Wealth

Pu Money

WTP made the following comment:

Mike, I will ask again…If, as you assert, the amount of wealth is constant and we are all fighting over the pieces of a finite pie…There are more people alive today than ever before and they are all wealthier than those in the relative hierarchic economic layers of the past. Where did this extra wealth come from? Once we get through that perhaps we can discuss: Where does wealth come from? How is it created?

I assured him that I would answer these questions, so here it goes.

One rather important matter is what is meant by “wealth.” After all, this is a normative (value) term and tends to be a matter of considerable dispute. For example, does wealth include only physical and economic property in the strictest sense, or should it also include other things of value, such as knowledge? However, to keep it simple I will go with a fairly stock account of wealth and take it to refer to items of economic value in a fairly limited sense. As such, wealth would consist of such things as valuable natural resources (oil, gold, silver, wood, water, land, and so on), capital resources, money, and physical possessions (such as guns, cars, works of art, computers, books, and such).

The amount of wealth is not constant and I do not believe that I ever claimed it was constant. Rather, my point has been that wealth seems to be a zero-sum game. That is, at any given moment, there is a finite amount of wealth and any increase in my wealth would entail a decrease in the wealth available to or possessed by another. For example, the land I own is land others do not own, thus reducing the wealth available to others (if only by a miniscule amount).

The sum total of wealth can, obviously increase. To use an obvious example, there are far more houses now than ever before. As far as where they came from, they were obviously built by people using material resources that have presumably been around since the beginning (matter & energy after all, change form but cannot be created nor destroyed-at least on some accounts).

You are right that people alive today are, in general, more wealthy than their counterparts in the past. It is also true that poorer people today are relatively wealthier than people who would have been considered wealthy in the past. One factor in this change is that advances in technology and the rise of a consumer economy mean that people have access to far more things and, of course, there is a significant motivation to sell people said things.

In terms of where the extra wealth has come from,  giving a complete picture would require several books. However, I can briefly discuss some major causes.

First, there is the development of new technology. As noted above, one impact of this is that it provides more stuff to own (and hence more wealth relative to the past). Today, for example, I have a plethora of things my ancestors did not, such as a phone, a truck, lights, a Kindle, a modem, a router, a laptop, a flashlight, a fridge and so on. Another impact is that workers become more efficient (or can be replaced). So, instead of having to make things like a bow, spear, and clothing with great personal labor, weapons and other items can be mass produced by machinery-hence there will be more stuff for less effort, thus allowing an increase in wealth.

Second, there was the development of new financial systems which allow the “creation” of wealth by various means (some of which seem to be rather destabilizing to the general economy) such as investing, credit default swapping, junk bonds, corporate raiding and so on. A more complicated and larger economic system allows for there to be more monetary wealth-although this sometimes seems to be “creating” wealth out of nothing.

As far as where wealth itself comes from, that depends on the specific sort of wealth you are talking about.

Material wealth obviously originated in the creation/origin of the universe (that is where the stuff comes from). Once we had the earth and people, people could start acquiring material goods like land and resources. These resources can be made more valuable by the addition of labor, thus creating wealth. They can also be made more valuable by other means, such as creating scarcity and controlling pricing. These material goods can be acquired in various ways, fair and foul. The classic method is, of course, conquest.

Given that the earth is finite, the material wealth is also finite, thus creating a zero-sum game. To use an obvious example, any land I own is less land that other people can own. Everyone could, of course, be fairly well off. After all, a finite amount of wealth divided among a finite number of people could still allow for people to have a fairly robust amount of stuff. Obviously, however, this is not the sort of world we live in: very few people have most of the stuff.

Monetary wealth is obviously a social construct: we made up the financial game and the “creation” of wealth depends on the sort of game being played at any given time. For example, some folks “created” wealth by clever repackaging of toxic assets. Other people “create” wealth by working and investing their money (which is supposed to give them more money). In many ways, this is “fictional” wealth in that we are literally just making this stuff up and its value depends entirely on how far we are willing to all play make-believe. Yes, I play the game-it is a convenient way to handle exchanges in some ways. But, I always remember that it is just a game we are playing (I work, I get some paper, I hand the paper to someone and they give me an apple).

In theory, there could be an infinite amount of money (not physical currency, of course). However, simply creating more money will not actually create more wealth-it would mainly just result in inflation. As such, money is also effectively a finite resource and the more I have, the less there is available for others (in a practical sense).

Thus, wealth is effectively finite and we are in a zero sum game.