Wealth

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A fountain of wealth

Wealth refers to some accumulation of resources, whether abundant or not. "Richness" refers to an abundance of such resources. A wealthy (or rich) individual, community, or nation thus has more resources than a poor one. Even when resources are considered only in terms of physical assets, money, land, and items that can be given a monetary value, the measurement of wealth has varied over time and among cultures. Thus, for example, in some cultures pigs or cattle may be considered the most valuable possessions, whereas in others they have little value compared to other items. Distribution of wealth in a fair, if not equal, manner thus becomes difficult to achieve.

Contents

For many, the concept of wealth is not a physical one involving money or external resources, which may accumulate beyond a person's ability to use wisely or to bring happiness. Other views of wealth include one's health, time, and emotional happiness or spiritual growth. In such views, wealth is not just the collecting of items of value for personal use but includes the good that one can offer to society as a whole. For those who believe in an afterlife beyond our physical existence, wealth is generally considered in this light.

Definition

Wealth from the old English word "weal," which means "well-being" or "welfare." The term was originally an adjective to describe the possession of such qualities. Wealth can be defined as the accumulation of resources. However, the nature of these resources, and their relative importance in measuring wealth, has changed and been disputed over time.

Wealth has come to mean an abundance of items of economic value, or the state of controlling or possessing such items, and encompasses money, real estate and personal property. In many countries wealth is also measured by reference to access to essential services such as health care, or the possession of crops and livestock. An individual who is wealthy, affluent, or rich is someone who has accumulated substantial wealth relative to others in their society or reference group. In economics, wealth refers to the value of assets owned minus the value of liabilities owed at a point in time.

The difference between income and wealth

Wealth is a stock, meaning that it is a total accumulation over time. Income is a flow, meaning it is a rate of change. Income represents the increase in wealth, expenses the decrease in wealth. If you limit wealth to net worth, then mathematically net income (income minus expenses) can be thought of as the first derivative of wealth, representing the change in wealth over a period of time.

Concepts of wealth

A rudimentary notion of wealth

Great apes seem to have notions of territory and control of food-gathering ranges, but it is questionable whether they understand this as a form of wealth. They acquire and use limited tools but these objects typically do not change, are not taken along, are simple to re-create, and therefore are unlikely to be seen as objects of wealth. Gorillas seem to have the capacity to recognize and protect pets and children, but this seems less an idea of wealth than of family.

The interpersonal concept of wealth

Early hominids seem to have started with incipient ideas of wealth, similar to that of the great apes. But as tools, clothing, and other mobile infrastructural capital became important to survival (especially in hostile biomes), ideas such as the inheritance of wealth, leadership, political positions, and ability to control group movements (to perhaps reinforce such power) emerged. Neanderthal societies had pooled funerary rites and cave painting which implies at least a notion of shared assets that could be spent for social purposes, or preserved for social purposes.

Wealth as the accumulation of non-necessities

Human beings back to and including the Cro-Magnons seem to have had clearly defined rulers and status hierarchies. Archaeological digs in Russia have revealed elaborate funeral clothing on a pair of children buried there over 35,000 years ago. This indicates a considerable accumulation of wealth by some individuals or families. The high artisan skill also suggest the capacity to direct specialized labor to tasks that are not of any obvious utility to the group's survival.

The capitalist notion of wealth

A hoard of gold coins

Industrialization emphasized the role of technology. Many jobs were automated. Machines replaced some workers while other workers became more specialized. Labor specialization became critical to economic success. However, physical capital, as it came to be known, consisting of both the natural capital (raw materials from nature) and the infrastructural capital (facilitating technology), became the focus of the analysis of wealth.

Adam Smith saw wealth creation as the combination of materials, labor, land, and technology in such a way as to capture a profit (excess above the cost of production).[1] The theories of David Ricardo, John Locke, John Stuart Mill, and later, Karl Marx, in the eighteenth and nineteenth centuries built on these views of wealth that we now call classical economics and Marxian economics. Marx, in the Grundrisse, distinguished between material wealth and human wealth, defining human wealth as "wealth in human relations"; land and labor were the source of all material wealth.

