Wealth: Encyclopedia - Wealth

Wealth

Wealth is an abundance of items of economic value, or the state of controlling or possessing such items, and encompasses money, real estate and personal property. In many countries wealth is also measured by reference to access to essential services such as health care, or the possession of crops and livestock. An individual who is wealthy or rich is someone who has accumulated substantial wealth relative to others in their society or reference group.

The term implies a social contract on establishing and maintaining ownership in relation to such items which can be invoked with little or no effort and expense on the part of the owner (see means of protection).

The concept of wealth is relative and not only varies between societies, but will often vary between different sections or regions in the same society. For example, a personal net worth of US $1,000,000 in the United States Midwest would certainly place a person amongst that region's wealthiest citizens, yet the same net wealth would be considered quite modest on New York City's Upper East Side or in the Connecticut suburbs. However, such amounts would constitute extraordinary wealth in developing countries or impoverised areas like West Africa.

Wealth - Wealth and poverty

An entire lack of any kind of wealth may constitute poverty, although the opposite of poverty may be sufficiency (in terms of food, shelter, education and healthcare) rather than the abundance implied by wealth.

The eradication of extreme poverty around the world is one of the major Millennium Development Goals which all member states of the United Nations seek to achieve by 2015.

Wealth - The anthropological view of wealth

Anthropology characterizes societies, in part, based on a society's concept of wealth, and the institutional structures and power used to protect this wealth. Several types are defined below. They can be viewed as an evolutionary progression.

Wealth - A rudimentary notion of wealth

Great Apes seem to have notions of "turf" and control of food-gathering ranges, but it is questionable whether they understand this as a form of wealth. They acquire and use limited tools but these objects typically do not change, are not taken along, are simple to re-create, and therefore are unlikely to be seen as objects of wealth. Gorillas seem to have the capacity to recognize and protect pets and children, but this seems less an idea of wealth than of family.

Wealth - The interpersonal concept of wealth

Early hominids seem to have started with incipient ideas of wealth, similar to that of the great apes. But as tools, clothing, and other mobile infrastructural capital became important to survival (especially in hostile biomes), ideas such as the inheritance of wealth, political positions, leadership, and ability to control group movements (to perhaps reinforce such power) emerged. Neandertal societies had elaborate funerary rites and cave painting which implies at least a notion of shared assets that could be spent for social purposes, or preserved for social purposes. Wealth may have been collective.

Wealth - Wealth as the accumulation of non-necessities

Humans back to and including the Cro-Magnons seem to have had clearly defined rulers and status hierarchies. Digs in Russia have revealed elaborate funeral clothing on a pair of children buried there over 35,000 years ago. This indicates a considerable accumulation of wealth by some individuals or families. The high artisan skill also suggest the capacity to direct specialized labor to tasks that are not of any utility to the group's survival.

Wealth - Wealth as control of arable land

Irrigation and urbanization, especially in ancient Sumer and later Egypt, are thought to have triggered a shift that unified the ideas of wealth and control of land and agriculture. To feed a large stable population, it was possible and necessary to achieve universal cultivation and city-state protection. The notion of the state and the notion of war are said to have emerged at this time. Tribal cultures were formalized into what we would call feudal systems, and many rights and obligations were assumed by the monarchy and related aristocracy. Protection of infrastructural capital built up over generations became critical: city walls, irrigation systems, sewage systems, aqueducts, buildings, all impossible to replace within a single generation, and thus a matter of social survival to maintain. The social capital of entire societies was often defined in terms of its relation to infrastructural capital (e.g. castles or forts or an allied monastery, cathedral or temple), and natural capital, (i.e. the land that supplied locally grown food). Agricultural economics continues these traditions in the analyses of modern agricultural policy and related ideas of wealth, e.g. the ark of taste model of agricultural wealth.

