Reading Progress and Poverty (Henry George) and Killing the Host (Michael Hudson) has challenged many of my economic assumptions. Among their crucial insights is that money isn't wealth - a distinction that requires carefully separating the productive economy from the unproductive one. This conceptual divide matters profoundly because our failure to distinguish actual wealth creation from financial claims has led to policies that prioritize asset values over productive capacity, driving inequality and economic instability.

According to George, wealth is:

• "tangible goods that satisfy human wants"
• "Products that result in applying labour to land or natural resources"
• "Things with actual value beyond their role in exchange"

So let's take a house. Someone builds it, they have created wealth, which is the house. Now if someone uses money to buy that house, they gained wealth (the house), and the other person gained money... so what do they have if they just have money? In this case money is "the medium of exchange", or you could say they have "a claim on other wealth". They can use that money to get roughly one house worth of other wealth. eg another house, several cars, a lifetime supply of beer...

A very different example of producing wealth would be a dance class. While Henry George focused primarily on physical goods in his writing, a modern application of his framework would recognize services as creating value that satisfies human desires. The dance class requires labor (the work and training of the dance instructor), takes place in a location (so there is a land component), and satisfies the attendees' want to learn to dance - fulfilling the essential elements of wealth creation, even though the value is created and consumed simultaneously.

It's important to separate between:

• Actual wealth: produced goods with intrinsic value
• Medium of exchange: money
• Claims on wealth: financial instruments, debts...

Some more examples, let's say you buy the above house with a mortgage. That mortgage is a claim on wealth, either through ongoing payment, or possessing the house should you fail to make those payments.

Stocks in a company represent claims on a companies assets and future profits.

Bonds are like an IOU, representing the promise of repayment and interest

Insurance is claims of compensation in some agreed circumstance, not wealth in itself.

That's why it's important to distinguish between the productive economy and the financial economy. It's possible to issue bigger loans, print more money, transfer ownership of wealth more frequently, without actually making more wealth.

GDP (gross domestic product) is generally used as a measurement of economic activity. These financial instruments are included in the product, so building a house or the interest payments on a mortgage, both are included in the "product". But in the later case, nothing is actually produced. If you buy a 100 year old apartment with a mortgage, the economy is more productive, even though all that has been added is a claim on wealth, not actual wealth.

I have left rent out so far, but including that the picture of how we measure economic activity gets even worse. Rent on land is a cost to be paid to access that land. So it represents a claim on actual wealth produced by labour and capitalists. It's redirecting wealth to landowners without them needing to produce anything. Going back to the dance class example, assuming they are renting the location for the class, then as rents go up that will result in increased costs to the attendees or decreased pay to the instructor. Even though no additional service is being provided, GDP records this as increased economic activity. These rent costs for renters and home owners (via imputed rent) are counted to increasing GDP.

If you're wondering why the news reports that GDP is growing but everything feels the same or worse, this can be why.

This distinction between real wealth and financial claims points us toward better solutions. When we recognize that much of what we count as "economic growth" is actually just the expansion of claims on wealth rather than wealth creation itself, we can design policies that target the root issue.

A land value tax is one such policy that follows directly from this understanding. By taxing the unearned value of land, we reduce the incentive for speculation and redirect value that would otherwise be captured by landowners (or financial institutions via mortgages) back to the community. This approach acknowledges that land value isn't wealth created by the owner, but rather a cost the productive economy has to pay for access. The result would be lower land costs, increased building development, reduced rents, and ultimately an economy that prioritizes actual wealth creation over financial extraction.

While a land value tax is a powerful tool for addressing land monopoly, a comprehensive approach would include additional reforms targeting other aspects of our financial system. Michael Hudson, in his book Killing the Host, explores this broader landscape with measures designed to reduce the FIRE (Finance, Insurance, Real Estate) sector's dominance over the productive economy. His proposals include debt write-downs, creating public banking options, and reviving classical economic understanding of rent extraction. For readers interested in a more complete picture of economic reform possibilities, Hudson's work offers valuable insights into how our financial architecture could be restructured to support rather than extract from the real economy.