Sociologist Max Weber wrote about a Protestant ethic that drives people to create material wealth for themselves on earth to show how blessed by God they were. Many have accepted this as the origin of capitalism and the accumulation of wealth.

Spiritual wealth

There has long existed a school of thought that true wealth lies not in material goods but in emotional happiness. This view has been reinforced by religious figures, politicians, and literary figures.

The transcendentalist philosopher Henry David Thoreau said, "Wealth is the ability to fully experience life." This is the view that pursuit of material goods will not lead to the greatest good for individuals or society. Edmund Burke makes this position explicit in saying "If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed."

The Christian Bible has many affirmations of this view: "But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal" (Matthew 6:20) and "It is easier for a camel to pass through the eye of a needle than for one who is rich to enter the kingdom of God," (Matthew 19:24) among others. Islam also has a notion of wealth as a spiritual rather than material goods. The prophet Mohammed said, "A man's true wealth is the good he does in the world."

The idea of true wealth as spiritual brings many to the concept of philanthropy, in which materially rich people give away their possessions presumably to accumulate a greater amount of spiritual wealth. Noted philanthropist Andrew Carnegie once said,

The day is not far distant when the man who dies leaving behind him millions of available wealth, which was free for him to administer during life, will pass away unwept, unhonored, and unsung, no matter to what uses he leave the dross which he cannot take with him. Of such as these the public verdict will then be: The man who dies thus rich dies disgraced. Such, in my opinion, is the true gospel concerning wealth, obedience to which is destined some day to solve the problem of the rich and the poor.

Wealth as time

According to Robert Kiyosaki, author of Rich Dad, Poor Dad, wealth is nothing more than a measurement of time. It is how long you can continue to live your lifestyle without any adjustments when you cease working. For instance if you spend $2,000 a month in bills and expenses and have $4,000 in the bank, and you have no other forms of income, then you have a wealth measurement of two months. If however you are simply able to increase other forms of income, those which are not the result of trading time for money, to a point where they exceed your monthly spending rate, then you will effectively reach infinite wealth.

Sustainable wealth

According to the author of Wealth Odyssey, Larry R. Frank Sr., wealth is what sustains you when you are not working. It is net worth, not income, which is important when you retire or are unable to work. The key question is how long would a certain wealth last?

Sustainable wealth was defined by the author of Creating Sustainable Wealth, Elizabeth M. Parker, as meeting the individual’s personal, social, and environmental needs without compromising the ability of future generations to meet their own needs.

The creation of wealth

Johann Mathias Kager: Wealth 1622

Wealth is created through several means.

  • Natural resources can be harvested and sold to those who want them.
  • Material can be changed into something more valuable through proper application of knowledge, skill, labor, and equipment.
  • Better production methods also create additional wealth by allowing faster creation of wealth.

For example, consider our early ancestors. Building a house from trees created something of greater value for the builder. Hunting and firewood created food and fed a growing family. Agriculture converted labor into more food and resources. Continuing use of resources and effort has allowed many descendants to own much more than that first house.

This is still true today. It is more obvious to those working with physical material than to a service worker or knowledge worker. A cubicle worker may not be aware in how many ways their work is creating something which is of more value to their employer than the amount that employer paid to produce it. This profit creates wealth for the owners of the organization. The process also provides income for employees, and suppliers, and it makes the continued existence of the organization possible.

There are many different philosophies on wealth creation. Many of the newer ones are based on investing in real estate, stocks, businesses and more. Successful individuals such as Donald Trump and Robert Kiyosaki have written many books on how they succeeded in creating wealth.