Wealth - The capitalist notion of wealth

Industrialization emphasized the role of technology. Many jobs were automated. Machines replaced some workers while other workers became more specialized. Labour specialization became critical to economic success. However, physical capital, as it came to be known, consisting of both the natural capital (raw materials from nature) and the infrastructural capital (facilitating technology), became the focus of the analysis of wealth. Adam Smith saw wealth creation as the combination of materials, labour, land, and technology in such a way as to capture a profit. The theories of David Ricardo, John Locke, John Stuart Mill, and later, Karl Marx, in the 18th century and 19th century built on these views of wealth that we now call classical economics and Marxian economics (see labor theory of value). Marx distinguishes in the Grundrisse between material wealth and human wealth, defining human wealth as "wealth in human relations"; land and labour were the source of all material wealth.

Wealth - Other concepts of wealth

Wealth - Global wealth

Michel Foucault commented that the concept of Man as an aggregate did not exist before the 18th century. The shift from the analysis of an individual's wealth to the concept of an aggregation of all men is implied in the concepts of political economy and then economics. This transition took place as a result of a cultural bias inherent in the Enlightenment. Wealth was seen as an objective fact of living as a human being in a society.

Wealth - Not a zero-sum game

Regardless of whether you define wealth as the sum total of all currency, the M1 money supply, or a broader measure which includes money, securities, and property, the supply of wealth, while limited, is not fixed. Thus, there is room for people to gain wealth without taking from others, and wealth is not a zero-sum game in the long term. Many things can affect the creation and destruction of wealth including size of the work force, production efficiency, available resource endowments, inventions, innovations, and availability of capital.

However, at any given point in time, there is a limited amount of wealth which exists. That is to say, it is fixed in the short term. People who study short term issues see wealth as a zero sum game and concentrate on the distribution of wealth, whereas people who study long term issues see wealth as a non-zero sum game and concentrate on wealth creation. Other people put equal emphasis on both the creation and the distribution of wealth.

In the very long term, the amount of raw materials is limited to what exists in the universe. The application of human ingenuity to raw materials can transform these to more valuable forms, but, even if human ingenuity is infinite, entropy may eventually put an absolute limit on the amount of wealth that can be created.

One's attitude towards this issue affects the design of the social or economic system that one prefers.

Wealth - The non-normative concept of wealth

Neoclassical economics tries to be non-normative for the most part, to be objective and free of value statements. If it is successful, then wealth would be defined in such a way that it would not be preconceived to be either positive or negative. This objective has not always been the case. In prior eras wealth was assumed to be a set of means of persuasion.

It was often seen as self-interested arguments by the powerful explaining why they should remain in power. In The Prince, Niccolò Machiavelli had commented in that earlier era on the prudent use of wealth, and the need to tolerate some cruelty and vice in the use of it, in order to maintain appearances of strength and power.

Jane Jacobs in the 1960s and 70s offered the observation that there were two different moral syndromes that were common attitudes to wealth and power, and that the one more associated with guardianship did in fact require a degree of ostentatious conspicuous consumption if only to impress others.

This logic is almost entirely absent from neoclassical economics, which in its extreme form argues for the abolition of any political economy apart from the service markets wherein favours may be bought and sold at will, including political ones - the so-called political choice theory popular in the U.S.A.. While it is entirely likely that such assumptions apply in the subcultures that dominate modern discourse on technical economics and especially macroeconomics, the less technical notions of wealth and power that are implied in the older theories of economics and ideas of wealth, still continue as daily facts of life.

Wealth - Non financial wealth

The 21st century view is that many definitions of wealth can exist and continue to co-exist. Some people talk about measuring the more general concept of well-being. This is a difficult process but many believe it possible - human development theory being devoted to this. Although these alternative measures of wealth exist, they tend to be overshadowed and influenced by the dominant money supply and banking system. For more on the modern notions of wealth and their interaction see the article on political economy.

Wealth - Wealth as time

According to Robert Kiyosaki, author of Rich Dad Poor Dad, wealth is nothing more than a measurement of time. It is how long you can continue to live your lifestyle without any adjustments when you cease working. For instance if you have a burn rate of $2,000 a month in bills and expenses and $4,000 in the bank and you have no other forms of income, then you have a wealth measurement of 2 months. If however you are simply able to increase other forms of income, those which are not the result of trading time for money, to a point where they exceed your monthly burn rate, then you will effectively reach infinite wealth.

