Wealth

Previous (Weakly interacting massive particles)

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. Richness can also refer at least basic needs being met with abundance widely shared. The opposite of wealth is destitution. The opposite of richness is poverty.

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 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.

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. Labour 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, labour, 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 18th century and 19th century built on these views of wealth that we now call classical economics and Marxian economics (see labor theory of value). Marx distinguishes in the Grundrisse between material wealth and human wealth, defining human wealth as "wealth in human relations"; land and labour were the source of all material wealth.

Other concepts of wealth

A rudimentary notion of wealth

Great apes seem to have notions of "turf" 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, political positions, leadership, and ability to control group movements (to perhaps reinforce such power) emerged. Neandertal 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 may have been collective.

Wealth as the accumulation of non-necessities

Humans back to and including the Cro-Magnons seem to have had clearly defined rulers and status hierarchies. 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.

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 have a burn rate of $2,000 a month in bills and expenses and $4,000 in the bank and you have no other forms of income, then you have a wealth measurement of 2 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 burn rate, then you will effectively reach infinite wealth.

Sustainable Wealth

Sustainable wealth is 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. This definition of sustainable wealth comes from the marriage of sustainability as defined by the Brundtland Commission and wealth defined as a measure of well-being.

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 (premature loss of income due to injury or illness is actually a risk management issue). The key question is how long would a certain wealth last? Ongoing withdrawal research has sustainable withdrawal rates anywhere between approximately 3 percent and 8 percent, depending on the research’s assumptions. Time, how long wealth might last, then becomes a function of how many times does the percentage withdrawal rate go into all the assets. Example: withdrawing 3 percent a year into 100 percent equals 33.3 years; 4 percent equals 25 years; 8 percent equals 12.5 years, etc. This ignores any growth, which presumably would be used to offset the effects of inflation. Growth greater than the withdrawal rate would extend the time assets may last, while negative growth would reduce the time assets may last. Clearly a lower withdrawal rate is more conservative. Knowing this helps you determine how much wealth you need also. Example: you know you will need $40,000 a year and use a 4 percent withdrawal rate, then you need to start with $1,000,000; using 5 percent you would need $800,000, etc. This simple “wealth rule” helps you estimate both the time and the amount.

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. Donald Trump, Robert Kiyosaki, among others have written many books on this subject. There are also many blogs that talk about these concepts in an informal setting. These include Stevepavlina.com and MindsofWealth.com among others.

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, hunting when herd populations are low).

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 archeology to cite examples of cultures that they claim have disappeared because they grew beyond the ability of their ecosystems to support them.

More fundamentally, 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

File:Worldwealthdistribution2000PPP.gif

World Distribution of Household Wealth in the Year 2000 (PPP)

Capitalism asserts that all wealth is earned, not distributed. It can only be distributed after it is forcibly seized from the earners (usually in the form of tax). Wealth acquired this way is then distributed. Thus this section is concerned with the anti-capitalist conception of wealth, namely that all wealth is collective and distributed among individuals.

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 honour.

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 at least some level of philanthropy.

Furthermore, in today's societies, much wealth distribution and redistribution is the result of government policies and programs. Government policies like the progressivity or regressivity 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). Certain people resent having to contribute to some or all of these programs, and disparagingly label them social engineering.

Like all human activities, wealth redistribution cannot achieve 100% 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. Different people on different sides of the political spectrum have different views on this issue. Some see it as unacceptable waste, while others see it as a natural fact of life, which is inevitable in all kinds of inter-human relations.

Statistical distributions

There are any number of ways in which the distribution of wealth can be analysed. 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]. All indicators belonging to income inequality metrics also can be used as wealth inequality metrics.

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, point 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. They cite the former Soviet Union and The People's Republic of China as examples of countries where, despite aggressive economic regulation, wealth continues 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.,^[3] when laws were passed limiting the amount of wealth or land that could be owned by any one family. 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 rebellion^[4] or at least in a limited consumer base.

Notes

↑ Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations
↑ "Why it is hard to share the wealth" News Scientist. Retrieved September 11, 2007.
↑ Livy, Rome and Italy: Books VI-X of the History of Rome from its Foundation, Penguin Classics, ISBN 0-14-044388-6
↑ "... A perceived sense of inequity is a common ingredient of rebellion in societies ...," Amartya Sen, 1973

References
ISBN links support NWE through referral fees

John Bates Clark (1902). The Distribution of Wealth (analytical Table of Contents).
Laurence J. Kotlikoff, 1987, “social security," The New Palgrave: A Dictionary of Economics, v. 4, pp. 413-18. Stockton Press.
Laurence J. Kotlikoff, 1992, Generational Accounting. Free Press.
Nancy D. Ruggles (1987). "social accounting," The New Palgrave: A Dictionary of Economics, v. 3, pp. 377-82, esp. p. 380.
Paul A. Samuelson and William D. Nordhaus (2004, 18th ed.). Economics, "Glossary of Terms."
Adam Smith (1776). The Wealth of Nations.
Partha Dasgupta (1993). An Inquiry into Well-Being and Destitution. (Pub. description)

External links

Credits

New World Encyclopedia writers and editors rewrote and completed the Wikipedia article in accordance with New World Encyclopedia standards. This article abides by terms of the Creative Commons CC-by-sa 3.0 License (CC-by-sa), which may be used and disseminated with proper attribution. Credit is due under the terms of this license that can reference both the New World Encyclopedia contributors and the selfless volunteer contributors of the Wikimedia Foundation. To cite this article click here for a list of acceptable citing formats.The history of earlier contributions by wikipedians is accessible to researchers here:

The history of this article since it was imported to New World Encyclopedia:

History of "Wealth"

Note: Some restrictions may apply to use of individual images which are separately licensed.

[1] Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations

[2] "Why it is hard to share the wealth" News Scientist. Retrieved September 11, 2007.

[3] Livy, Rome and Italy: Books VI-X of the History of Rome from its Foundation, Penguin Classics, ISBN 0-14-044388-6

[4] "... A perceived sense of inequity is a common ingredient of rebellion in societies ...," Amartya Sen, 1973

[1]

[2]

[3]

[4]