2010 - You bought a home for $100,000 and your favorite sandwich costs $5. 10 years later… 2020 - You sell the home for $200,000 and your fav sandwich costs $10. (1) Did you make any money? (2) Did you increase your wealth? Are you richer? Answers: (1) Yes (2) No 2010 - $100,000 is worth 20,000 sandwiches ($5/each) 2020 - $200,000 is worth 20,000 sandwiches ($10/each) You made $100,000 dollars so you made 100,000 more money/dollars. But you cannot buy more sandwiches. Your money still buys the same number of sandwiches: 20,000 sandwiches. Your wealth did not increase. But you actually reduced your wealth because the gov't will tax you at maybe 20% on the dollar profit. Your dollar profit is $100,000, which means you pay $20,000 in taxes. You're left with $180,000 which can buy 18,000 sandwiches. Your wealth was reduced by 2,000 sandwiches, even though you had a dollar profit (after taxes) of $80,000. It's the consequences of inflation (devaluation of the dollar).