The limits to wealth creation

There is a debate in economic literature, usually referred to as "the limits to growth debate" in which the ecological impact of growth and wealth creation is considered. Many of the wealth creating activities mentioned above (cutting down trees, hunting, farming) have an impact on the environment around us. Sometimes the impact is positive (for example, hunting when herd populations are high) and sometimes the impact is negative (for example, deforestation caused by cutting down too many trees without replacing them).

Most researchers feel that sustained environmental impacts can have an effect on the whole ecosystem. They claim that the accumulated impacts on the ecosystem put a theoretical limit on the amount of wealth that can be created. They draw on archaeology to cite examples of cultures that they claim have disappeared because they grew beyond the ability of their ecosystems to support them.

More fundamentally, they argue that the limited surface of Earth places limits on the space, population, and natural resources available to the human race, at least until such time as large-scale space travel is a realistic proposition.

The distribution of wealth

Different societies have different opinions about wealth distribution and about the obligations related to wealth, but from the era of the tribal society to the modern era, there have been means of moderating the acquisition and use of wealth.

In ecologically rich areas such as those inhabited by the Haida in the Cascadia ecoregion, traditions like potlatch kept wealth relatively evenly distributed, requiring leaders to buy continued status and respect with giveaways of wealth to the poorer members of society. Such traditions make what are today often seen as government responsibilities into matters of personal honor.

In modern societies, the tradition of philanthropy exists. Large donations from funds created by wealthy individuals are highly visible, although small contributions by many people also offer a wide variety of support within a society. The continued existence of organizations which survive on donations indicate that modern Western society has succeeded in maintaining a certain level of voluntary distribution of wealth through philanthropy, despite obvious accumulations in certain sectors.

In today's societies, much wealth distribution and redistribution is the result of government policies and programs. Government policies like the progressiveness or regressiveness of the tax system can redistribute wealth to the poor or the rich respectively. Government programs like “disaster relief” transfer wealth to people that have suffered loss due to a natural disaster. Social security transfers wealth from the young to the old. Fighting a war transfers wealth to certain sectors of society. Public education transfers wealth to families with children in public schools. Public road construction transfers wealth from people that do not use the roads to those people that do (and to those that build the roads).

Like all human activities, wealth redistribution cannot achieve 100 percent efficiency. The act of redistribution itself has certain costs associated with it, due to the necessary maintenance of the infrastructure that is required to collect the wealth in question and then redistribute it.

Not a zero-sum game

Regardless of whether one defines wealth as the sum total of all currency, the money supply, or a broader measure which includes money, securities, and property, the supply of wealth, while limited, is not fixed. Thus, there is room for people to gain wealth without taking from others, and wealth is not a zero-sum game in the long term. Many things can affect the creation and destruction of wealth including size of the work force, production efficiency, available resource endowments, inventions, innovations, and availability of capital.

However, at any given point in time, there is a limited amount of wealth which exists. That is to say, it is fixed in the short term. People who study short term issues see wealth as a zero sum game and concentrate on the distribution of wealth, whereas people who study long term issues see wealth as a non-zero sum game and concentrate on wealth creation. Other people put equal emphasis on both the creation and the distribution of wealth.

Statistical distributions

There are any number of ways in which the distribution of wealth can be analyzed. One example is to compare the wealth of the richest ten percent with the wealth of the poorest ten percent. In many societies, the richest ten percent control more than half of the total wealth. Mathematically, a Pareto distribution has often been used to quantify the distribution of wealth, since it models an unequal distribution. More sophisticated models have also been proposed.[2]

Redistribution of wealth and public policy

A master of wealth

The political systems of socialism and communism are intended to diminish the conflicts arising from the unequal distribution of wealth. The idea is that a government, serving the interests of the proletariat, would confiscate the wealth of the rich and then distribute benefits to the poor. Critics of state-managed economies, notably Milton Friedman, have pointed out that the slogan "From each according to his ability, to each according to his need" turns ability into a liability and need into an asset. The former Soviet Union and the People's Republic of China are notable examples of countries where, despite aggressive economic regulation, wealth continued to be distributed unevenly.

