In the light of the coming economic collapse I've been thinking about what wealth is, where it comes from and how to preserve it. I feel I've come to an accurate general model of it and I feel to record my thoughts.
PREAMBLE:
People today seem to be very confused. Some think we can spend our way out of debt. Some think the economy is inconsequential to our overall life. Others think the government has an infinite supply of money. Others still think taking from the rich and giving to the poor is admirable.
I want to dispel theses myths. I know that taking money from anyone by force is stealing and immoral. I understand that the government gets its money from the people. Its obvious to me that the efficiency of the economy determines our overall living standards. And I've seen that over stimulation in energy drinks and government alike always results in a crash.
INTRO:
I want to dispel these myths and I know the best way to do that is not to develop a long-winded argument against them, but rather to outline the very very basics of what wealth is and where it comes from. From that effort will come an understanding that will make the folly of the above economic myths obvious.
WEALTH DEFINED:
Much of our misunderstanding as a nation stems from our unwillingness to define wealth appropriately. Were the Pharaohs of Egypt more wealthy than the middle-class American today? One could say "Yes, they had land, servants, gold, military power and luxury." But did they enjoy cell phones? Modern medicine? Air conditioning? As a standard of living were they as healthy? Did they have dentists? Cars? Could they video chat with relatives living in foreign lands? Could they fly? My point is obvious: for the purposes of modeling wealth in any society wealth must be defined not by power of influence or even opulence but by living standards; the quality and quantity of life.
WEALTH CREATED:
At this point we might ask, "what determines the living standards of a society?" Is it technology advancements? On the surface that may be the most obvious component of our higher standard of living but I think it stems from something more subtle. What good would advanced technology do us were we unable, or unwilling to use it? Or rather, how did technology advance save by the development of innovation and pooling of information by individuals and institutions? Technological advance, as all progress towards a higher standard of living has been the result of positive interactions of people.
WEALTH DUPLICATED:
And that is where the wealth of a society (and subsequently, largely the wealth of an individual) comes from: The productive interactions of and between people. To illustrate this point lets look at two individuals stranded on an island: one an expert fisher and one expert builder. The two persons will save time by doing what they do best and trading that value for the other things they need. One will spend most his time fishing because he is most efficient at that task. He will then trade some of the fish for shelter which the other individual is efficient at building. Working together in this manner each person has saved themselves many hours of work to enjoy both fish and shelter. What if an expert berry picker were to join them? In that case all three could enjoy more benefit by working a little more at their specialties. In fact, the overall wealth of their little society is greatly enhanced with each subsequent useful person entering the society. The more interactions of value (the more trade) that occurs within the society the higher the living standards of each person. This happens either directly by participating in those trades or indirectly by trading with people who were involved in the original trades.
Economies have a life-cycle in other words. Generally speaking they grow from one level to the next. At first most of everyone's work is building homes, working on farms, and the like; mostly things required for survival. As these tasks become more efficient and the population grows more people's time is freed up for less physical and more cognitive work.
EXPONENTIAL WEALTH:
The above parable explains how the man hours required to produce a particular good can decrease dramatically with ever related trade. This is how the average person can afford a car and a house. I cannot imagine how many lifetimes it would take me to do all that must be done in order to create the house I live in and the car I drive. (I rent but) it would take me much longer than a 5-year loan for the car, and much longer than a 30-year mortgage for the house. I would have to go to the forest and cut down the trees. But before that I would have to go to the mountains and mine the ore that I would use to make the tools to cut down the trees. And with that amount of work alone (not to mention making the machinery to mine the ore) I could maybe build the frame of the house (but probably not because I don't have measuring tools, I'm not an architect and I haven't made any nails yet). And how many years would just these tasks take me? One can see how ridiculously benefited all the members of a society are by trade.
WEALTH QUANTIFIED:
It may be hard to quantify wealth when it has such a definition as quality of living. Can we quantify it with currency? Gold? It would be difficult to put a price on the wealth of a society were we to look at it arbitrarily. Fortunately for us we don't have to.
