This essay is about wealth. As background I will provide a brief summary of the conclusions of the first essay in this “Invisible Hand” series which examined the physical object nature of our money and some of the unfortunate consequences of that nature. I will be concise so this review won’t take long.
All money in history (and prehistory) has been considered to be or to represent physical objects such as a basket of grain, a cow, a coin, or a paper bill. Today most money is in computer accounts and though it zips around the world from account to account at almost the speed of light, it still is treated as if it were a physical object of some sort. Because we treat money as if it were a physical object, anything which is true of physical objects in general will also be true of money. This obvious point is ignored by economists and others who talk and write about money even though it is the most important truth about money. The importance of the physical object nature of money cannot be overstated. What follows are some of the consequences of that physical object nature.
First, money is like other physical objects in that it can be taken from its owner against that owner’s will; by force, fraud, or stealth and it can also be lost or destroyed. This means that you need to suspect almost everyone of trying to get your money by fair means or foul.
Second, money must be amoral because all inanimate physical objects are amoral. Even animals are amoral, in that they have neither an ethical sense nor morality, especially when they are used as commodity money. You can use your physical object money for anything, good or bad.
Third, the money supply is independent of the supply of goods and services for sale because the supply of one physical object is independent of the supply of other objects.
Fourth, money falsely simulates a zero-sum game in monetary transactions because the money gained by one party must be lost by some other party or parties. Money makes us think that other people can gain money at our expense and that we can only gain money at their expense. It makes us treat others as if they were competitors, rivals, opponents, or even enemies.
Fifth, money is almost impossible for a society or nation to control. In every nation that attempts to limit, regulate, or tax trade a black market comes to exist; and organized crime flourishes in all nations.
Sixth, money transactions are two-party interactions. Two-party interaction is inherently unstable because if one party gets an advantage in power such as having more money, the stronger party can use that power to gain still more advantages. This is particularly true of money. The old saying “them as has, gets” is true. Possession of money does make getting more money quite a lot easier. Naturally, the weaker party in such two-party interaction will eventually want to end the interaction. Thus the relationship is unstable.
Keeping that review in mind, let’s consider wealth.
Wikipedia, our old friend when searching for public consensus on the meanings of terms, says that wealth is QUOTE “the abundance of valuable resources or material possessions.” UNQUOTE. That sounds fine to me. We can work with that. And I will note right away that a physical object money, or POM for short, is a material possession and a valuable resource. In fact, if one is to compare the wealth of two parties the comparison will almost always be given in terms of the POM standard unit of account.
It makes sense to talk about wealth in reference to nations or states, regions, corporations, political parties, families, and individuals. With POM there can be joint ownership which makes ownership of wealth much more likely for that joint ownership. It doesn’t take much money to buy a few shares of a wealthy corporation, for example. So let’s begin at the top with nations or states since they represent pretty much the greatest concentrations of wealth that have ever existed in history.
We have already dealt with value as a concept in an earlier presentation. We (that’s a royal “we” since this series, so far, has just been me writing what’s on my mind) we decided that “value” would refer to “price” so far as we were concerned. That does omit many proper and appropriate uses of the concept of value, but those other uses are outside economics as we know it. So it should come as no surprise to anyone that for a considerable time, the wealth of a nation or state was reckoned as the amount of currency the king or other ruler possessed. Thus, Spain was considered to be a wealthy nation in 1590 due to the gold and silver it imported from the New World. The state, in Spain’s case the king of Spain, spent huge amounts of money on its military, for example, which enabled the King to maintain dominion over a far-flung empire in Europe and the Americas. Wealth, in the case of states, is the root of power.
What was Spain’s motive in sending expeditions to the Americas and to the Pacific islands and Asia? The crown and his nobles wanted gold, silver and other valuable commodities. Wealth was power and power allowed one to gain even more wealth. Of course, all that seeking of wealth and power did not work out so well for the people of Spain who suffered from the resultant inflation and the seemingly constant wars. For some reason, manufacturing the tools of war reduced the production of consumer goods. Perhaps Adam Smith could have explained that wealth was actually QUOTE “the annual produce of the land and labor of the society.” UNQUOTE. If a considerable part of that annual produce is devoted to weapons of war and the conducting of military operations, then there is far less available in the form of consumer goods. Soldiers engaged in war typically destroy far more than they build or create. So the wealth of Spain, when reckoned in gold and silver, did not express very well the consumer goods and services available to the average citizen of Spain. Smith would rather have nations reckon wealth on the basis of what they could produce each year. Smith denied the idea that possessing a great weight of gold and silver made a nation wealthy.
