What Causes Wealth?

fritzgryphon · Visitor Joined: 17 Jun 2007 Posts: 21 Local time: 7:15 AM

Here's my kindergarten version of economics that I figured out just now.

Purchasing is essentially trading for stuff, so purchasing power would be the goods that you possess and can trade with.

Goods are basically a manifestation of labor. Coal needs to be dug and cars need to be assembled. Services are also goods in a way. The more labor you do the more goods you have to trade.

But you can work smarter instead of harder. 1 man services 10 robots that build cars. Technology and efficiency is a labor multiplier.

So national wealth depends on the labor the people do multiplied by how smart they work, and therefore how much product they have to trade with.

Prosperity is how much they have to trade compared with how much they need to consume. If your nation produces a lot and needs to consume little, there is excess to spend on luxury. If you nation produces little and needs to consume a lot, then you live in poverty.

So a prosperous country has people that are capable of working a lot, technology to multiply their labor, produce a lot, but have low basic needs themselves.

A poor country has people that can't work a lot (in poor health, hungry, frightened or depressed), work with inefficient methods (lack of education, no industrial capacity, outdated production methods), and have high basic consumption (corruption, rich/poor inequality, warfare, crime, etc).

The requirements to turn a poor country into a prosperous one are all contradictory (increase technology and industry, heal the population, stop warfare and corruption, while simultaneously reducing consumption). Therefore, poor countries are screwed forever, unless certain things happen:

- A brutal dictator unifies your country and implements a painful industrialization plan.
- Your nation is reduced to rubble, forcing the people to come together and embrace new ideas.
- The rich/poor gulf gets so big that the people revolt.

Nations can easily go from prosperous to poor, though. Just neglect your education system, make people unhealthy, encourage decadence and the concentration of wealth, become technologically stagnant, and increase wastage in areas like the military.

Ivan_Ivanov · Posted: Tue Jul 17, 2007 4:17 am Post subject:

fritzgryphon · Visitor Joined: 17 Jun 2007 Posts: 21 Local time: 7:15 AM

You make it seem as tough labor in and of itself will provide you with goods/wealth, but what if you spend your labor on doing something that has no value to anyone, like producing horse carriages when there is no horse anywhere near you?
Even tough you put in a lot of labor, you generated hardly any wealth.

Good point. I guess I'm talking about useful goods suitable for export. Wasted labor like you're talking about I'd chalk up to corruption. I figure wasted labor is a side effect of a broken system, like the need for lawyers and accountants.

But don't you also consume luxury goods?
How do you tell the difference between consumption of luxury goods, and non-luxury goods?
And if you don't have a way to do that, how can you tell if someone consumes a lot or little?

I'd try and see a difference between what improves production and standard of living and what doesn't. Food for a hungry person increases their production, and improves their standard of living. Caviar for a wealthy person does not improve their productivity, and doesn't improve their standard of living. I agree there is no fine line.

It's a pipe dream of course, but I imagine the most efficient society would be one where no one is overly rich (and thus lazy and wasteful) or overly poor (and thus can't work effectively). In other words, a case where one gets rich on the backs of the poor, and the total wealth generated is substantially higher than an exploitive system.

So what do you say about countries that were poor and became richer without any of any of the things you mentioned happening?
South Korea, India, Ireland, China to some extent...

Good point. I guess I just focused on the spectacular changes, like Pre-WWII Russia, or post-WWII Japan. I suppose peace, rights and rule of law are the key. In certain war torn places, this seems a remote possibility, save for some catastrophic event.

Ivan_Ivanov · Posted: Tue Jul 17, 2007 12:24 pm Post subject:

fritzgryphon · Visitor Joined: 17 Jun 2007 Posts: 21 Local time: 7:15 AM

Why do you say caviar doesn't improve the standard of living?
If that were true, then a person that eats dog food will have the same standard of living as a person who eats better.

I'd assume that eating caviar is an example of conspicuous consumption. The person is no happier for having eaten it.

But why do you think rich people are lazy or wasteful?
And why do you claim that a society with less inequality will produce more wealth, so far I haven't seen anything that would prove this to be true.

A baseless assumption, mainly from seeing that most people with multimillion dollar salaries do not actually produce anything of their own. For example, someone who works the stock market may get rich by buying coal companies, but they have not actually dug a bit of coal themselves.

The wealthy technically work, but their work is an exercise in collecting wealth rather than creating it. I'd even contend that you don't need wealthy people for venture capital. Middle class people can invest too.

If it's the case that there has never been a successful society without wealthy people, I'd guess they're just an unavoidable byproduct. I would contend that, with fewer people spending their labor on collecting wealth, and actually employed in creating it, a society in general would be wealthier.

Ivan_Ivanov · Posted: Wed Jul 18, 2007 4:48 am Post subject:

CET · Posted: Wed Jul 18, 2007 6:48 pm Post subject: Re: What Causes Wealth?

Philosophos · Posted: Wed Jul 18, 2007 7:11 pm Post subject:

Inherent to many people's explanations of wealth seems to be the concept of specialization. To the people who've answered thusfar: do you think that specialization is part of what leads to wealth?
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