars spent but the enormous quantity of people’s time and all of those resources that could have gone towards much more societally valuable pursuits.
If you don’t believe this, just consider what happens after the yacht has been built – those dollars spent are now in the hands of the shipbuilders, ship captain, crew, boat insurance provider, etc., who can spend it themselves. So the money is not lost – not even a single dollar of it disappears; it just goes to other people to use! But all of those people’s time and most of the materials used in building the yacht are lost forever.
What do I mean by “lost” here? Well, time and resources can be spent creating lots of what conscious beings intrinsically value (e.g., happiness, positive relationships, freedom, justice, etc.), or they can be spent producing little to no value. Time and resources are “lost” when they produce little to no value in the process of using them up.
Someone buying an expensive yacht gets some genuine value out of it: some pleasure for them and their friends, social status, etc. But that amount of value is really tiny compared to the hundreds of millions of dollars of labor and resources permanently used up in the process (that could have been used to produce far more value). That vast sum of labor and resources could have produced large amounts of value for many people, but instead produced a small amount of value for one person.
This line of thinking has a surprising consequence: frivolous spending on things that are expensive due to labor and resource usage is much worse societally than frivolous spending on things that are expensive only due to taste preferences. It is much worse for society if someone builds a yacht for hundreds of millions of dollars than if that person spends the same amount on a lost Leonardo da Vinci painting that someone recently found in their attic. The latter scenario mostly just involves money moving around (which causes no harm), whereas the former scenario not only moves money around but ALSO uses up a ton of labor and resources.
There is a libertarian counterargument that may seem to refute what I’m saying. It goes like this: if people enter into transactions willingly and with full knowledge of what they’re giving and getting, then they are better off because of those transactions, so all transactions are good, even ones involving buying frivolous yachts for hundreds of millions of dollars.
To take this to an extreme, let’s suppose a billionaire goes around paying people to undergo torture (let’s assume that, like most people, these people hate torture). The billionaire offers enough money that these people are willing to accept the offer even though it is absolutely awful for them. Now by standard libertarian logic, the world is still better off since the billionaire chose to pay them, and the participants being tortured were willing to do it.
On the other hand, compare how much worse off the world is in that case compared to if the billionaire instead paid people to make beautiful things, or to run non-profits that seek to make the world better, or used that money to fund new startups, or just gave the money directly to those same people instead of requiring that they be tortured for it. In fact, the world would be better off if the billionaire did “nothing” with the money – leaving it in the bank so others can borrow it rather than using it to pay for torture.
The issue is not that the world is strictly worse off if a billionaire pays people to undergo torture (you could imagine a world where both the billionaire and the torture sufferers are slightly better off post-transaction – this only requires that the torture sufferers accept the deal with complete knowledge of the consequences and that they really do value the payments enough to make the torture worthwhile according to their values).
The issue is that there is a tremendous loss of value if a billionaire pays people to undergo torture relative to what could have been if the billionaire used the money for almost anything else. Paying people to be tortured does not destroy money (the money merely exchanges hands), but it does unnecessarily destroy value (people’s time is spent being tortured, which is horribly dis-valuable, instead of doing things with that time that are valuable). In this hypothetical example, the billionaire’s huge sum of money could have been spent on numerous things that would have produced value, and yet, they found one of the very least valuable ways to spend via voluntary exchange (by purchasing people’s suffering).
Buying a yacht is far less extreme than paying people to be tortured, but the torture example helps illustrate the point: using money never destroys that money; money always just moves hands, and some uses of money produce a lot of value in the world, and some don’t (and some even destroy value). Another way to put it is: buying a multi-hundred-million-dollar yacht creates VERY little value relative to the resources and amount of labor it consumes. A ten-million-dollar yacht, as a point of comparison, might make the billionaire slightly less happy, but it would produce a lot more value per unit of labor used. And a one-million-dollar boat is even better still on this ratio.
Since people’s time and physical resources are finite, when they are used on one thing, they are necessarily not used on another. To take it to extremes in order to illustrate the point, a society that spends most of its resources and work hours on making luxury goods that produce just a modest benefit for only a small number of people (as with yachts) is far worse at supporting human values than one where labor, time, and resources produce widespread benefit, with a higher “unit of what humans value” produced per hour of labor. A society that spends its time and resources building public parks and quality roads is a better one for flourishing than one which focuses instead on building pyramids to bury kings (even if the laborers are paid the same amount in each case).
I’m not saying it’s unethical to spend money on things you enjoy (I don’t think it is unethical so long as you don’t harm others). But it’s interesting to consider that, for very large expenditures for enjoyment (like multi-hundred-million-dollar yacht purchases), the amount of labor and resources they consume relative to the value they create may be bad societally relative to other equally frivolous-seeming purchases.
Note: as some commenters pointed out, there is substantial value in buying a yacht in terms of redistribution of wealth – it’s usually better for the world that the wealth moves from the billionaire to the yacht crew, etc. That’s absolutely true, but it would also be true for most usages of the money spent by billionaires, and the points I’m getting at here (about usage of labor and resources) are separate and independent from redistribution effects.
This piece was first written on February 24, 2023, and first appeared on this site on April 30, 2023.
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