So the idea of wealth being only material possessions should be tested. It may well be that other things in addition to money are also valuable or useful. The ability to command or employ the talents and abilities of other human beings should, perhaps, also be considered to be a part of wealth. If so, then virtually everything which can contribute to production of consumer goods ought to be viewed as contributing to wealth. But that would mean that capital goods and resources which are employed in production are a part of wealth. So land, plants, animals, bacteria, minerals, sunshine, starlight, water in its various forms, in addition to human beings and all their skills and abilities are all parts of wealth of nations. In short, it’s difficult to think of anything which is not a part of a nation’s wealth.
Well that should give one pause. Perhaps our definition of wealth is too broad and all-encompassing. Perhaps we should pay more attention to that term “abundance” and give less attention to the things which are in abundant supply. Abundance is a term which is relative. That is, it is useful in describing comparisons. But if we simply use the idea of wealth to compare the relative possessions of different states we are really missing out on any kind of understanding. I don’t think Smith and others who have so learnedly written about wealth would use the concept simply as a means of creating rankings as we do for college football teams. And even the poorest nations today are quite wealthy when compared to the grand and great nations of 2000 years ago. So the idea of abundance is also of little use.
Smith gives us a clue which we might use in his idea of division of labor. This concept allows us to explain and understand how it is that two states which have similar material resources in the land and its contents can have such great differences in their ability to produce. That state with the greater division of labor will tend to produce much more per man hour of labor and enjoy, therefore, the benefits of abundance in goods and services. Smith attributes the development of the division of labor to the human propensity to barter. Trade makes it possible for people to specialize and thereby become more proficient than would otherwise be the case.
This observation led Smith to refer to the origination and use of POM. It is quite true that POM does facilitate trade and that POM has developed in a wide variety of nations over much of the earth. Those nations with greater division of labor also tend to have the most useful and developed POMs. Historically, the nations which have developed coins for currency were ahead of those nations which continued to use consumable commodities such as salt as their POM. Being able to tell at a glance that an object is money and that it has a specific denomination or weight of metal makes trade much easier. Of course, counterfeiting is also furthered by improved POMs. If cows are the commodity money it’s hard to fake a cow. Gold or silver coins can be debased or clipped by the state and others.
So Smith would say that wealth goes along with division of labor. We can use that by saying more generally that anything which encourages productivity of labor increases wealth. Division of labor being just one such thing. And those things which reduce the productivity of labor decrease wealth. Of course we are speaking of the wealth of nations or states here. Just because an individual becomes better educated does not mean that that individual will have access to more consumer goods.
What increases the productivity of labor? Education, knowing what to do and how to do it increases productivity. Capital goods or tools increase productivity. Free markets increase productivity.
What decreases the productivity of labor? Poverty, slavery, political oppression, discrimination (on any grounds other than performance), ethnocentrism, conservatism, and the nature of POM all decrease the productivity of labor. But as those of you who have read to the previous essays in this series know, almost all those other factors are products of POM. So we really could say that the only important factor of those social and psychological aspects of nations was that last factor, POM.
We can conclude that so far as nations’ wealth is concerned, POM both makes it possible by making a greater division of labor workable and severely limits the effectiveness of that greater division of labor by its other consequences. Use of a non-POM would provide the advantages of division of labor without the debilitating consequences of POM.
Next let’s consider corporations and wealth. In the modern world, the next level down from the state or nation level is the large corporation. A few large corporations possess more wealth than some of the smaller nations so the step down is not as great as might be supposed.
Corporations vary in size from trivially small to government-sized. The smaller corporations are roughly the equivalent of individuals in their relations to wealth so we will leave consideration of their situation to the section on individual persons.
