Where does Wealth come from?
Professors of economics, philosophers, professional economists and socialists. What do they all have in common? Answer: They have no idea where wealth comes from.
Poverty programs, urbanization, women’s rights, wealth inequality, credit, savings, capital, health, education, foreign aid, democracy, good government, regulations, trade agreements, environment/geography, technology, efficiency etc., or the lack there of, have all been blamed for the poverty seen all around the world. Some of these factors may be technical reasons as to why some countries are poor and others are rich but they are all irrelevant in relation to how wealth is actually derived.
The one and only answer is that wealth is derived from private property.
The profit incentive comes from the desire to acquire private property. Factors of production will all be allocated efficiently if private property rights are respected. Savings only exist because of the ability to accumulate private property. Risk-taking only exists because of the fear of loss of private property. Natural resources are found across the world yet some countries are poor and others are rich. This is because natural resources stuck in the ground are not wealth. Natural resources will be extracted and refined if private property rights are upheld. Credit is only unavailable in poor countries because of the lack of private property rights. Law is the enforcement of private property rights. Contracts are agreements about future private property. If health or education were what poor countries lacked, then why wouldn’t entrepreneurs invest in the health and education of the citizens in exchange for the income that comes from the higher productivity? See more specific examples.
The profit incentive, the economic calculation problem, the ability to invest/take risk, the innovation problem, the desire to save, all require and are rooted in private property rights.
To put it simply, there is no way for wealth to be formed except by allowing humans to have private property rights. This should be clear intuitively. Each person will try to use their private property to make themselves as happy as possible. Any hindrance(coercion) regarding private property will cause distortions and diminish the amount of happiness that can be achieved.
Most economists waste time engaging in rigorous investigation of proximate causes of wealth in hopes of discovering how wealth is formed and how to pull countries out of poverty. Ironically, it is their socialistic mindset that has pushed many into poverty. Their strategy of attempting to identify concrete causes of wealth, or even erroneous fundamental causes such as democracy or good government, is fallacious and hopeless. It is a fool’s errand.
It does not matter how much effort or time the empiricists spend searching. They will never succeed. This is because wealth/utility does not exist in reality. Utility exists in the mind only. Wealth is purely subjective and is clearly synonymous with utility. A photo of a loved one can be worth infinitely more than a monetary fortune.
In order to further understand it must be explained from a different perspective. A more complex and accurate answer to the question is that wealth comes from Human Action. Clearly, this is a praxeological deduction. It is not a stretch from the fundamental praxeological axiom; humans act to remove uneasiness. If humans act to maximize utility then it is clear that utility/wealth is derived from human action.
Put simply, if you allow humans to engage in action, by giving them private property rights, then they will produce as much wealth/utility as possible.
A more precise explanation is as follows. Human action is the bridge between the mind and reality.(Hans Hermann Hoppe, http://mises.org/esandtam/pes1.asp) Reality is private property because ideally you could not disturb or interact with someone else’s property. Access to private property must be possible for human action to occur. If you restrict access to private property(namely through government coercion) you break the link between the mind and reality and therefore prevent Human Action, which prevents any wealth creation.
If we assume that every action is chosen to maximize utility then any coercion will, by logical deduction, lower utility for the individual because it forces someone to choose an alternative to the action that would maximize utility. This statement alone is enough to discredit any government policy.
Instead of wasting billions in foreign aid, attempting to increase health and education, or enforcing other central planning within the economy, the way to unleash infinite amounts of wealth is to enforce private property. The poorest nations on the planet could easily become the wealthiest in a very short period of time if security was provided for these countries so that private property could be safe.
Where does wealth come from? To summarize: Wealth exists in the mind only. Humans act to create as much wealth as possible. This statement is synonymous with the fundamental praxeological axiom, I.e. Humans act to remove uneasiness. Wealth is not derived from objective means. It is the goal of every human to maximize their individual wealth. Put in any scenario, humans will use their available private property to maximize their happiness. There is no way for government to create additional wealth because humans are already acting to maximize wealth.
With 0% private property rights, the extreme left, we wouldn't own our own bodies and therefore suffocate to death. No one could produce because they don't own anything. This fact is what makes socialism so unproductive. The less private property there is, the less wealth there will be. With full private property rights, human potential would be maximized. People always act to maximize utility and therefore if there are no impediments based on private property they will maximize the amount of wealth in society. Countries such as Cuba, North Korea, or the Soviet Union restricted private property and therefore had very little wealth. Countries such as Hong Kong, Singapore, Taiwan and South Korea have strong private property rights and therefore have become some of the wealthiest nations on the planet.
i thought wealth came from productivity? and value was what is in our minds as subjective interpretation. Like, when you're at work making appliances and people pay for them. You create their wealth, then when you buy things, they make wealth for you.
