What is wealth and where does it come from?

on Tuesday, July 26, 2011

Wealth is not dependent upon natural resources, is not limited, and is created from thin air. Wealth is the reorganization of our world to suit our liking, and is not the destruction or use of natural resources, it is only temporary change.

For example, in a simple island-economy, imagine a man creates wealth by harvesting salt from seawater. He pulls large amounts of water from the ocean each day, and allows it to evaporate, leaving sea salt behind. The salt is new wealth that he has created and stored. If he eats all of the salt with his food, and urinates into the ocean, eventually the salt will be in back in its original form, dispersed in the water.

In this way we see that by creating wealth (the dry salt), the man has not destroyed anything in nature. He has only changed it to suit his needs. The dry salt is more valuable to him (and other humans) than raw seawater. The salt can be used to flavor and preserve food, and will eventually return to the sea. When it sits in his hut in dry form, it is wealth -- something he values a lot more than seawater. As he uses the salt, he "spends" the wealth he has created. Nothing is destroyed.

If the man plants a tomato seed, and it grows to bear fruit, the tomatoes are new wealth. The material for the plants is generated by sunlight and air; less than 1% of the plant material came from the ground. And when the man eats the tomatoes, the waste products from his body will find their way back into the soil once again. This is the entire nature of wealth. It does not depend on the destruction of anything -- only change. Was the seawater destroyed when it was pulled from the sea, and the salt harvested from it? Was the air destroyed when the tomato plant grew? A plant grows by using the sun's energy to break the air into its component pieces. The plant breaks the bonds in the carbon dioxide molecule,  harvests the carbon atom from the CO2 (leaving pure oxygen as a waste product), and uses it as the raw material for 99% of its body, shaping the carbon into leaves and fruit and flowers. A tiny fraction of the plant material comes from the ground, and it is returned to the earth after the tomato is eaten.

Wealth creation is a circle of creation and destruction. Creating wealth is organizing our surroundings to suit human needs, and destroying wealth is the destruction of that organization. Air, dirt, and a seed are worth far less than a tomato plant to human beings. We cannot eat dirt or air. A tomato sustains our bodies, and keeps us alive and healthy. Transforming air and dirt into valuable tomatoes is a process of wealth creation. Even if all minerals were removed from the topsoil, we have the ability to grow tomatoes indoors using no soil at all. We know exactly what they need, and it is mostly light and carbon dioxide.

All wealth creation happens in this way. Nothing is destroyed. If I write a book on my computer, I have not destroyed anything at all. I have only rearranged the atoms in the computer's memory. Nothing left the computer and nothing entered it except human effort. No raw materials were consumed, only changed, and millions of books are created and sold each year -- all of those new books are just arrangements of materials that we like more than the previous arrangement. A computer with a book stored in its memory is more valuable to us than one without.

If I go into a forest and build a home from the trees, I have created wealth. The organization of the trees and rocks is more valuable to a human without a home. Nothing is destroyed. When the man leaves the house it will eventually rot and crumble back into the earth, and trees will grow again where they once stood. Wealth is temporary, and none of it lasts forever. A house built from bricks and rocks will last a long time, but without constant upkeep, it will eventually return to the earth, just as any other wealth on earth. Each year, when a man paints his house, he is creating wealth.

When oil is pulled from the ground and burned, eventually the carbon dioxide entering the atmosphere is consumed by plants, which are in turn consumed by animals, and when they die they will eventually turn back into oil. It is all temporary, and it is all a circle.

It is fundamentally important to understand that wealth is based not on the consumption of resources, but upon the changing of the world around us. Wealth creation does not destroy. It changes. As we create more and more wealth, and become richer and richer, it is because we are becoming better and better at changing the world around us to maker our lives better. To make things that we enjoy more than what was there before we changed it.