One of the most common ideas in science is the amount by which something has changed. It’s used so much that scientists have a single, simple symbol for it: they write a capital delta (‘Δ’, the 4th letter in the Greek alphabet) before the thing which has changed.
Here’s an example. If we use ‘h’ to represent an aeroplane’s height, and the aeroplane moves from 28,000 feet above sea level to 30,000 feet above sea level, then instead of the wordy “h has increased by 2,000 feet”, we can just write:
(Pronounced: “Delta h equals 2,000 feet”).
Or if ‘m’ represents the mass of flour in a bowl, which started off at 500g, and someone scoops some out so that 450g is left, then instead of “m has decreased by 50g”, we can write:
(Pronounced: “Delta m equals minus 50 grammes”).
Notice that there is a minus sign when the value decreases.
With the One Lesson, we’re usually interested in how someone’s raw net worth changes, so we can look at their ΔRNW (“delta raw net worth”).
ΔRNW examples
Buying cake with cash
Here are the changes in RNW. First, Alice:
Then the baker:
Remember that working out someone’s change in RNW just involves adding the arrows pointing towards them and subtracting the arrows pointing away from them. If there is no production or consumption, each arrow has someone at both ends, so the total will always be 0.
Buying cake with credit card
How are the changes in RNW different when Alice pays with a credit card? Here’s the diagram:
There are 3 parties involved in this transaction. First, Alice:
This is the same as for paying by cash. Next, the baker:
This is also the same as for paying by cash. Finally the bank:
This too is the same as for Alice paying by cash1. The bank is simply providing an alternative way for Alice to pay the baker for the cake.
Big trade
In the Money and Banking series, we saw several examples where each person had one thing and wanted to trade it for another, such as this:
Here are the changes to each person’s RNW. First, Alice:
Bob:
Charlotte:
Dom:
Summary
The One Lesson says that we should look at changes in raw net worth to understand economics. “ΔRNW” is a neat way to express this idea, and I’ll be using it frequently.
In practice, a credit card provider would usually charge a transaction fee to the baker. The ability to accept credit card payments is a useful service provided by the bank, which the baker is willing to pay for.