Creating Wealth

As I said in the last post, wealth is created through a combination of natural resources and human effort.

For instance, when a person makes a chair using wood and physical effort, wealth is created. That’s a simple example.

On the next level, a person can make a tool that enable the chair maker to make more chairs in less time with the same amount of effort and materials. Making the tool creates wealth indirectly because it increases the creation of items that are valuable in themselves.

In theory, management creates wealth (indirectly) because it enables others to create more wealth directly by improved organization, coordination, preparation or some other support service that allows those in production to create more with less.

The key in evaluating management’s creative efforts is the extent to which those efforts increase the creation of wealth. This does not always mean “more stuff” – it can mean a better work environment, better compensation (hours worked, health care, disability benefits, etc.), or higher quality products, for example. In any case, the key is what is actually produced that is valued – how much wealth is created.

In the West, we have created an upper management class (the very wealthy) that is compensated not based on how much they increase the creation of wealth, but by how much influence they have, and how well they manipulate money.

The major effect of this trend over the last few decades is that we create little wealth in this country. Instead we export raw materials and import finished goods*, borrowing to make up the difference between what we produce and what we consume.

As a consequence, wealth creation has been reduced severely, and values have been wildly inflated. The recent economic collapse is merely the unavoidable adjustment that takes place when the reality of the amount of wealth overcomes the inflated values assigned to it.

We need to return to the creation of wealth, not the illusion of money “making” money.

What do you think?

(*I’m old enough to remember that this is the definition of a colony)