Sunday, April 26, 2009

Lesson II – The Nature of Wealth

Everyone is interested in acquiring wealth. That is, he is interested in acquiring, not “wealth” merely in the narrow sense of material possessions in which the word is most generally used today, but those things which contribute to that person's “weal” or well being.

Viewed in this light, what goes to make up “wealth” will vary slightly with each different human being. Everyone, of course, needs a certain level of food, clothing and shelter in order to keep alive – but even in those cases, individual tastes will vary. A peasant in China or India can keep alive on rice, whereas in the Western nations, the basic food will be bread. The Inuit finds tents and igloos satisfactory for a nomadic life as a hunter in the Arctic – a modern suburban apartment would be useless for that lifestyle. The overalls that a manual worker needs are entirely different in material and purpose from the business suit of the company director. When we come to individual tastes in matters not so basic to survival, the variety of human tastes and requirements becomes even more bewildering. One person prefers going by car, another by train or bus. One person likes gardening, another to attend a sporting event. One person seeks education, another prefers entertainment. Not only are the forms of “wealth” endless, the particular circumstances a person is in can make a great difference as to how far any object actually contributes to the “wealth” of any person.

To a person who has no chairs in his house to sit on, the first chair he acquires is worth a great deal. Providing he has space for them, so too, to a lesser degree, are probably the next four or five. Somewhere around a dozen, perhaps, he begins to feel he has enough. By two dozen, perhaps, he begins to refuse to take more even if they were given him, unless he knew of some place where he could get rid of them in exchange for something he did want. By the time his total reached four dozen, probably he would be thinking even of paying someone to take a few of those chairs away!

Wealth, Value and Price
It is important, therefore, to understand that there is a difference between Wealth and Value. Wealth in effect consists of anything in the universe that may at any time be useful to any human being. The air we breathe is a form of wealth – we need it for our well being. If somebody came up to us with a box full of air, however, and asked us if we wanted it and if we would pay something for it, almost certainly we would turn them down. Because we have enough of it, and can get more every time we breathe, this extra supply is of no use to us – it has no value for us. It certainly would be of value to us, and we would be ready to pay almost any price for it, if for some reason we were cut off from our normal sources of air supply – trapped underground in a mine, perhaps – and that air stood between us and suffocation.

“Value”, therefore, is a personal matter. The degree to which we desire to possess a particular form of wealth is its value for us. Because our needs and desires change from day to day, and from hour to hour sometimes, so does the value we place on any particular form of wealth. Before lunch, a good meal will have considerable value for us. After we have eaten, the value of another meal in our opinion will be almost nil. A key factor, in fact, in our deciding what the value of any object or service to us actually is, will be in weighing up how strongly we desire it, and how easy it will be for us to obtain it in some other way.

Just as we measure distances in inches, yards, miles or kilometers, so we have units in which value is measured: in Canada these units are Dollars and Cents.

We can look around us at the hundreds of objects and services that do not belong to us, yet which we would like to have, and we can form an estimate in our own minds of the value to us of owning each of them, and this estimate is the “price” we would be prepared to pay for it. Similarly, we can in our own minds form an estimate of the value to us of owning property that is already ours – our home, our furniture, our clothes, our labour, and so on, and attach a price to each. Other people are likely to form their own, different, values, of the things that we and they own, and price them differently. Suppose, now, that I price a morning of my labour at $40.00, and a chair at $50.00. B, however, who has more chairs than he wants for his own use (he manufactures them), prices a chair at $25.00 and a morning of my labour at $50.00. If I go and work for a morning for B, and so give him a morning's labour, and B in exchange gives me a chair, I will feel very content. In my own mind, I will have made a profit of value of $10.00. B, too, will be content. In his mind, he will have made a profit of $25.00. Let us note two things about this transaction. First of all, that although dollars were used to measure value, no money was involved at all. It was a simple exchange of goods and services – pure barter. Secondly that, as is normal in any exchange, both sides make a profit. I made a profit of $10.00 (I obtained a chair for $10.00 less than I was prepared to pay). B made a profit of $25.00 (he had the use of labour worth $50.00 to him, at an expense of a chair worth to him only $25.00).

