Money =/= Wealth

(money is not wealth)

In the 1920s people were certain that rising stock prices represented increased wealth. In the 2000s people were certain that rising real estate prices represented increased wealth. In both cases, not only did the market prove them wrong, the bubble proved that their willingness to make choices based on a belief in money was counter-productive.
Spiritual leaders have long asserted that money is not real wealth. Mathematicians and economists should be asserting the same idea. Money is a weak tool for exchanging wealth, and measuring wealth. Money is not and can not be wealth.
Mathematically speaking, money is a one-dimensional, linear tool for measuring and exchanging wealth. Wealth is comprised of multidimensional, nonlinear aspects of quality living. Any time a multidimensional system gets reduced to a one dimensional linear measure problems will occur. Sometimes, an inverse relationship can develop between wealth and money.

Below we will look at some of the major dimensions of wealth and the problems that occur when people confuse money with wealth.

Last update: January 2011

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Wealth as work
Tangible - goods are produced

For most discussions in economics wealth is the output of labor. In the classic example, a farmer produces food and a craftsman makes tools. The two exchange food for tools and both become wealthier. All goods and services must be produced through labor. The tangible elements of an economic system are all the result of labor.

Intangible - people feel better

There is also an intangible element in labor. Quality labor increases our trust in each other. With increased trust our feelings improve. People enjoy receiving goods and services with a smile. People feel good about themselves when they are producing the best that they can produce.

Implications:

All actions that increase wealth involve labor. Actions that have no labor do not increase wealth. Investments that do not involve labor or the creation of labor do not create wealth, they just transfer money. Those investments are zero-sum games.

Laborers produce wealth. The rich accumulate money. Wealth does not trickle down to the laborer from the wealthy. Through the accumulation of money, wealth trickles up from the laborer to the wealthy. The popular Trickle Down theory of the 1980s is false.

Wealth as community
Intangible

Community is also wealth. The intangible nature of community is more obvious than the tangible. We value friends, and family. We want to live in a neighborhood where we feel safe and accepted. If we have these things we feel rich.

Tangible - less need for money

Community is also tangible wealth. The more we can rely on family, neighbors, and friends, the less dependent we are on money. Our community will help us when we have needs. The more we can share with our community the less money we have to spend ourselves. Conversely, if we don't trust our neighbors, then we must spend our money on security instead of comforts.

Implications

Connecting with others as community makes us wealthier. Individualism makes us poorer. The more we isolate for personal gain, the more dependent on money we become.

Wealth as stability
Tangible - instability is costly

Instability is very costly. If we are constantly at risk of layoffs and downsizing, then we need to invest our resources into rainy day funds. We must invest our money into retraining. We must invest our money into packing up and moving. But stability saves us most of those expenses. With stability we can spend on comforts instead.

Intangible - sense of security

Stability gives us opportunity to slow down and enjoy our time. Stability reduces our stress. Stability gives us time for friends, family, and leisure activities.

Implications

Corporate downsizing, layoffs, reorganizations, and predatory competition decrease real wealth, even while they increase profits or decrease prices. Not all profitable choices actually increase wealth. Government and community spending that increase stability increase the wealth of the people even while they cost money. A loss of money is not necessarily a loss of wealth.

Wealth as environment
Tangible - food, clean water, & natural resources - health

We get our food and water from nature. Our health depends upon access to nutritious food, clean water, and clean air. The environment, like our own bodies, can produce much more when it is healthy, when all its systems our functioning. The more food and wood and clothing fiber we want, the healthier our environment has to be.

Intangible - beauty

We want more than just material resources from the environment. We want beauty. We want a quiet serene place for our vacations. We want clean beaches to swim in. We want the beauty that only trees, mountains, streams, and birds can offer. These things are real wealth to us.

Implications:

Valuing money, profit, financial gain more than the environment results in the destruction of the very wealth that we actually need and desire. Regulations that successfully protect the environment actually protect real wealth, even while they cost money.

Wealth as time
Intangible - sense of self

Ultimately what we want from life is time to be who we really feel we should be, time to do the things that we really desire to do. But we spend more of our waking hours working for money than any other activity. We come home from work too tired to do the things we really want to do. Our struggle for money actually takes more of what we really want from us than anything else.

Implications:

Our dependency on money makes us poorer in time and self even while it may increase the money we earn.

Wealth as status, pride, and power
Intangible

The things that many people desire are not tangible. Many of those things come at a cost to others. One can increase his status or power by decreasing his neighbor's status or power. However, to do so takes more from others than it gives to the person clawing his way up. Cultures that work to decrease status distinctions tend to have happier individuals.

Implications:

When money contributes to increasing status divisions, the emotional wealth of the community decreases. In a status culture, a small minority can be wealthy. An egalitarian culture that reduces status distinctions increases the emotional wealth for its majority.

 

 

 

"All wealth is the product of labor." - John Locke

 

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"Only when the last tree has been cut down, only when the last river has been poisoned, only after the last fish has been caught, only then, will you find that money cannot be eaten" This old Cree expression demonstrates an ancient recognition that wealth is a strong healthy environment.

 

 

Related Discussion:

 
Conclusions

In each of the examples above, the pursuit of money could result reductions in real wealth. Wealth and money frequently tended towards negative correlation. The acquisition of money frequently correlates to a destruction of real wealth.

That is what happened in both the bubble of the 1920s and the bubble of 2000s. People rapidly accumulated money, but in doing so they destroyed wealth. The rapid accumulation of money led to the destruction of stability, community, the environment, and even the value of the source of the money. Our dependence on a one dimensional linear tool (money) to evaluate a multidimensional nonlinear world (wealth) misled us.

 
 
 

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