To put it baldly, there are two ways to become wealthy: to create wealth or to take wealth away from others. The former adds to society. The latter typically subtracts from it, for in the process of taking it away, wealth gets destroyed. A monopolist who overcharges for his product takes money from those whom he is overcharging and at the same time destroys value. To get his monopoly price, he has to restrict production.
In "The Price of Inequality," author Joseph E. Stiglitz discusses the concept of wealth creation versus wealth extraction. He argues that there are two distinct paths to achieving wealth: the first involves creating value and contributing positively to society, while the second entails taking wealth from others, which often results in negative consequences for the overall economy. The process of extracting wealth typically leads to a destruction of value, harming both individuals and society at large.
Stiglitz uses the example of monopolies to illustrate his point. When a monopolist sets high prices, they may profit by overcharging consumers, but this practice not only impoverishes those consumers but also reduces overall production. The monopolist's strategy to maintain high prices undermines the economy's efficiency and value creation. Thus, the author emphasizes that genuine wealth is built through innovation and contribution, rather than through exploitation or restriction of resources.
