What Does Wealth Mean?

This passage from a recent essay by Robert Solow caught my eye, because it hits on a point that has always confused me:

When the implosion came in 2007, enormous amounts of what had been perceived as wealth—true, eventually spendable wealth—simply disappeared. According to data compiled by the Federal Reserve, household wealth in the US peaked at $64.4 trillion in mid-2007, and had plummeted to $51.5 trillion at the end of 2008. Something like $13 trillion of perceived wealth vanished in not much more than a year.

Nothing concrete had changed. Buildings still stood; factories were still just as capable of functioning; people had not lost their ability to work or their skills or their knowledge of technology. But a population that thought in 2007 that they had $64.4 trillion with which to plan their lives discovered in 2008 that they had lost 20 percent of that.

So, what does it really mean to say that 20% of that $64.4 trillion is gone? That's probably a dumb question. But as Solow himself points out, all of the wealth-building capacity is still there; it's not as if America got hit by a string of natural disasters or nuclear bombs that wiped out 20% of its population and territory. We're all still here.

What it means to say that trillions of "dollars" disappeared can only be that many or most of us are individually less willing to promise future payments of money for the stuff or services that other people have. But why are we all less willing to promise future payments of money to other people? Because we don't individually have enough productivity right now. And why? Because other people are less willing to promise future payments of money to us. And why are they less willing . . . well, you get the point.

So how is this not all rather circular?