One naturally considers corporate wealth in terms of capital resources such as tools and raw materials. But corporations also possess organized labor resources and intellectual property such as patents, copyrights, and trade secrets such as manufacturing techniques. Corporations, like states, generate most of their wealth from labor resources and intellectual property. In the preindustrial times that was not the case. In those olden days the farm and the forest and the mine were the sources of wealth. There was little to be gained in comparison from the smith or the cooper or the miller or the jeweler. They worked and were productive but what they produced paled in comparison to the production of the farmers or the miners.
So the corporation, if it is large, is mostly producing wealth via its labor resources and intellectual property. It is the cooperation among and the coordination of the laborers in a corporation which enables the huge increases in production that we have seen over the last 200 years. The machines and other tools owned by a corporation can be replaced relatively easily. But the skilled labor, the technical experts, the engineers, the programmers, and the innovators, they cannot be so easily replaced. When Japan lost the Battle of Midway in 1942 they had, that day, lost the war. It was not because four of their best aircraft carriers were sunk. They replaced those within a year. It was not because they lost several hundred airplanes. Those were replaced within a few months. It was because they lost over 300 very skilled pilots and hundreds of skilled mechanics who were never replaced that the war was lost. The personnel were irreplaceable. The same thing is true of the most successful corporations. It is their skilled, competent employees who are most responsible for their success. In some businesses this is blatantly obvious. Take a law firm, for example. It is the skill of the firm’s lawyers that determines whether that firm succeeds or fails. Or look at the NBA. It is the skills and abilities of the players and coach which determine whether the team will win or lose, will attract crowds or play to empty seats, will sell large amounts of team products or be an embarrassment to its fans.
Once again, it is the level of and degree of productivity of a corporation which most strongly influences its wealth. But that is not the only factor. There is also the context and circumstances within which that corporation operates. There is the law and the corporation’s relationship to the government which can be a major factor. A corporation does not need to be very productive if it has monopoly status, no-bid contracts from the state, laws which hinder competitors, and huge subsidies. In fact, a corporation can actually be doing more harm than good to the public and still be extremely profitable. The tobacco industry is my favorite example of a high profit, highly government-regulated industry which does enormous damage to the economy and the people of nations. Yet such corporations gain wealth. So we cannot simply say that a productive corporation will advance the standard of living of a nation or will improve the economy of a nation. We cannot equate the acquisition of or control of wealth by a corporation with aiding the economy or the people of a given nation.
We have also described in previous lectures how POM fosters concentration of wealth in a few hands and how that, in turn, prevents and destroys free markets. Corporations do what gains wealth for the company even when such actions are illegal, immoral, or just plain evil. That is what their design is intended to produce. Corporations, in theory, are to produce profits for their shareholders. If that is taken seriously, that makes corporations totally amoral. But that is the nature of POM, right?
Wealth, for a corporation, is a source of power and a means of gaining still more wealth. Wealth is used to gain control of and destroy competition. Wealth in the context of a POM is dangerous to others. But wealth is also, for a corporation, a necessity for being productive. We have greatly increased production per person and per “man-hour” of labor over the last 600 years and much of that increase is due to the wealth of corporations. Without large concentrations of capital goods and labor many large projects would be impossible. In 1600, what average person could build a ship capable of sailing with a cargo from Holland to the Dutch East Indies? None could. It took considerable resources both human and physical to construct such a ship and more resources to sail it to the Pacific. And that doesn’t count the resources necessary to build and operate a port in Holland.
We can easily see that corporate wealth is like fire, a source of infinite potential benefits or great danger. Wealth offers opportunity and wealth can destroy. But is there anything about corporate wealth that threatens us, which is not strongly related to the physical object nature of money? If it were not for POM would corporations be at all dangerous? Is it possible that by changing the nature of our money we could make wealth safe even in large concentrations being controlled by businesses? If you have been reading the other lectures in this series I’ll bet you know that I think the answer is a strong “Yes!” Concentrations of business wealth, of infrastructure, of coordinated labor resources, of intellectual property all work to benefit the nation, the economy, the public, and even those who participate in the business in a non-POM economy.