There is no black magic about the fact that both sides in an exchange deal make a profit on it. It is the direct result of people living in society and helping each other through mutual specialization and cooperation. Both sides gain, because their desires are more nearly satisfied. They have parted with wealth that was superfluous to them, and in its place they have obtained a form of wealth that they wanted to have. They have exercised their freedom of choice, and each has gained through the power of association, the “social credit” of Society.

The Source of Wealth
We have now seen something of the nature of wealth: how its value is established, and comes to be embodied in a price. A further question remains to be answered – Where does wealth come from, and how can the amount of it be increased?

The answer is that it comes from three sources. In the first place, a great amount of our wealth is available to us without any effort on our part at all. The air we breathe, the rain and water in the rivers, the sunshine, the fruits that grow on trees, and suchlike, come to us as a gift of Nature without effort on our part – though they remain wealth for all that. A second class of sources lies in what we can call mankind's “cultural inheritance” - the accumulated wisdom and know-how that has accumulated ever since the dawn of civilization, from language and writing, to all our modern knowledge of physics, chemistry and engineering, let alone cultural objects such as dance and music, poetry, literature and drama, rules for games and sports – the list goes on and on. A third and more useful class of objects comes into being when these or other resources are together worked upon by mankind, to increase their usefulness. The farmer tills the ground, plants the seed, and in due course reaps a harvest – this provides him with far more food, and far better food, than he would have had if he had left the ground to produce food unaided. His desires are better satisfied – his wealth is greater. In the same way, minerals are extracted, processed and manufactured into useful tools; trees are cut down for fuel, housing or furniture. Wealth of this type is not simply a resource as found in nature: it is a resource of this type that has been worked upon also by human skill and effort. Whether such wealth is of value to mankind, of course, depends very much indeed on how much the product serves to satisfy a person's desires, compared with how much effort and sacrifice must be made in order to bring it into being.

“Capital” and “Consumer” Goods
We can take our analysis of wealth even a stage further. There is a class of wealth which is immediately useful to us in satisfying our desires. In this class come such things as food and clothing, the home we live in, the transportation we enjoy, our newspapers, TV's, entertainment, and so on. This class of wealth satisfies us by being used up, or “consumed” for our enjoyment. Goods and services of this kind are known as “consumer goods”, and the people who use them are known as “Consumers”.

By contrast, there is a class of wealth that people acquire, not because they want to consume or make use of it personally for their own enjoyment, but because they wish to make a profit through resale or exchange with a person who ultimately wishes to consume it. This type of wealth goes by the name of “Capital”. It consists of all of the assets of business undertakings. It consists of the raw materials they acquire to be manufactured into goods. It consists of the land that the business owns, and its plant and machinery which in due course it is planned to use up and wear out in adding value to the raw materials that it processes. It includes the goodwill of the business as a going concern, and the inventory of all the goods that the undertaking has finally produced, but has not yet disposed of through sale.

Generally speaking, capital goods are of no great value in satisfying our present desires. One cannot go visiting on a bulldozer, or make one's home in a warehouse or office. However, such capital goods are of the very greatest value in providing consumers with the goods and services that do satisfy their wants. Capital goods are, in fact, the “tools” by which the consumer goods we wish to consume are actually turned out. By inventing more and more ingenious “tools” of this type, people are able to enjoy greater and greater wealth, with less and less effort on their part, and less and labour required in the long run for each unit of consumer goods produced. There is only one catch.

The catch is this. If we are to take time and effort to make tools – to make “capital” goods, there will be a short time when we will be not richer but poorer than before. We will have turned some of our time and energy away from direct production of consumer goods, and used it instead on producing tools that give immediate satisfaction to no one. After a little while, of course, those “tools” enable us to obtain more consumer goods with less effort than ever before. Before they do, however, someone is forced to make a sacrifice. The first cave man who stayed at home, putting together a bow and arrow so as to be a more efficient hunter, perhaps had to go without lunch while those who went hunting with their spears were able to eat. But with this new and more efficient weapon in his hand when completed, he could feel himself well content. His investment – the fact that he had diverted his time and resources away from acquiring food for immediate consumption in favour of making himself a better weapon for hunting - in the long run made him richer than before.

