Dedicated to my nephews
Wealth is the ability to have things we want.
This means a person who has the things they want is wealthy.
People can have wealth. But also, groups can have wealth. This is true for families, corporations, and nations.
Work, trade, and innovation create wealth. Because people everywhere do these things, the amount of wealth in the world is constantly growing.
These are some types of wealth.
Money
Financial assets
Possessions
Knowledge, skill, wisdom, and creativity
Relationships
Health
Time
If we could measure all the wealth in the world, it would be much much greater than all the money in the world.
One can have much of some types of wealth and very little of others and still be considered wealthy.
Let’s look at each type.
Money
Money is the universal transmogrifier. It can transform amounts of any type of wealth into amounts of any other type. A person with baskets full of more food than they can eat can transform the extra food into money and transform the money into clothing, a home, a bicycle, a haircut, and a gift to give a sweetheart.
Because money is easily exchanged for other types of wealth, units of money are the units by which people measure wealth. Though money is a way to store wealth, wealth exists in all of the things that can be exchanged (sold) for money.
In a free market, people will only spend money if they have a quite strong desire for what they are buying. This motivates vendors to compete to make ever more desirable things.
Most nations’ governments create money for their people. The more they create, the less it is worth. This gives governments great power over their people’s wealth and therefore control over their people.
Inflation causes the value of money to decrease over time. This is an incentive for people not to store their wealth in money “under the mattress” but to invest their money in financial assets that will increase in value at a higher rate than inflation. Investing empowers others to create wealth.
Financial assets
Most of the world’s wealthiest people have relatively little money. Most of their wealth is in financial assets, especially the stock of companies that they founded.
Stocks and bonds are well known financial assets. A share of stock is an entitlement to receive a portion of future money earned by the company. A bond is when somebody else owes an agreed amount of money to the bond investor in the future. Insurance is another type of financial asset. It is an asset in which somebody will owe the insured person money only if and when something bad happens.
A share of a fund is a financial asset that is based on whatever assets the fund invests in. Most of people’s retirement savings are held as shares of funds. Social security is another financial asset in which a government owes citizens payments when they are in certain situations such as old age or poor health.
One important concept is liquidity. This is the convenience of converting a financial asset to money. Highly liquid assets are more valuable than illiquid ones. Stocks of public companies are very liquid. They can be sold any time on the stock market. Stocks of private companies cannot. They are illiquid.
Property
Property is any thing that an owner has a right to exclude others from enjoying.
Land and associated natural resources are a type of property. Most objects are somebody’s property. Some knowledge is intellectual property controlled by copyrights, patents, trademarks, and trade secrets.
Groups of people can own property together as partnerships or corporations. Governments are a form of corporation. They can own property, financial assets, money, and other types of wealth.
Some government systems, such as communism and the socialism of Karl Marx, do not allow their citizens to own some types of property — specifically, the means of producing wealth from resources, work, trade, and innovation. Because people under such systems cannot personally enjoy the benefits of producing more than an assigned minimum amount, they tend to produce only the minimum and no more. As a result, nations under such governments tend to be quite poor. Ensuring that citizens produce their assigned minimums requires becoming autocratic dictatorships. Such government systems have been tried many times in many countries and never achieved results otherwise.
Knowledge, skill, wisdom, and creativity
Knowledge, skill, wisdom, and creativity are forms of wealth.
Nomads, for example, rarely own financial assets or much money. They do not own land or more possessions than they can carry around. However, they tend to know a lot about the natural environment, have skills to hunt, gather, or make tools, and develop wisdom about where and when to move about. They possess much wealth in those abilities.
For another example, students graduating from law school, especially in the US, have a lot of debt — a financial asset with negative value — and very few assets or other property. However, their education has given them knowledge and skills that have value to future clients far beyond the student’s debt. Therefore, those law school graduates are, in effect, quite wealthy.
Many artists, for example, have relatively few possessions or financial assets. However, with work and sufficient creativity, they can produce wealth in the form of valuable art. Similarly, computer programmers have wealth in their ability to create valuable software, and startup company founders have wealth in their ability to build companies that can make things people want in some unique and valuable way.
Education makes people more productive. Nations with a highly educated population have wealth intrinsically within their citizens. This means they can create other types of wealth at a higher rate than a lesser educated population. Over the citizens’ lifetimes, the intrinsic wealth in education is converted to other forms of wealth within the nation. Nations that spend their existing wealth to increase the level of education of their citizens almost always realize wealth in the future far greater than what could have been produced by spending the current wealth in any other way.
Relationships
There is wealth intrinsic to relationships.
Children, for example, have no money, financial assets, property, and not much knowledge, skill, or wisdom. What they have is a very strong relationship with their parents. From this, they obtain what they want such as food, clothing, a safe place to sleep, and education to begin building their wealth of knowledge and skill.
Within a workplace, a relationship with a mentor and champion is valuable in achieving what one wants in career success and the other forms of wealth into which it can be converted.
One’s reputation is another form of wealth. It can be positive or negative. A good reputation is a way to achieve what one wants. Similarly, a position of authority or leadership has intrinsic wealth in that it enables one to achieve what one wants.
Though most religious guidelines instruct in favor of meritocracy and against favoring people who are closely related, some cultures tend towards relationalism when opportunities for wealth are to be given. This tends to be the case in middle-world cultures such as in India, perhaps in part as an artifact of the caste system, and under the wasta culture of tribal traditions in the Arab world.