Wealth and value are the same thing. They are both subjective.
Wealth doesn't come from productivity. You can be productive at making garbage but no one will consider all the garbage you've produced wealth. Wealth comes from each individual attempting to maximize their utility.
Okay. So utility maximization leads to implications in one's mind of value or wealth. Why do we claim to measure wealth then? Isn't there some kind of objectivity in exchange value, manifested in price? and doesn't that market price lead to what is considered wealth?
Well, theoretically it is impossible to measure wealth. The starving people in Zimbabwe could be happier(have higher utility) than rich people in the United States. It's impossible to tell. In the free market, if people preferred to live in squalor ratheer than material wealth then that is what would occur. For practical purposes though, the GDP, or other measures of wealth, can be useful.
A price reflects the value of one good relative to another good of one individual but it is impossible to objectively measure what each good is worth because it's all in the mind. Also, utility is purely subjective so if something costs twice as much it doesn't mean it brings twice the utility.
Wealth comes from innovation (ideas, knowledge) put into practice.
Throughout time - every invention, innovation, new efficiency is the wealth we enjoy today.
Think about this: what if people were put on a deserted planet (with lots of resources) but no knowledge whatsoever? Completely ignorant. Wealth would not be created for them until they learned something new. Like as simply breaking a branch off a tree and learning to sharpen the edge to kill prey with. That knowledge of the spear is wealth. And wealth grows from there.
Well, perfect information is usually assumed. But if not you can just group knowledge with capital(human capital, physical capital, etc.). Obviously knowledge is essential but so is physical capital and a lot of other proximate causes of wealth. If people on an island don't have nets then it will take them a lot longer to acquire fish. The net would only be considered "wealth" because it is valued by the individual since it can be used as a means to acquire an end, the fish.
The point of my article is to show that the government cannot do anything to increase the amount of wealth in society. The government cannot pull countries out of poverty as the socialist development economists suggest. Transfering knowledge(or anything else) from one country to another is not a sufficient condition for wealth creation. There must be private property rights so that human action can occur because humans act to remove felt uneasiness.
Lawrence:Wealth doesn't come from productivity. You can be productive at making garbage but no one will consider all the garbage you've produced wealth.
Well if you want to play that game, wealth doesn't come from private property either. You can have private property all day long, for thousands of years but there will be no wealth created.
Wealth comes from each individual attempting to maximize their utility.
I'm sorry, but isn't that also known as "productivity"?
The fundamental praxeological axiom is that humans act to maximize utility. Human action occurs when the mind and private property come in contact.(Hans Hermann Hoppe) In other words, human action can only occur if humans are free to choose their actions. So my reasoning that wealth comes from human action is a praxeological deduction.
Wealth comes from adding value to nature.
We are the soldiers for righteousnessAnd we are not sent here by the politicians you drink with - L. Dube, rip
But you haven't defined "value". Where does value come from? Value(or wealth,utility, etc.) is in the minds of individuals and it is created as humans act to remove felt uneasiness.
Lawrence:Human action occurs when the mind and private property come in contact.(Hans Hermann Hoppe)
my reasoning that wealth comes from human action is a praxeological deduction.
You didn't say wealth comes from human action. You said wealth comes from private property. Here, I'll quote you for you: "The one and only answer is that wealth is derived from private property." And then in this later post you said "Wealth comes from each individual attempting to maximize their utility." Besides not being private property, I'd like to know how that is different from productivity.
http://mises.org/esandtam/pes1.asp There's the source for what I paraphrased.
You should read the entire article before responding because you obviously don't understand my argument.
I view the statement "You said wealth comes from private property." and "Wealth comes from each individual attempting to maximize their utility." as the same statements. The latter is more precise but for the sake of simplicity I often use the former.
The fundamental principle of praxeology, the science of human action, is that humans act to maximize utility. But remember human action can only occur if private property rights are respected. If someone puts a gun to my head and makes me take certain actions they obviously do not maximize my utility. So if there are private property rights, then human action can occur, which is to maximize utility hence create as much wealth(which is also utility) as possible.
Hopefully this paragraph made it more clear. The main argument is simple, but it is quite philosophical and the details are difficult to understand.