Group RNW
What's the RNW of a group of people?
The Raw Net Worth of a group of people1 is just the sum of the RNWs of the individuals in the group.
To illustrate this, here’s a group of people: Alice, Bob and Charlotte.
Alice owns a house and a car. She is owed £2,000 by Bank X, and owes a loaf of bread to Bob.
Bob owns a house, and 2 loaves of bread. He is owed £1,000 by Bank Y and a loaf of bread by Alice, but owes £90,000 of a mortgage to Bank X.
Charlotte owns a car, 4 loaves of bread and 2 apples. She owes an apple to Dom.
Between them, Alice, Bob and Charlotte:
Own Alice’s house and Bob’s house, Alice’s car and Charlotte’s car, 6 loaves of bread and 2 apples.
Are owed £3,000 and a loaf of bread, and
Owe £90,000, a loaf of bread and an apple.
So here are the RNWs of Alice, Bob, Charlotte, and the group of all 3 of them.
Notice that the group’s RNW is the sum of the individuals’ RNWs. In particular, look at the number of loaves: -1 for Alice, 3 for Bob, and 4 for Charlotte, making 6 in total for the group.
The loaf of bread which Alice owes to Bob doesn’t affect the group’s RNW because the decrease from Alice owing the loaf is exactly offset by the increase from Bob being owed the same loaf. Debts owed within a group have no effect on the group’s combined RNW.
The whole world’s RNW
The whole world’s RNW is, naturally, the sum of the RNWs of everyone in the world.
What’s interesting about this is that every debt owed by someone in the world is owed to someone in the world (and vice-versa)2.
This means that debts have no effect on the whole world’s combined RNW. They are all owed within the group. And so the whole world’s RNW is just the sum of everyone’s tangible assets.
Understand the importance of this. Creating new debts (e.g. creating money) and writing off existing debts (e.g. people paying down their debts in an economic downturn) have no effect on the world’s RNW. At most, they transfer RNW from one person to another. The only way to change the world’s total RNW is to produce or consume tangible assets.
Remember, when I say people, I mean either real people or corporations. Corporations, like people, can own, be owed and owe things.
Unless there are inter-planetary debts I’m not aware of, in which case we can talk about the whole universe’s RNW.
This post will come in handy for when we look at the effects of insolvency on the rest of the world's RNW.