Many Chinese dynasties from the Han (206 BC to 220 AD), through the current Communist government intentionally assigned officials to work in regions far from their family’s homes and rotate their locations of assignment to discourage favoritism. Western nations such as the US and European ones tend to be organized in bureaucratic procedural ways that minimize favoritism. They also tend to give cultural emphasis and admiration to personal achievements above group achievements in many contexts.
Nations that achieve high degrees of trust between strangers have inherent wealth from this. For example, in the US, a buyer can write any number and sign a paper check and a vendor will let them walk away with a cart full of groceries or a new car. This level of trust is unimaginable in many other places.
Blockchain technology, which enables cryptocurrencies and smart contracts, enables strangers anywhere in the world to trust each other. Blockchain technology might create an immense amount of wealth for humankind as a result of enabling strangers who have no relationship to engage in trade.
Health
A healthy person wants many things. A sick person wants only one. In this sense, health is humanity’s most primal type of wealth.
Health needed to build all other types of wealth includes not just physical health but mental health. Spiritual health is another type of wealth for many people.
Nations with epidemics of diseases, such as AIDS and nations with large populations of old people are at a wealth disadvantage as a result. In a sad irony, countries that have suffered diseases, famines, or wars lose their older people and end up with younger average populations. If they manage to avoid future diseases, famines and wars, they can have an advantage in health wealth.
Innovations in healthcare and healthspan hold promise for creating tremendous wealth in the world population by increasing health wealth.
Time
Wealth is best defined as the ability to have things we want both now and in the future. Time is the element that makes it possible to have in the future what one wants that is not achievable immediately. Therefore, time is a type of wealth.
Sometimes the saying is true that good things come to those who wait. Most investments require some amount of time between making the investment and realizing a return. Time to think before taking action is a type of wealth. When circumstances force urgent action, there is no time wealth that can be converted into other types of wealth.
Warren Buffet is known for having accumulated more wealth than almost anybody in the world. He did so by investing. However, Warren Buffet is not the world’s cleverest or even the world’s luckiest investor. The greatest factor that has enabled him to accumulate so much wealth is that he has been investing for a long time. He bought his first stock in 1941, which means he has had 85 years to grow his wealth through making decisions without urgency. Since good investments grow exponentially, investing over the long term can create tremendously more wealth than working.
Because time is valuable, procrastination is valuable. One can gain useful information over time. More useful information enables making better informed decisions. Therefore, taking actions as late as possible is more profitable than taking actions as soon as possible.
Debt
Financial assets can have negative value. This is generally called a debt or liability. The amount of positive and negative financial assets that balance each other out is called leverage. Somebody who owns a large amount of assets and an equally large amount of liabilities is highly leveraged and, on balance, not very wealthy.
However, debt is not necessarily bad. It is a good deal if one can accept debt as part of an agreement to also receive an asset of equal value if it is likely that the value of the asset will increase over time faster than the value of the debt. In America, many families own a home as an asset and have debt in the form of a mortgage. With a sufficient wealth of time, they gradually pay off the mortgage. Usually, over the long term, the value of a home increases. This way, the family steadily builds possessional wealth in their home.
Many nations take on money as a positive and debt as a negative asset. They do this either as loans from other countries or by selling bonds as a financial asset. If the nation uses the money to improve its ability to generate future wealth by, for example, improving infrastructure such as roads, internet access, and electric grids, the resulting future wealth will be greater than the debt. However, if the nation wastes the money, it will be left with the debt and not enough future wealth to repay. Money spent repaying the debt will leave the nation and its people in a poorer and weaker condition.
Some nations, such as Saudi Arabia and Norway, own a lot of financial assets in a sovereign wealth fund. Other nations, such as Greece, and Lebanon, have a lot of debt. The US is highly leveraged. It has a lot of debt but also a lot of wealth of types other than financial assets.
Further thoughts
Coercion such as extortion, taxation, and many laws impede wealth creation. A healthy society levies taxes thoughtfully, carefully calculating the amount and types of taxes (income, sales, and property) to balance helping citizens with allowing incentives to wealth creation. A healthy society has laws that minimize extortion by actors who do not share the nation’s interests. However, a healthy society is also careful to balance the creation of laws that its people want with avoiding laws that limit wealth creation.
If wealth is freedom from want, a drug addict is wealthy when they are high. However, some people’s excessive drug use is harmful to other people. So it is probably not something a society would want to encourage as a form of wealth.
Conclusion
If wealth is the ability to have things we want then, by definition, people want wealth. Creating wealth for oneself and others is an admirable endeavor. This is obvious when recognizing that wealth comes in many types such as knowledge, skill, wisdom, creativity, relationships, health, and time. Since financial assets and possessions can be transformed into other types of wealth using money, the pursuit of money through work, trade, and innovation is also admirable. Religions and political ideologies that teach otherwise mistakenly imagine the amount of wealth in the world is fixed so that one person’s gain must be another person’s loss. They misunderstand that conducting business creates wealth for everybody.
Recognizing the different types of wealth and deciding for ourselves how much of each to pursue enables us to decide how to invest the limited time and resources that we have to most effectively realize the life we want for ourselves and the world we want to create for each other.
Well written!