What Is Wealth Anyhow

To a band of cave-dwelling proto-humans in the ice age, wealth must have consisted mainly of four or five survival necessities: (1) the cave itself (or other shelter), (2) a water supply, (3) a means of hunting or gathering edibles and (4) a fire and a fuel supply. These fundamental elements of wealth were not readily exchangeable, except by capture of territory. Other useful and portable objects, such as clothing (skins), smoked meats or other preserved foods, clay pots and crude tools or weapons would have been only slightly less valuable, but more easily obtainable by barter. Proto-money, consisting of scarce, difficult to make or fake, easily recognizable, intrinsically desirable and portable objects, from cowrie shells to blocks of salt, or gold nuggets, began to play a role in trade at some point in human history.

But modern economies did not evolve in a straight line from barter societies. By far the most important component of wealth in any society is power over the activities of other humans and domestic animals. The earliest source of power among proto-humans, as among social animals, was probably nothing more than physical prowess. The best fighter (alphamale) became the tribal leader and remained so until he was killed in battle or by a stronger rival. It was natural for such a society to glorify victory in battle. It was also natural for a leader to try to control his own succession and - meanwhile - protect himself from rivals or enemies by relying on his male children or other relatives for protection. But human children themselves require a very long period of nurture and protection, which requires a long-lived family structure. The bodyguards of the leader had to be rewarded by privileges according to their rank. Of course, the leader's sons or brothers occasionally turned against him, but, on the whole, primogeniture was the most effective strategy for family survival.

As tribes became larger, leadership hierarchies evolved naturally. It became natural for the family of the tribal leader to develop into a dynastic succession, using daughters to 'trade' as marriage partners to other powerful families. Hierarchical status was confirmed by various symbolic actions to acknowledge submission of the lower orders to the higher ones. These symbolic actions have included saluting, kneeling or bowing, as well as titles and modes of verbal address ('sir', 'your excellency', 'your lordship', 'your majesty'), modes of clothing (uniforms), personal decoration (tattoos) and jewelry (finger-rings, ear-rings, nose-rings, diadems, crowns).

Of course, purely symbolic acknowledgment of hierarchical status was never enough. In the course of time, the higher orders persuaded themselves that they were inherently superior beings, cut from a finer cloth. They soon claimed legal and moral rights over the lower classes and demanded - as a matter of right - tribute (taxes) or physical service. Many, if not most, human societies formalized this hierarchical structure such that the lowest order were actual slaves, with no rights at all. Slaves were, of course, property - a form of wealth.

The road from feudalism to liberal democracy (using the words loosely) consists largely of an evolutionary shift in the hierarchy of 'rights' in law. The abolition of slavery in Europe and America during the 19th century was merely the final acknowledgment of a sea-change, which coincided roughly with the Protestant Reformation. The emergence of scientific modes of thought and humanist philosophy between the 16th and 18th centuries in Europe set 'human rights' - for example, 'life, liberty and the pursuit of happiness' - above property rights and hierarchical obligations to the King, or to one's feudal or caste superior. The remnants of the feudal hierarchical system have not totally disappeared. They remain, of course, in the military 'chain of command', the university and the Catholic Church. The 'values' debate between fundamentalist religions and secular society is about competing hierarchies of rights, especially as regards the roles of men and women in marriage and the conflict between 'right to life' and a woman's right to control her own body. The role of property rights vis-à-vis other rights such as the 'rights of animals' is also still evolving.

Thus, it is not surprising that wealth in a feudal society consisted partly in inherited rank with associated privileges, and partly in farmland with peasant labor attached, plus exchangeable wealth in the form of silver, gold or gemstones. The farmland may have produced most of the wealth, as the French physiocrats argued, but it was not equivalent to ready money. It is perhaps significant that dragons were reputed to sit on hoards of gold and precious gems. Certainly, the liquid wealth of traditional potentates took that form.4 By contrast, wealth in modern society is mostly defined in terms of monetized property rights as expressed in markets. The theoretical insights of Adam Smith in The Wealth of Nations could not have preceded the actual evidence of economic benefits arising from markets

('the invisible hand'), joint stock companies, international trade and the 'division of labor'.

Property - for the majority of people - still consists of land or houses. A century ago animals were also a significant part of wealth. But for the wealthy it consists mostly of interest-bearing paper (bonds) or shares in profitable enterprises of some kind. In the 17th century, the enterprise could be a licensed trading ship, an insurance syndicate, a retail shop or a manufacturing establishment of some sort, such as a print shop. In recent years, the economic system has evolved in such a way that the source of profits itself may be a brokerage, an investment bank or a fund that makes its profits by trading in other financial instruments.

Today, wealth is usually defined as 'net worth'. For an individual or family, net worth as calculated (for example, for purposes of valuing an estate or a possible wealth tax) is the market value of exchangeable (salable) assets, including financial instruments (stocks and bonds), real estate, automobiles and 'collectibles', minus total indebtedness. It does not include personal clothing, most books and furnishings, or memorabilia. It does not include personal pension rights5 or rights to public services such as health care, on the one hand, or potential financial liabilities such as the costs of illness, child support or alimony that would be payable in the event of divorce, on the other hand. Calculated net worth at the individual level does not include the value of formal education and training, or experience, even though these attributes - 'human capital' in current jargon - are very important assets in the job market. Finally, net worth does not take into account such assets as family or political connections, name recognition, friendships formed in school, special talents for sports or the arts, or personal appearance. Yet these assets may have greater financial value than all the others, as the case of George W. Bush illustrates.

While the imponderables noted in the last paragraph are not individually measurable, or exchangeable, they do have a financial value to a living person in terms of earning and borrowing power. In fact, some financial institutions are eager to offer unsecured credit backed only by the statistical probability of future earnings. Thus, borrowing power must be regarded as a significant element of individual wealth. Many individuals today - especially the young - have negative net worth, yet they are able to borrow significant sums based on the expectation of future earnings. Some of the borrowed money may be invested, for example, in higher education. But most of it, in practice, is consumed. This consumption expenditure evidently contributes to the GDP (next section), but only investment contributes to individual or national wealth.

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