In many societies, more moderate attempts are made through property redistribution, taxation, or regulation to redistribute capital and diminish extreme inequalities of wealth. Examples of this practice go back at least to the Roman republic in the third century B.C.E., when laws were passed limiting the amount of wealth or land that could be owned by any one family.[3] Motivations for such limitations on wealth include the desire for equality of opportunity, a fear that great wealth leads to political corruption, to gain the political favor of a voting bloc, or fear that extreme concentration of wealth results in rebellion or at least in a limited consumer base.

Quotes on wealth

  • "Wealth unused might as well not exist." - Aesop
  • "Surplus wealth is a sacred trust which its possessor is bound to administer in his lifetime for the good of the community." - Andrew Carnegie
  • "Wealth, like happiness, is never attained when sought after directly. It comes as a by-product of providing a useful service." - Henry Ford
  • "Controlled time is our true wealth." - Buckminster Fuller
  • "When wealth is lost, nothing is lost; when health is lost, something is lost; when character is lost, all is lost." - Billy Graham
  • "This country cannot afford to be materially rich and spiritually poor." - John F. Kennedy
  • "A doctrine of class war seemed to provide a solution to the problem of poverty to people who know nothing about how wealth is created." - Jeane Kirkpatrick
  • "All wealth consists of desirable things; that is, things which satisfy human wants directly or indirectly: but not all desirable things are reckoned as wealth." - Alfred Marshall
  • "The main source of our wealth is goodness. The affections and the generous qualities that God admires in a world full of greed." - Alfred A. Montapert
  • "It is wrong to assume that men of immense wealth are always happy." - John D. Rockefeller
  • "What right have you to take the word wealth, which originally meant well-being, and degrade and narrow it by confining it to certain sorts of material objects measured by money." - John Ruskin
  • "Love is life's end, but never ending. Love is life's wealth, never spent, but ever spending. Love's life's reward, rewarded in rewarding." - Herbert Spencer
  • "It is not the creation of wealth that is wrong, but the love of money for its own sake." - Margaret Thatcher
  • "Ordinary riches can be stolen, real riches cannot. In your soul are infinitely precious things that cannot be taken from you." - Oscar Wilde
  • "America was established not to create wealth but to realize a vision, to realize an ideal - to discover and maintain liberty among men." - Woodrow Wilson

Notes

  1. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations Retrieved December 5, 2007.
  2. "Why it is hard to share the wealth" New Scientist. Retrieved September 11, 2007.
  3. Livy, Rome and Italy: Books VI-X of the History of Rome from its Foundation, Penguin Classics, 1982. ISBN 0140443886

References

  • Clark, John Bates. [1902] 2005. The Distribution of Wealth: A Theory of Wages, Interest and Profits. Cosimo Classics. ISBN 9781596052529
  • Dasgupta, Partha. 1995. An Inquiry into Well-Being and Destitution. Oxford University Press. ISBN 9780198288350
  • Kotlikoff, Laurence J. 1987. “Social Security," The New Palgrave: A Dictionary of Economics, v. 4, pp. 413-418. Stockton Press.
  • Kotlikoff, Laurence J. 1993. Generational Accounting. Free Press. ISBN 9780029175859
  • Livy. 1982. Rome and Italy: Books VI-X of the History of Rome from its Foundation. Penguin Classics. ISBN 0140443886
  • Ruggles, Nancy D. 1987. "Social accounting," The New Palgrave: A Dictionary of Economics edited by John Eatwell, Murray Milgate, and Peter Newman. Volume 3, 377-82. Stockton Press.
  • Samuelson, Paul A. and William D. Nordhaus. 2004. (18th ed.) Economics, "Glossary of Terms. McGraw-Hill. ISBN 9780072872057
  • Smith, Adam. [1776] 2003. The Wealth of Nations. Bantam Classics. ISBN 9780553585971

External links

All links retrieved August 10, 2013.

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