Wealth

Wealth is a concept generally agreed to be the abundance of valuable resources or material possessions, or the control of such assets. While "wealth" is considered to be an ambiguous and nebulous term, it is a concept that nonetheless has an important place in economics.

More specifically wealth can be defined as a claim on, or command of, resources (commodities, capital equipment, time, physical labor, et cetera) that have the potential to make the individual's existence easier, more comfortable or more enjoyable (i.e. "better") than it would be in the absence of such things. Because value is subjective, wealth cannot be measured cardinally, but it is possible to measure ordinally.

In short, wealth can be said to be the ability to have desires fulfilled.

Production of wealth

More concisely, wealth is the ability to fulfil human desire. This means that all steps in production, including the transportation and advertising of products, can generate wealth, because they move the product steps closer toward fulfilling human desire. Raw materials start out as land, a good of the nth order; and as soon as any productive labor is performed upon them, become capital; the value of n diminishing as the resource progresses through each stage of the production process, until finally the producer's good has been completely transformed into a good of the first order (consumer's good) ready for immediate consumption. The wealth represented by that material increases throughout this process.

Advertising and marketing can count as a form of wealth creation if it puts the consumer in a better position to know where he can obtain at the cheapest price what he is looking for or what kind of commodity or service is suitable to remove most efficaciously the particular uneasiness he wants to remove. Thinking can also create wealth. The mind proceeds step by step from the less satisfactory state of insufficient cognition to the more satisfactory state of better insight. The mind is then closer to being able to guide the person's actions toward successfully eliminating the causes of uneasiness.

An action that, by itself, immediately and directly generates only very small physical changes in the world can still have a great impact on satisfaction in the long run. A teacher who delivers a lecture that equips a student's mind to take effective action for liberty may, in doing so, make a very important investment in the future wealth of society. As with other investments in capital, this acquisition of knowledge makes labor more efficiently productive. Likewise, the making of a beneficial edit to a wiki modifies the data stored on the wiki server in a way that advances the equipment toward a state of being better able to fulfil human desires for knowledge and the benefits that knowledge will allow them to attain. The editor's labor, combined with the capital already established by the site creators and previous editors, transforms the wiki, or at least part of it, into a more satisfactory product, thereby increasing the total store of wealth.

Creative destruction can also generate new wealth; for example, demolishing an obsolete building is a necessary step in the process of moving the building site closer to the desired state of having a new, more satisfactory building in its place. Even violence in self-defense or defense of others can be useful to society if it increases the future store of wealth over what it would have been otherwise. For example, the arrest or killing of a criminal who is about to commit mass murder of the innocent and destruction of their property helps preserve the labor and capital resources needed to prevent society's productive capacity from being diminished. The removal of a threat to the life, liberty and property of the innocent renders society wealthier because its resources are then better able to satisfy wants without interference.

Destruction of wealth

It is also possible for war to destroy wealth by transforming resources that were closer to being ready to satisfy human desires into goods that are less ready to satisfy human desires. For example, war can destroy a building that was capable of immediately providing shelter, and make it necessary to recycle the remnants as scrap, melt them down, shape them into girders, transport the girders to the building site, and use them to erect a new building, before it can again provide shelter. It will take time to return the economy to its former productivity. An injection of resources from abroad (e.g. through foreign direct investment or immigration of laborers) can speed this process, however.

If a politician takes money away from a productive entrepreneur and allocates it to wasteful projects, that too can destroy wealth. In that situation, the resources that were once under the control of a person with the ability and willingness to devote them to efficiently want-satisfying uses are now under the control of people who will devote them to uses with less want-satisfying power. Hence, proposals by leftists such as Barack Obama to force the rich to share or "spread the wealth" through welfare programs are also proposals to destroy wealth or prevent it from ever coming into being. Ludwig von Mises cited labor regulation, compulsory social insurance, compulsory trade unionism, compulsory unemployment Insurance, taxation, and inflation as methods of socialist and interventionist "destructionism". Although the failure to maintain and create more capital allows more resources to be immediately devoted to satisfying wants, in the long run, capital consumption leaves a society less wealthy.

Henry Hazlitt writes that real wealth "consists in what is produced and consumed: the food we eat, the clothes we wear, the houses we live in. It is railways and roads and motor cars; ships and planes and factories; schools and churches and theaters; pianos, paintings and hooks. Yet so powerful is the verbal ambiguity that confuses money with wealth, that even those who at times recognize the confusion will slide back into it in the course of their reasoning." Since money is a commodity that helps fulfill the human need to engage in indirect exchange, it could be regarded as a form of wealth. That does not mean that printing additional paper money will add an amount of wealth to the economy equal to its face value. It could, instead, diminish the purchasing power of each monetary unit, making economic transactions more cumbersome (e.g. through the need to carry around bulky stacks of cash), therefore diminishing the ability of money to efficiently satisfy the desire to engage in useful indirect exchange.

Links

• "Money vs. Wealth" by Robert P. Murphy, June 2010
• "What is Wealth Inequality?" by Art Carden, May 2003
• "The Fantasy of Wealth Redistribution" by Lorenz Kraus, November 2010
• "Obama's Wealth Destruction" by Llewellyn H. Rockwell Jr., February 2009
• "Real Bills, Phony Wealth" by Robert Blumen, June 2005
• "Destroying Capital with the Printing Press" lecture by Doug French, January 2011 (published as Mises Daily "Merger Monday and the Destruction of Wealth" here)
• "What is Wealth?" by Robert LeFevre (YouTube)
• What is Wealth?

• Wealth at Wikipedia