Where Does Wealth Come From?

Column for week of January 26, 2015

     President Obama wants to take one-third of a trillion or
so dollars from the wealthy and spend it.  This may be good
politics even if it is bad economics.  Many voters believe that
wealthy people have too much wealth.  Taking wealth from the
wealthy can win votes.

     Before jumping on the "tax the rich" bandwagon we
should consider, What is wealth?  Where does wealth come
from?  What do the wealthy do with their wealth?

     Wealth includes everything that anyone finds useful in
the pursuit of satisfaction.  Even the poorest have some wealth. 
They would soon die without it.  Among other things, food is
wealth.

     There are two sources of wealth -- natural resources and
human effort.  Some wealth literally grows on trees -- apples
for example.  Most of our wealth is produced with human
effort.  Even apples do better when humans give nature a
boost.  That is why we have apple orchards instead of relying
on wild apples.  Even wild apples are useless unless someone
picks them and transports them to where people want to use
them.

     The availability of human effort limits our ability to
produce wealth.  There are only two ways to increase the
production of wealth -- use more effort, or use our efforts more
efficiently.

     For most of history humans were very slow to increase
the efficiency of the use of human effort.  Thus, for generation
after generation workers produced little more than their
ancestors had.  Each generation inherited the jobs and the
lifestyles of the previous generation.  The standard of living
didn't increase much.  Sometimes it decreased.

     Only 300 or so years ago that all started to change. 
Productivity started rapidly increasing in some parts of the
world.  We call it the Industrial Revolution.  Productivity didn't
increase itself.  It wasn't magic, or an accident.

     Humans discovered new, more efficient ways to make
things.  They also discovered new things to make.  This
enabled individual workers to produce more with the same, or
even less, effort.  The "secret" to this increased productivity
was more and better tools and equipment.

     Some workers had to take time out from producing their
immediate needs of food, clothing and shelter to make the tools
and equipment.  Poor people living hand to mouth existences
couldn't do that, unless someone else fed them.

     People with surplus wealth fueled the Industrial
Revolution.  Among other things, the wealthy hired workers to
make tools and equipment.  Even before the new tools and
equipment were ready to use the wealthy provided productive,
paying jobs.

     The wealthy put wings on the Industrial Revolution
rather than leaving it to at best crawl.  Without the
accumulated wealth of the wealthy, the Industrial Revolution
might still be science fiction, if even that.

     I'm not saying that much of the wealth accumulated by
the rich prior to the Industrial Revolution wasn't ill gotten gain. 
It probably was.  Neither am I saying that the investment by
the wealthy didn't earn them even greater wealth.  Obviously it
did.  In the process that investment so increased the
productivity of workers that it created the middle class and
lifted the poor.  No one in the U.S. today is poor as poor was
defined prior to the Industrial Revolution.

     Maintaining and increasing our investment in tools,
equipment, etc. from generation to generation is the only way
to sustain and increase our standard of living.  Taxing away
and spending the investment capital of anyone, whether we call
them rich or some other name, can only make everyone,
including the poor, poorer.  Just like stealing farmers' seed
corn, it starves everyone.

     We all benefit from wise investments, regardless of who
makes those investments.  Free people investing their own
wealth almost always make wiser investments than do
politicians spending other people's money.  Those private
investors have skin in the game.  When they make bad choices
they lose.  Politicians pass the losses on to taxpayers.

aldmccallum@gmail.com
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Copyright 2015
Albert D. McCallum