- A wealthy society may have efficient and streamlined processes of production, and therefore have only small inventories of goods (either intermediate or final goods). Where is the store of wealth in such a society?
- What is being spent when a central bank creates money out of thin air?
Statement:
The bulk of the wealth which we possess exists in social institutions, that is in persistent habits and expectations within the human population. Our wealth exists, in large part, as claims on other peoples' productive labor.
Important Concept:
The members of a population may possess much more wealth, when using our accustomed terms of accounting, than would be evident to an outside observer, supposing that the outside observer is not familiar with our institutions. We possess much more than the sum of our tangible assets.
Example:
Within a wealthy society such as in the US, an average family may claim wealth which could enable it to continue eating for the next five years, even if the family's income suddenly stopped today. But if an observer searches for a cache containing five years' supply of food, the observer will not find this cache, at least not for most families. The family's wealth, the family's confidence that food is assured for five years, builds upon an important assumption. The assumption is that other people will go to work daily during the five years, that other people will continue in their willingness to exchange their labor, to produce and deliver food, for tokens which the family may withdraw from their bank.
I believe it will be helpful to pry open this assumption, to see what it suggests.
If this thesis is correct, the answer to the second motivating question (above) is: Social institutions are being eroded on the margin. The expected long duration, of certain human habits and expectations, is being reduced.
Addition (6/15/2013): Here I propose definitions for important terms. We need to divide wealth into two types: direct assets and promise assets.
Addition (7/8/2013): Institutions may persist even if people change. The institutions which enable me to purchase food will continue to exist five years from now, or so I believe. But this does not require that individuals now employed in providing food must continue in that employment for at least the next five years. It requires only that some individuals, not necessarily the same individuals, will be employed in providing food five years from now.
I think that there exist a few statements which may support your thesis, but may also invalidate it (, but only at the margin), or may simply serve as food for thought.
ReplyDelete1. Wealth is, and only is, a store of value.
2. While the conventional factors of production for most goods and services are (effective) labor, capital (of various stripes), land (defined broadly, to include natural resources), and technology, the 'factors of production' of wealth are mostly technological. Obviously, wealth is a sort-of residual of production-for-consumption, but the most important input is technology, including institutions.
3. The above is /more/ true if wealth is stored in the form of units of account, rather than as consumables, but is still true if wealth is stores in the form of stockpiled consumables.
4. At the end of the day, the ability to accumulate wealth is a function of two things: technology/institutions and firepower. One does not necessarily need both, but a sufficient quantity of the sum of those two factors is a necessary condition for wealth accumulation.
5. No institution is ever absolute. It is a mark of civilization that rules usually hold more than they are abrogated, but no institution ought to be a societal suicide pact.
Hi Richard. I like your blog. I was wondering if you think it is a problem that the bulk of wealth we possess exists in habits and expectations. If so, why is it a problem? Is this because we can't trust that these habits and expectations will continue? Why not?
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