Creating Wealth, Destroying Wealth

Copyright © Karl Dahlke, 2024

In physics, various laws of conservation are key. We don't mean conserving as in using less, we mean conserving as when something cannot be created or destroyed. Although it looks like fire reduces wood to a pile of ash, in reality no mass is lost. If you could capture all the smoke and water vapor and ash from a fire, and weigh it before and after, it would weigh the same. The universe would probably wink out of existence if a single microgram of material could be created or destroyed.

Other conservation laws soon followed - most notably the conservation of energy. The heat of a fire isn't created, it was there in the wood, stored from years of sunshine falling upon the tree. The energy that keeps your body warm, came from the food you ate, which was stored in plants (or perhaps an animal that ate the plants), which came from the sunshine that fell upon their leaves. In the accounting of energy, the books always balance.

Other conservation laws include the conservation of mass-energy, as per Einstein's equivalence principle, the conservation of linear momentum, the conservation of angular momentum, the conservation of charge, the conservation of subatomic spin, and so on. After you have studied physics for a few years, these laws become a part of your mindset, as they should. However, they can lead you astray when you enter the world of economics.

In 1776, Adam Smith published The Wealth of Nations, the beginning of economics as we know it today. Wealth is a concept that we all understand, but it's hard to define. It is not money. He didn't call his book The Money of Nations. Indeed, wealth can exist with no currency whatsoever, as was the case for thousands of years.

Wealth is the aggregate of necessities and comforts, and the certainty that you will have those things in the future. This includes housing, food, clothes, tools, and in the modern age, healthcare, transportation, and perhaps a smart phone. Wealth also includes mental well-being. Having food is not enough if you are constantly afraid that you will not have food tomorrow.

The sharp difference between economics and all other sciences is, wealth can be created or destroyed. It does not follow the conservation laws. This is where most people go astray. They believe that one person can only get richer if someone else gets poorer. Thus they are not excited about paying taxes for social programs designed to ameliorate poverty, because they believe they will lose some of their comforts in the process. Their subconscious then creates reasons why they should oppose such programs: the poor are lazy and don't deserve our help, the programs don't work, etc. However, once such programs are enacted, (those programs that are indeed effectual), then after a few years we are all richer, because wealth has been created. That is the counterintuitive reality of economics. People are fed, housed, and working, and they buy things from our stores instead of stealing from our stores, and that creates wealth for us all. Wealth occasionally trickles down, but it always trickles up!

Here are the great creators of wealth.

  1. Work. That almost goes without saying. If you go out and work 8 hours a day, that helps you, and others, for if it did not help others then they would not willingly pay for your services.

  2. A system of investments or stock. A new business has to raise capital, in order to launch. If it thrives, it can pay back the investors with the wealth that it creates.

  3. Education, to a point. It is in our interest, as taxpayers, to train a plumber, because we all have toilets in our homes. A four year degree in ancient Hittite languages creates considerably less wealth, though it does create some wealth. If you do the math, the taxpayers probably shouldn't foot the bill for every 4-year degree offered by a university - however, some education, particularly the trades, can be a prudent investment.

  4. The arts. When Beethoven wrote his ninth symphony, he created wealth that reverberates throughout time. Every time I listen to his symphony it brings me pleasure, and my descendants will feel the same way. If governments did not fund the arts 300 years ago, the catalog of Bach, Beethoven, Mozart, etc, would not exist. Literature, film, the theater, poetry, paintings, sculptures - all have a role to play. A brilliantly written book, such as The Jungle, or The Good Earth, or The Hiding Place, can combine the arts with education, thus creating twice as much wealth.

  5. An idea or invention. This is the big lever. How much wealth did the polio vaccine create across the centuries? How many billions of people are not in wheelchairs, and not in chronic pain for life? How many healthcare dollars are saved by not treating these patients? Other incredible creators of wealth include: the lightning rod, the steam engine, the telegraph, the telephone, penicillin, the transistor, the internet, HIV management, and so on.