Next let us consider individual or family wealth. We know that the vast majority of individuals in the world have little or no wealth. In fact, the poorest third or so of the World’s population have no wealth at all but are in debt. Their assets are less than their liabilities. On the other hand, the top one percent or so of individuals and families are estimated to have half or more of the World’s assets. The consequences of such concentrations of wealth at the individual or family level are devastating. It is not so much that power corrupts, though it does, as that the productivity of the poor is suppressed by poverty. It is very difficult or impossible for the poor to be productive. This reduces the total wealth available to a nation, economy, or society. We have already described in this series how slavery minimizes productivity and we’ve gone over how poverty prevents the maximizing of human potential. So the concentration of wealth reduces the resources available to increase the productivity of the poor. This reduces the wealth of everyone. We are, as a species, mutually interdependent. That which makes anyone poor reduces my wealth. Just think what life would be like if only one person or one family owned all the resources, all the money, all the power. Either the term “ownership” would have lost all its meaning or the economy could not function at all and all production that involved a division of labor would cease.
But this is a lack of wealth. Our topic just now is wealth in the hands of an individual or family. It’s only natural that people who spend most of their time trying to just get along (that would be the middle class and the poor) would see having wealth as a wonderful thing with no drawbacks. Why even I look upon the rich as having really nice problems. If you have to have the problems of some class of people I suggest that you consider having the problems of the rich. Surveys have been done to find out what the very rich worry about. Let’s see what has the rich worried.
According to a survey done by the Atlantic magazine reporting in the February 24, 2011 issue, the rich feel financially insecure and need about 25% more to be secure no matter how many millions or billions they already have in assets. They also worry about losing their money. So that’s just like the rest of us. But the rich also feel that they have lost the right to complain about anything. Of course, that doesn’t stop them from complaining about the high taxes they work hard to avoid. The rich fear that their children will become so called “trust-fund brats” who will be resentful if they don’t inherit as much as they wanted. The rich also fear that other people like them – or pretend to like them – only for their money. The rich worry about how their money’s invested. They feel isolated. They worry about overspending and getting deeply into debt. Some of them feel like they’re drifting without a career or a purpose, and many of the rich don’t feel that they deserve their wealth. Finally, the rich find love difficult: There is a lack of trust when one’s potential spouse may contest your millions.
Wealth, in other words, at the individual or family level does not guarantee a happy life. In that list of worries we find item after item that reflects those consequences of physical object money. For example, that worry about losing their money reflects the fact that POM can be taken from you against your will. The fear that other people will like them only for their money and the fear that they are isolated each reflects that false zero-sum nature of money transactions. Even the rich are suffering from the consequences of the nature of POM.
As usual, we can compare the situation with regards to wealth in a non-POM economy with the situation that has historically been the case with POM.
At the state or national level there will be no wealth at all. That is, with no government to own things or make economic decisions the state, itself, will possess no wealth. There will be no budget and no state spending of non-POM because only private individuals can own non-POM. All capital goods and resources will be owned by individuals; thus, the roots of productivity – and therefore the roots of wealth – will be exclusively in the hands of individuals.
Or if one looks at states and nations as mere categories rather than as owning, possessing, or controlling wealth, one could compare the average wealth of each person. With POM nations the concentration of capital goods, raw materials, and control of labor resources is great. As we noted earlier, perhaps half the wealth of a nation may be owned by only one percent of the population. With a non-POM economy the ownership of capital goods, raw materials, and labor resources is spread much more uniformly across the population. Those who physically control tools own them. Those who assume responsibility for resources, such as timber lands, own them. And each individual has complete ownership and control of their own personal labor. They may choose to cooperate with others in some enterprise but their participation is completely voluntary. There is no coercion in the bureaucracies which form in a non-POM economy. Also, since no person in a non-POM economy can have any kind of monetary debt at all everyone in a non-POM nation will have more wealth than those billions of people who today have more liabilities than assets. Next, when it comes to capital goods, it is far easier to gain ownership of capital goods in a non-POM economy so that most people who choose to use tools or materials to earn money will own capital. In fact, it will be quite common for those who choose to earn money to be sought out by the producers of capital in an effort to get those earners to accept and employ capital of their manufacture. The only way producers of capital can earn non-POM is to have their capital used by others. The contrast between POM and non-POM in this regard would astonish a Marxist. With POM the capitalists (owners of capital) try to gain more capital and keep it all for themselves. With non-POM, the capitalists (owners of capital) try to give that capital to others for their use. So the Marxists/socialists are wrong. The alternative to capitalism is not socialism because socialism just substitutes the state for the capitalist and the state tries to keep all the capital in the economy for itself. The alternative to POM capitalism is non-POM capitalism, which emphasizes private ownership and the distribution of ownership throughout the population. It’s really hard to distinguish POM capitalism from socialism because in both cases just a few people own and control all the capital. In both cases the use of force is common. In both cases the powers that be use propaganda to lie to the public about their situation. But that’s the nature of POM at work.
