Tuesday, April 28, 2009

The Distribution Of Wealth I: Sources

Income is a flow and wealth is a stock - so they are two entirely different entities.

Income is what you earn per month. Wealth is what you have accumulated over many years.

It is obvious that the accumulation of income gives rise to wealth.

Wealth is therefore the cumulation of that part of income that is not spent or consumed but is kept or saved or invested.

Wealth is the culmination of a sustained effort of not consuming and abstaining over a long period of time.

Wealth does not come from consumption.

Wealth comes from investment.

It is stupid policy to ask people to consume in order to keep the economy alive. By consuming beyond their income, people get into debt and ruin their lives.

The theory says to increase domestic demand - which is different from increasing domestic consumption.

The economy can get into trouble because businesses invest in the production of consumption goods - and this could be a mistake - and that mistake must be paid for by the collapse of the whole chain of businesses that target consumption.

The solution should not be to throw good money after bad, but to get new businesses to invest in the production of investment goods - R&D, new technologies, new machines, new ideas.

The wealth of a nation is measured by the variety of avenues for investment, for containing wealth.

Bank deposits
Intellectual property
National unity
Social harmony

The wealth of a nation will be reflected in the following aspects of the lives of the citizens:

Confidence in the future - savings
Social infrastructure - close families
Physical infrastructure - good public transport
Leisure/hobbies - people's options to pursue interests outside work
Self-confidence - people in control of their own lives
Environment - upkeep of surrounding nature

It is of course a fine balance between consumption and wealth.

Many wisecracks have been made about the stupidity of not consuming and saving.

It is a fine balance to consume enough and be healthy and happy.

It is an entirely different to consume as an act of class or a demonstration of one's wealth or status.

At the end of the day, if you take stock of the wealth of the nation - the tangible wealth - you will find that wealth accrues to those who work hard to earn income and control their consumption in order to save.

The discipline of abstenance and of saving is a habit that is inculcated from young - to have an inherent respect and possibly fear of money - so that money is treated with the greatest care.

The ability to smell of sweat (of one's parents) in the money one spends.

The ability to realise the real value of money.

Whole nations have risen from ashes with the people working hard and cosuming little.

Whole nations have collapsed under debt with the people having consumed way beyond their capacity to produce.

To live a full live, one must have the ability to earn, the ability to consume and the ability to save.


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