When a company goes bankrupt, is wealth destroyed? When creditors are not repaid, is wealth destroyed? When pension fund investors lose their money and would have to retire later, is wealth destroyed? Current stock and bond prices imply that 10-20% US companies will go out of business in the next 5 years.
No, no, and no. Wealth could end up being destroyed as a result of rapidly falling prices-- for example, if a company that goes bankrupt then shuts down, and lets its machines sit and rust-- but they are not identical.
I think it is a mistake of some sort not to think of the companies themselves as machines. After all, what use is a tractor apart from the farming it can do in the future? Same goes for a farmer. Same goes for a farm.
Our economies create real wealth from nominal by taking into account future wealth creation. You can call assets (eg stocks) 'nominal' (not real) if you want because they are paper assets. That's correct in a sense. If the market decided to value them lower tomorrow on a whim, no real wealth is destroyed. These assets (in the stock example these are the companies behind the stock) go on creating wealth as usual. Future wealth creation is not disturbed.
On the other hand, if the company alters its wealth creation patterns (eg by going out of business). Real (future) wealth is lost.
Basically, I think you need to take into account future wealth creation in these definitions. Call it reverse capitalism (in the Marxist sense). Future wealth controlled the means of production.
I'm not a native speaker, but http://www.answers.com/wealth doesn't agree with you either. A company is something you can own, possess, a resource you can use as a tool. When it is bankrupt, I think some real wealth is lost.
