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Date: 2024-08-16 Page is: DBtxt001.php txt00003590 |
Wealth |
Where does wealth come from? Modern economics does not seem to address this key question. My impression is that economists who have a platform for their views on organizations like for example Bloomberg News think that wealth can be enhanced when a Central Bank like the Federal Reserve 'expands its balance sheet' and does 'quantitative easing'. If we go back to basics I argue that all wealth has its origin in the 'big bang' that started the universe. Our wealth started off as minerals that make up our planet, and has increased over billions of years through a process involving solar energy and nature's life. Bottom line, we are wealthy because of the amazing multi billion year history of our planet, and the miracle of nature and life. Without human consumption, solar energy and natural resources will add 'wealth' to our world for a very long time. With human consumption the 'wealth' of the world declines … the faster the consumption the faster the decline. In the prevailing Adam Smith style money profit laissez faire market economy, the conventional wisdom is that wealth is about having more and more no matter how much of the 'wealth' of the planet is 'consumed'. This is ridiculous. If people were smart … or perhaps if our leaders were smart, we would be running the world in a very different way. We need money 'to make the world go round' … but money is not a measure of either wealth or economic performance. Using an automobile analogy … money is the lubricant, but it is gas (petrol) that provides the energy and it is a speedometer that tells us how fast the automobile is going.The way the world works looks like a combination of Newton's Laws of Motion, the Laws of Engineering Thermodynamics and Darwin's Theory of Natural Selection. Adam Smith in the 'Wealth of Nations' concluded that the market and the invisible hand resulted in an optimum use of resources and optimum benefit for society. Adam Smith, it seems to me, was in awe that the market miraculously balanced supply and demand, and goods got produced and needs got satisfied, without any controlling overlord! I argue that we should accept that the resources we have are finite, and that we should be figuring out how best to get a decent quality of life from this finite sources or wealth … not only for the next couple of generations, but for ever. In modern times it is common for 'free market' supporters to cite Adam Smith and his invisible hand as the foundation of the modern economic system. But in this, these people, often with high level responsible jobs or high profile media platforms, are just fundamentally wrong. Modern economics is now a massive construct of money and financial investment vehicles that have little or no connection to the real market that Adam Smith observed. The system can be described as a huge 'bubble maker' that can be 'gamed' to produce money wealth for some at the expense of everyone else … a classic zero sum game. While the monetary economy goes from bubble to bust, the underlying real economy is trending more steadily. Everyone talks about the monetary economy, but except for the investor and executive community, it is really inceonsequential. As I write this, I am in my 70s. When I 'completed' my academic studies more than 50 years ago, the total of knowledge was way less than what exists today. It has been said that the total of knowledge doubles every ten years, and on this basis there is more than 32 times the knowledge today than when I was young. This is probably a low estimate … and maybe the total of knowledge is 100 times more than 50 years ago. Applied knowledge … or technology … has progress even faster. As I understand it, the famous Moore's Law postulates that every 18 months power doubles and cost halves. So in areas of technology where Moore's Law applies, we have a cost/power improvement that is multi-million fold better. I think this is awesome. Sometime in the last fifty years the capacity to produce everything that we need for a decent quality of life for everyone became possible. This should change everything … but almost nothing has changed. Why? The answer is, of course, that the money profit laissez faire capitalist market system being used draws its inspiration from Adam Smith's ideas based on a shortage economy of the 1700s, This model optimizes to maximize money profit for 'me', ignoring everything else. This model cannot work to allocate resources in ways that optimize quality of life … and, bluntly put … the this model has outlived its usefulness. |
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Peter Burgess
October 2012 |
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