Here are the great destroyers of wealth.

  1. War. This is self-evident. If you are destroying peoples homes, and infrastructure, and farmland, then you are destroying wealth. Americans often start, or participate in, needless foreign wars, and feel smug and superior because our country remains undamaged. However, wealth is still being destroyed here at home. Soldiers could be building homes for the homeless instead of destroying homes abroad. We pay their salaries to do nothing for us. Furthermore, we must care for them, medically, psychologically, logistically, when they return home, and that is often greater than the cost of the war itself. Even dollars spent on preparation for war could be spent elsewhere. Biden's 1.5 trillion dollar nuclear build-up is particularly egregious, since those weapons cannot be used in any credible scenario.

  2. Natural disasters. Realize that some people get rich during a natural disaster. Someone might sell water bottles for $5 a bottle during a hurricane. Thus, you cannot point to a few people getting rich and say that wealth is created; you have to look across the entire population. A few people get rich off of a hurricane, even as it inflicts billions of dollars of damage upon the rest of us. At first it seems there is nothing we can do about these natural disasters, however, intelligent preparation can mitigate the damage. For example, warning systems for tsunamis can save hundreds of thousands of lives.

  3. Incarceration. This is the antithesis of work. We like to pretend otherwise, but a man locked up in a cage cannot do meaningful work. Furthermore, we are feeding and housing him at great expense, perhaps the most inefficient form of housing there is. If this man was the family breadwinner, then the entire family is now on public assistance, which we also pay for. They may even turn to crime to survive, whence we will incarcerate them as well. It is a cascade of multigenerational destruction. Let's pretend like we don't give a damn about the injustice of mass incarceration, or the cruelty of locking a man up in a cage and treating him like an animal, because it seems we don't. Let's pretend we are cold calculating machines. It is still in our interest to incarcerate as few people as possible. Every man in a cage represents wealth destroyed, while every man supporting his family represents wealth created. A prosecutor who understands this is not soft on crime, he is soft on the taxpayers. The problem here is, like war and natural disasters, some people get rich off of incarceration, even as it destroys wealth for the rest of us. For profit prisons, police departments, and courts, all make money off of crime, thus crime, and criminals, will be manufactured. This is an obvious consequence of capitalism; it is exactly what you would expect the invisible hand to do. We must ensure that nobody profits from crime, thus putting the invisible hand back in its box - and then educate the public on the concept of wealth, and the destruction of wealth by incarceration. yes, there are a few who must be locked away for the protection of society - but very few indeed.

  4. Sickness and injury. This is once again the antithesis of work. You can fix somebody's toilet if you are sick in bed. There is no better investment than keeping our people well, and returning them to health after an injury, as happens to all of us from time to time. Prior to covid, Michigan medicaid, which only serves the poorest of the poor, would not provide healthcare unless that individual was working. In other words, if a man is too sick to work, we won't allow him to see a doctor, so he can get better, so he can go back to work. Meantime, he and his entire family must rely on public assistance. This is perhaps the stupidest piece of legislation I have seen in our state. Even if we have no empathy toward our fellow man, as he lies dying in his bed, and it seems we don't, universal healthcare still creates wealth for us all, and is an obvious win for our country.

  5. Ignorance. If people do not understand history, current events, science, technology, and economics, they won't know how to vote. They are also easy prey to dangerous conspiracy theories. Thus K through 12 education is provided to us all. Other forms of general, relevant, post-secondary education should probably be made available as well. This would include classes on the tax code, car repair, basic medicine, and especially, marketing strategies and psychological manipulation as practiced by corporations and politicians.

In summary, wealth is different from any of the concepts we've seen in physics or chemistry or biology. It can be created or destroyed. We must avoid practices that destroy wealth, and support programs that create it. Happily, this is also the moral thing to do. A person with a conscience will naturally be driven in this direction.