The Modern Situation
When we consider the ways in which wealth reaches us, we have come a long way from the primitive cave man. We have, in fact, probably come further in this direction in the past two hundred years – since the “Industrial Revolution – than in all recorded history before. We have harnessed the forces of nature – steam, fossil fuels, electricity, the atom – to give us power. We have developed new wonders in the fields of science and chemistry. The time has come when we can say that the problem of the production of wealth has been solved. Viewed as a simple problem, of the number of people living in our country today, the skills and resources that they have, and their factories and machinery, balanced against the needs of these same people for enough food, clothing and shelter to keep them reasonably alive, we can say that it is now possible not simply to keep all our citizens alive, but to do so in a fair degree of comfort. This should mean that our citizens should be enjoying wealth – that is, the means to satisfy their needs and desires – as never before.

Strangely enough, however, this is not the case at all. In Canada, for instance, over the past thirty years, not less than six per cent of the working population, and at times up to twice that proportion have been unable to find a job. They were in a position of having something of value to them which they were willing to part with – their labour. However, they could not find anyone for whom their labour would be valuable enough that they could sell it to get the products they needed in return. These same unemployed people went in need of the wealth they needed for comfortable living. They also had wealth of another kind, their labour, that they were quite ready to part with, but they could find nobody interested in making use of it. There had been a breakdown - a breakdown in the process of exchange. Our later chapters will examine the cause of this, and its cure, more closely.

At this point, however, many people will rush in with what seems at first to be an easy solution. “Let us conscript the nation's wealth” they suggest. “Let us take from the rich and give to the poor, and all will be well.”

Wait a minute. Will this really solve the problem? The problem, as we saw above, is not of anyone being too rich. It is one of exchange – of a person who has something he wants to exchange not being able to do so: of unemployed workers being unable to sell their labour – but also, of underemployed businesses unable to get rid of their products, even though the unemployed need them and could make use of them. This is obviously is the case, because if they could get rid of their surplus products, they would then find it worth while to take on more workers, even giving training to those who needed it in a new line of work if demand were brisk enough to make this worth while.

Add to this another point. Something is valuable to people, because they can use it to satisfy their own particular wants and needs. Unless people can keep their own powers of free choice, they will not get the greatest possible satisfaction. For this reason, Social Credit has laid it down as its third basic principle, that

III. “Economic security alone is not enough. We must have Freedom with Security.

Anything in the Universe which may be useful to a human being is a form of Wealth.

Wealth acquires Value as soon as any person wishes to possess it.

The amount of Value that a person sets on any piece of Wealth can be measured as a Price which is expressed in monetary units – in Canada, these units are Canadian Dollars and Cents.

Since the same objects have different values to different people, it follows that Exchange between people can bring Profit to both: that is, value received over and above value parted with.

Wealth comes from a nation's inheritance of culture and natural resources, but is greatly increased by human labour and skill. In the long run, it is increased even more in relation to the sacrifices people must make to obtain it, through the use of Capital – that is, goods acquired for resale, and tools to be used up in the process of production, preparing them for final consumption.

In the modern world there is no need for poverty or any lack of a sufficient basic amount of wealth to satisfy human needs. Poverty arises, however, when those who have something valuable that they are prepared to part with, often their labour, are unable to exchange it for the goods and services they require. It arises, in fact from a breakdown in the process of Exchange, not from a breakdown in the process of Production.

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1. What is Wealth? Does it have the same value for every person?
2. What factors affect the value of any article to a person?
3. What are the units in which value is measures?
4. How is it that the process of exchange can increase a person's wealth?
5. How does Profit arise? Can both parties to an exchange profit from it?
6. How is wealth produced? Is human labour essential to its production?
7. What is Capital? What is the difference between “capital” and “consumer” goods?
8. Is wealth in any way connected to personal freedom? How?
9. What is the third basic principle of Social Credit?
10. Has the problem of production of wealth been solved? How? Why then do we have poverty?

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Soddy, Professor Frederick, “Wealth, Virtual Wealth and Debt”
Hattersley, C. Marshall, “Wealth, Want and War”, particularly Chapter 1.

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