The quality of our physical lives can be boiled down to the amount of time it would take a single individual to accomplish the same on his own, so we could presumably quantify wealth as the amount of time saved by all of the society's trade. That number of hours - that value in life - is reflected in the perceived value (purchasing power) of the currency. For in an infant economy where everyone must spend all their time surviving they must spend most their money on food and shelter and the like. But in a wealthy economy the residents' money has much more purchasing power so that they are able to spend much more of their money on luxuries and non-necessities.
TIME CURRENCY:
Money is not wealth. Can money feed you, cloth you, build you a house? It cannot, only people and machines can do these things. Money is nothing more than perceived value. It is not value, it's a symbol of value. For example, it is not an apple, you can't eat it. Its like a picture of the apple, the concept of an apple, the symbol of value. Value is nothing more than what people want, and though that takes varied and different forms, it is always (for the even remotely stable members of society) simply life, and life more abundantly. People want to eat to live. They want medical care to live. They want to have fun and enjoy their time. They want life, and life more abundantly. If you've got something that will make their life easier, fix their problem, or save them time you've got something they want. Here's the interesting thing, most problems (perhaps all) can theoretically be solved given enough time. Therefore the value we seek can be expressed in time saved. This time we saved is then spent in personal life pursuits or invested in creating more time-saving, labor-saving devices.
ENVIRONMENTAL CONDITIONS:
As we've said wealth comes from positive trade. But trade must come from somewhere as well. It comes from trust. What sort of environment is necessary for people to trust others so much that they do business with them? We need first and foremost basic human decency - enough to respect others as humans like yourself so that we accept their claim to ownership of whatever they are trading in the first place (property rights). Beyond that we need a currency we can trust to always retain value (sound monetary policy). We would need to know that if someone did us harm or violated a contract they could be brought to justice (justice system and basic laws). And we would need to know that other nations, outside societies don't have the power to enslave us or pillage or cities (military might).
WEALTH DEPRESSED:
What happens when trust is lost? Trade slows down. The wealth that is saved by our advances and productivity evaporates. People are unable to market their products including their labor. A recession hits and may even worsen unless and until barriers to trade (and perhaps barriers to trust) are removed.
WEALTH DILUTED:
Understanding now that the perceived value of the currency is nothing more than a reflection of the wealth of a society we can understand more about what the money supply really is. There is only so much wealth, only so much value, only so many man-hours saved by trade in the society. Looking at it this way we understand that each dollar in circulation is a piece of the wealth-pie. Printing more dollars only makes each slice smaller. Monetary manipulation has no real control over wealth-creation, only trust-destruction, and perceived-value-depreciation.
Given that each citizen of the society produces value and enriches the lives of all others involved more citizens means more value. This is regardless of their skill level because in a completely open market there is enough work for all and their skills will be developed. That being true we should expect the value of the currency to continuously rise with the population rather than fall. Inflation is a governmental creation. And to devalue the currency of one's own nation is to cast a light of skepticism on that nations interactions and destroy trust.
GROWTH INHIBITED:
Here are a few examples of things that can produce a drag on the economy, either by incentivizing time spent it areas that don't produce value, by disincentivizing work done in the production of value, destroying trust or creating bubbles:
-Over taxation (income tax, inflation of the currency, etc.).
-Currency manipulation (even for the purposes of trade advantages).
-Arbitrary sanctions upon independent individuals' freedom of action (all rights violations such as drug laws etc.).
-Arbitrary sanctions upon independent businesses' freedom of action (affirmative action, minimum wage laws, and innumerable others).
-The ever increasing complication of the judicial system (bloated laws, manipulatable laws, unnecessary laws, arbitrary laws, etc.).
-War mongering, Nation building, national interest preservation.
-Government subsidies.
-Barriers to entry in local, state and national governments, and in all industries (required bloated bureaucratic forms, licenses, etc.).
-Welfare.
-Socialism.
-Nationalizing of companies and industries (Bailouts, etc.)
-Corruption.
These are just to name a few things that misplace peoples efforts and create a drag on the productivity of a society. As you can see much of the list we have here is a result of government expansion. The fact is that because government only efficiently produces nothing but the most fundamental environmental conditions for economic prosperity any extra power and influence they hold is more or less wasted.