Wealth - Sustainable Wealth

According to the author of "Wealth Odyssey," Larry R. Frank Sr., MBA, CFP®, wealth is what sustains you when you are not working. It is net worth, not income, which is important when you retire or are unable to work (premature loss of income due to injury or illness is actually a risk management issue). The key question is how long would a certain wealth last? Ongoing withdrawal research has sustainable withdrawal rates anywhere between approximately 3 percent and 8 percent, depending on the research’s assumptions. Time, how long wealth might last, then becomes a function of how many times does the percentage withdrawal rate go into all the assets. Example: withdrawing 3 percent a year into 100 percent equals 33.3 years; 4 percent equals 25 years; 8 percent equals 12.5 years, etc. This ignores any growth, which presumably would be used to offset the effects of inflation. Growth greater than the withdrawal rate would extend the time assets may last. While negative growth would reduce the time assets may last. Clearly a lower withdrawal rate is more conservative. Knowing this helps you determine how much wealth you need also. Example: you know you will need $40,000 a year and use a 4 percent withdrawal rate, then you need to start with $1,000,000; using 5 percent you would need $800,000, etc. This simple “wealth rule” helps you estimate both the time and the amount.

Wealth - Wealth Redefined Individualistically

Carrying the “wealth rule” concept from above one step further, wealth could then be defined as the resources necessary to sustain a person’s specific “Standard of Individual Living” (SOIL). It could be argued that if a person has resources more than necessary to sustain them in life they would be called rich. A person can determine their “Standard of Individual Living” by looking at what they spend today. The $40,000 example above in “Sustainable Wealth” could be defined as that person’s SOIL. This provides the frame of reference to determine the time and amount of resources needed to sustain that individual’s living standard. If they can sustain their standard of living, they could consider themselves wealthy. A more meaningful purpose of wealth is established with this specific individual perspective that goes a long way to better defining retirement in the 21st Century.

Wealth - The creation of wealth

Wealth is created through several means.

• Natural resources can be harvested and sold to those who want them.
• Material can be changed into something more valuable through proper application of knowledge, skill, labor and equipment.
• Better/smarter production methods also create additional wealth by allowing faster creation of wealth.
• Ideas create additional wealth by allowing it to be created faster or with new methods.

For example, consider our early ancestors. Building a house from trees created something of greater value for the builder. Hunting and firewood created food and fed a growing family. Agriculture converted labor into more food and resources. Continuing use of resources and effort has allowed many descendants to own much more than that first house.

This is still true today. It is more obvious to those working with physical material than to a service worker or knowledge worker. A cubicle worker may not be aware in how many ways their work is creating something which is of more value to their employer than the amount that employer paid to produce it. This profit creates wealth for the owners of the organization. The process also provides income for employees, and suppliers, and it makes the continued existence of the organization possible.

Wealth - The limits to wealth creation

There is a debate in economic literature, usually referred to as the limits to growth debate in which the ecological impact of growth and wealth creation is considered. Many of the wealth creating activities mentioned above (cutting down trees, hunting, farming) have an impact on the environment around us. Sometimes the impact is positive (for example, hunting when herd populations are high) and sometimes the impact is negative (for example, hunting when herd populations are low).

Most researchers feel that sustained environmental impacts can have an effect on the whole ecosystem. They claim that the accumulated impacts on the ecosystem put a theoretical limit on the amount of wealth that can be created. They draw on archeology to cite examples of cultures that they claim have disappeared because they grew beyond the ability of their ecosystems to support them.

Others are more optimistic. They claim that although localized environmental impacts may occur, large scale ecological effects are either minor (in terms of magnitude) or non-existent. They sometimes claim that if these global scale ecological effects exist, human ingenuity will always find ways of adapting to them. To them, there is no limit to the amount of growth or wealth that this planet will sustain.

The limited surface of Earth also restricts potential growth and the effects upon this planet.

Wealth - The distribution of wealth

Different societies have different opinions about wealth distribution and about the obligations related to wealth, but from the era of the tribal society to the modern era, there have been means of moderating the acquisition and use of wealth.