Next, let’s consider non-POM at the corporation level. Of course, with non-POM there will be no corporations as we know them. Only individuals can own things with non-POM. True, a large group of people may choose to work together under some existing company name such as “Intel.” Large projects almost certainly will have names because that’s just how people think most easily. But such organizations and such projects with non-POM will not own capital or wealth. Intel makes computer chips. Chips are useful in a myriad of products and processes. With non-POM the people who contribute to the creation and distribution of those very useful little products will earn money as those chips help to produce net benefits for people. There’s no “profit” in producing fewer chips or in keeping improved chips off the market. The vast majority of those chips in a non-POM economy would be given to other organizations for inclusion in their products. Those who work with Intel in a non-POM economy would want to create chips which were long-lasting, dependable, easily recycled when their useful life was ended, and which did little or no ecological damage in their production or use. As today, the fewer rare and valuable materials employed in the chip’s manufacture the better. Today, with POM, Intel has a huge investment in the capital goods necessary to build computer chips. The corporation owns that capital as well as quite a lot of POM. In a non-POM economy, the capital goods would be owned by those who work with them, maintain them, and improve them. No CEO of this non-POM chip making giant would be able to stop those who own the chip making tools from using them to make chips. No CEO could control where the chips were distributed. The CEO could not fire anyone nor control the pay of anyone. So the wealth of the CEO would be limited to his earnings.
This makes a good transition to consideration of wealth in the hands of individuals or families. We have already seen that control of capital is very distributed. One cannot control via ownership a huge amount of capital with a non-POM system. So the reckoning of individual’s wealth in a non-POM economy would not include very much in the way of capital goods, materials, or control of labor resources. It would be overwhelmingly reckoned in terms of how much non-POM one had in one’s account or in the price of the luxury goods and services one owned or received. In other words, with non-POM one may own a mansion or a yacht or lots of large jewels but one cannot own a large number of shares in a major corporation. In other words, to gain income, one would have to actively manage the capital one owns. Ownership, by itself, generates no income. There is nothing that one can own in a non-POM economy that will generate income for a passive owner. One must take responsibility for something in order to own it and, conversely, if one owns something one will be held responsible for that thing no matter what that thing is. So if one buys some land as a luxury and just ignores that land one will still be held responsible if that land becomes a public nuisance to others or otherwise harms them.
But having a large amount of non-POM in one’s account does not give one power to punish or coerce others. It cannot be used to hire other people to obey one’s orders, for example. It cannot be used to bribe legislators. Non-POM cannot be used to threaten or defraud others.
On the other hand, non-POM cannot be taken from one against one’s will. It cannot be given to one’s heirs nor inherited by one’s heirs. Of course, one can buy some luxuries and give those to one’s heirs if one likes. One can buy any luxuries one likes so long as the owners are willing to sell them. And as owner of those luxuries, one can give ownership of them to anyone. But that leaves a “paper trail” of ownership: Such gifts cannot be secret. But a non-POM economy does eliminate most of the fears of the wealthy. The only way that the money in their account can be reduced is by their spending it for luxuries. No one will be trying to take their money from them. There are no taxes and no inflation. People will like the rich because of all the benefits the rich have generated for others. The rich will not feel isolated because everyone will be on their side and will be attempting to support them.
So far as family fortunes are concerned, however, their day would have ended. A fortune cannot be kept within the family. Money and other property is owned only by individuals in a non-POM economy. Therefore, each member of a family that is wealthy will have earned that wealth on their own. If junior follows in the footsteps of his wealthy father, it’s because junior also actually did other people a lot of good. So all those valid fears of a few wealthy families ruling the world will be ended.