SOCIETY DEFINED:
Wealth is the time saved through trade: the life style accomplished by the same. Wealth is determined directly by the amount of and quality of interactions of and between individuals in the society. By this definition society must be expanded to mean any person participating in those interactions. Any hindrance to those trades, any inhibitory policy of productive interactions will inhibit the growing of wealth and stunt living-quality advancements.
SOCIETAL REPENTANCE:
Wealth comes from positive trade, productive interactions. And they must be positive. Busy work or work that produces nothing is only a drain on the economy. No wealth is created because no time is saved or invested only spent. In a free market system when malinvestment is made, when people's time and labor are expended into an area that produces no product or even no product of value to others then those people must stop what they are doing. The company changes or shuts down. The valuable assets are sold off and there is a correction. If it instead continues to exist and operate then there is something subsidizing it's existence. It is a parasite on the system and if allowed to grow can become a black hole for wealth and a drain on the economy. Such institutions that are not producing a value to the society are supposed to disseminate. These micro-corrections, this constant turn-over is the only way to keep the economy pure and efficient.
OF DUST:
It should be noted that there have been stable societies that have lasted for thousands of years on the earth before. However because freedom of will exists there is a predominate pattern of growth of economies and their eventual demise. This occurs because corruption creeps in and the society eventually implodes into chaos. If freedom of will did not exist (when there are people that try to control freedom of will) this pattern is exponentially accelerated. Therefore the vast majority of all nations and societies of earth are destined to die. These major corrects or dissemination of whatever value is in the society always involve a loss of life and are in the moment tragic but ultimately necessary for the advancement of the human species.
ONE PERCENT:
A wealthy person relative to others in his society is wealthy simply because he produces value more for other people - he saves other people time. Should the wealthy be reviled and hated for providing more value than others? No, so long as their wealth was acquired honestly and morally others should admire them, emulate them and follow them, that is if others know whats best for them. This brings us to the issue of currency within a society and it's affect on the wealth of the society. A focus on money is a focus misplaced; the focus should be on living standards that is the true wealth of a society. A society should not be focused on jobs, but on value created.
Some have said the best way to accumulate massive wealth is to 'place one's self in front of massive growth.' This is what Bill Gates did with the growth of computers. This theory holds true because in these massive growth situations one's efforts are magnified to help the maximum number of people and provide the most value possible.
CONCLUSIONS:
We've learned several things that may dispel myths presently circulated in our group mind.
1. The Wealth of a society is the quality of life made possible, (amount of time saved) through trade. Therefore...
2. The Wealth of a society is directly determined by the quality and frequency of interactions/transactions between people. Therefore...
3. The more producing individuals are within a society the higher each residents' living standards will rise. Therefore...
4. Open immigration is good so long as each immigrant produces value, rather than becoming a drain on society - a welfare state will attract the latter of the two immigrants and it's economy will suffer.
5. The same is true concerning outsourcing. Outsourcing is nothing more than including more participants in one economy. So long as there are not government imposed sanctions on the wage rate or taxes in one society (so as to not produce a premature incentive to seeking other labor before all the labor in the current society is used up) outsourcing only adds value to a society because it effectively increases the number of members in the society trading with one another.
(2. The Wealth of a society is directly determined by the quality and frequency of interactions between people. Therefore...)
6. The quality (net productivity) of the work done must be positive in order for the economy to grow. Projects created to merely "produce jobs" are projects not worth doing and actually produce a drain on the economy.
7. The quantity and quality of work that one worker can do can be greatly enhanced and magnified by leveraging the power of machines. The same is true concerning outsourcing. Therefore...
8. Automation is an essential part to the growth of an economy. Anything a machine can do a machine should do and a human shouldn't do.
9. Automation and other efficiency advancements create more free time for people to do more cognitive, creative and higher functioning work.
10. The tide rises all ships. You shouldn't 'spread the wealth around' if you want a society and everyone in the society to become more wealthy. Instead you should let people do the work their best at doing, whatever the skill level they have and as the economy grows so will their standard of living.