In ecologically rich areas such as those inhabited by the Haida in the Cascadia Pacific East Rim ecoregion, traditions like potlatch kept wealth relatively evenly distributed, requiring leaders to buy continued status and respect with giveaways of wealth to the poorer members of society. Such traditions make what are today often seen as government responsibilities into matters of personal honour.

In modern societies, the tradition of philanthropy exists. Large donations from funds created by wealthy individuals are highly visible, although small contributions by many people also offer a wide variety of support within a society. The continued existence of organizations which survive on donations indicate that modern Western society has at least some level of philanthropy.

Furthermore, in today's societies, much wealth distribution and redistribution is the result of government policies and programs. Government policies like the progressivity or regressivity of the tax system can redistribute wealth to the poor or the rich respectively. Government programs like “disaster relief” transfer wealth to people that have suffered loss due to a natural disaster. Social security transfers wealth from the young to the old. Fighting a war transfers wealth to certain sectors of society. Public education transfers wealth to families with children in public schools. Public road construction transfers wealth from people that do not use the roads to those people that do (and to those that build the roads). Certain people resent having to contribute to some or all of these programs, and disparagingly label them social engineering.

Like all human activities, wealth redistribution cannot achieve 100% efficiency. The act of redistribution itself has certain costs associated with it, due to the necessary maintenance of the infrastructure that is required to collect the wealth in question and then redistribute it. Different people on different sides of the political spectrum have different views on this issue. Some see it as unacceptable waste, while others see it as a natural fact of life, which is inevitable in all kinds of inter-human relations.

Proponents of the supply-side theory of "trickle-down" economics claim that it is a form of time-deferred philanthropy. The theory is that newly created wealth eventually "trickles down" to all strata of society. The argument goes that although wealth is created primarily by the wealthy, they will tend to reinvest their wealth, and this process will create even more wealth. As the economy grows, it is said that more and more people will share in the newly created wealth. A similar argument can be made in the case of Keynesian economics. According to this theory, government redistributions and expenditures have a multiplier effect that stimulates the economy and creates wealth. Supply-siders claim that wealth is created primarily by investment (supply), whereas Keynesians claim that wealth is driven by expenditure (demand). Today most economists agree that growth can be stimulated by either the supply or demand side, and some of them argue that these are really two sides of the same coin, in the sense that you seldom get one without the other. Nevertheless, the dispute between supply-side and Keynesian economics is of continuing interest.

Stresses within social distribution systems can be understood within a broad theory of political economy, where tradeoffs between means of protection, persuasion and production, and valuations of different styles of capital, are described. Simply put, if the rich do not at least once in a while give away, of their own free will, at least a small part of their wealth to the poor, then the poor are much more likely to rebel against the rich.

Wealth - Wealth in the form of land

Many indigenous cultures reject the notion of land wealth. In western tradition, the concepts of owning land and accumulating wealth in the form of land, are justified according to John Locke. He claimed that because we admix our labour with the land, we thereby deserve the right to control the use of the land and benefit from the product of that land, subject to the Lockean proviso of "at least where there is enough, and as good left in common for others." Additionally, in our post agricultural society this argument has many critics (including those influenced by Georgist and geolibertarian ideas) that argue that since people did not create land, they have no right of property over it. Still, many older ideas have resurfaced in the modern notions of ecological stewardship, bioregionalism, natural capital, and ecological economics.

Wealth - Books

• Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations
• Kiyosaki, Robert T.; Lechter, Sharon L. (April 1, 2000). Cashflow Quadrant: Rich Dad's Guide to Financial Freedom (Warner Business Books ISBN 0446677477).
• Frank Sr., Larry R. MBA, CFP®. "Wealth Odyssey. The Essential Road Map for Your Financial Journey. Where is it You are Really Trying to go with Money? (iUniverse ISBN 0595337201).

See also

• Capital accumulation
• Distribution of wealth
• Poverty
• Surplus product
• Value added
• Wealth condensation

Adapted from the Wikipedia article "Wealth", under the G.N U Free Docmentation License. Please also see http://en.wikipedia.org/wiki