The Origin of Wealth
What is wealth? This paper proposes wealth and poverty are opposite sides of the same coin and to know the source of one is to understand the cause of the other. It delves into the premise that if contemporary economics could consummately answer the question: what is wealth? scarcity, economic strife and poverty would not exist in the world today. Two kinds of wealth are discussed, aesthetic and technical wealth. Is it possible that contrary to belief, the use of assets and liabilities as a measure of wealth belong to the aesthetic view in the sense that in human psychology an asset is merely an object or factor that evokes positive emotional feelings; the capacity to measure this kind of wealth using complex mathematics does not turn assets and liabilities into real or technical wealth. Consequently wealth may be none of the popular or common notions human society perceives; this includes money, assets and so on. In addition to the psychological influence the tendency of money and assets to fluctuate over time reinforces its aesthetic stature. Businesses commonly publish financial statements in national media often as a legal requirement or a means of demonstrating their financial health or quite simply the state of their wealth , when in fact a financial statement, despite the mathematics applied to it, may be considered an example of aesthetic wealth; hence it is not reliable for clearly understanding or appreciating what wealth is as it is common knowledge even robust businesses can post attractive profits for the year in review then post losses for the same period the next year. Money is unlikely to be a form of real wealth either, it behaves like psychological or aesthetic wealth; the value of a large bank account which could purchase a boat may years later after the ravages of inflation may only purchase a golf cart. Appreciating this quandary is important in the sense that the rational processes motivating it affect financial literacy. There are many conundrums like this where what is observed is not necessarily what is taking place that defy conventional wisdom in economics, for example; the expenditure fallacy. Even brick and mortar assets are likely to be a form of aesthetic wealth rather than real wealth; the value of property can change dramatically year on year. Wealth is only as reliable as the economic operating system it functions in, in the same way that, as earthquakes demonstrate, a building, no matter how sturdy, has its sturdiness ultimately determined by the ground it stands on. Consequently, this paper introduces the concept of real or technical wealth; this is the capacity to understand what wealth actually is by being knowledgeable about how it functions at the level of the economic operating system. Blurring the lines between aesthetic and technical wealth can lead to an ambiguity about wealth as well as an inability to diagnose what prosperity is and where it originates from in the economy that leads to the inability to protect aesthetic wealth or create it in sufficient quantities. It also may lead to the immense disparities and peculiar discomforts of contemporary economies impaired by scarcity. A consequence of this may be a modern day inability to end poverty, unemployment and other economic problems. Consequently this paper employs cost curves to explain how the real wealth of businesses can be affected and determined by the economic operating system they function in. It goes further to employ the equation of exchange to demonstrate how wealth can be created in an economy at constant price and how the calibration of the economic operating system predetermines whether a country or economy is ultimately wealthy or wealthless.
|Date of creation:||01 Sep 2010|
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- Dean Baker, 2010. "The Budget Deficit Scare Story and the Great Recession," CEPR Reports and Issue Briefs 2010-04, Center for Economic and Policy Research (CEPR).
- John Schmitt & Dean Baker, 2010.
"The $1 Trillion Wage Deficit,"
M.E. Sharpe, Inc., vol. 53(2), pages 47-53, March.
- Dean Baker & John Schmitt, 2009. "The $1 Trillion Wage Deficit," CEPR Reports and Issue Briefs 2009-46, Center for Economic and Policy Research (CEPR).
- Punabantu, Siize, 2010. "Financing the doubling of GDP in one year at constant price," MPRA Paper 24132, University Library of Munich, Germany.
- John Schmitt & Tessa Conroy, 2010. "The Urgent Need for Job Creation," CEPR Reports and Issue Briefs 2010-17, Center for Economic and Policy Research (CEPR). Full references (including those not matched with items on IDEAS)
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