The government is the creator of wealth. Individuals or corporations are merely accumulators of wealth. There is a difference.
I think some basic definitions are needed here. It is amazing how hard it is to figure out what money is, much less wealth.
Money is a call on the productive resources of society.
With Money, you can demand society give you something. Society sets the price. Money (MZM) is actually a form of Debt, which is why the gold bugs spout that gold is the only form of money not someone else's debt.
Wealth is stored future value. Savings properly deployed can be wealth. Savings can be stored in Debt. Or in productive resources as capital.
Debt is not wealth, it is the flip side of an asset. Debt is a future promise to pay. An asset is a future ability to pay.
All Debt appears somewhere on someone's balance sheet as an asset. So if we claim there is too much debt, then we are also claiming there are too many assets. What we are usually complaining about is a poor distribution of debt or assets- that they are in the 'wrong' hands. As if we are blessed with some divine insight.
The government may create wealth by deploying debt to create productive resources (ala the Hoover Dam, which produces electricity which people value). Govt can also consume (destroy) wealth by creating things which provide no future value.
Just as the govt can create or destroy wealth based on actions and outcomes, individuals are able to act in much the same fashion. By taking MZM or loans and creating productive capacity. Or by drawing against their personal store of wealth (savings).
So a society isn't dependent on Govt to create wealth.
On an island, Sam, Bob and Sue trade their production. Sam collects wild rice, Bob firewood, and Sue fish. Between them, they trade their surpluses.
In a good year, all three produce surpluses. Sue & Sam dry their fish & rice, as Bob stacks his firewood. Their collective savings are stored as resources they may draw upon in the future to meet current living expenses. There is no debt. They could use pearls harvested from oysters as Fiat, but they rather not bother. Instead, they use pearls to make nice decorations.
One day, Bob approaches Sue and Sam. He proposes he borrow some of their stored fish and rice, to trade with a neighboring island tribe for labor.
Their neighbors had a bad year, with a storm wiping out most of their stores. The men of the other island agree to use their labor to help Sam dig a new rice paddy, in exchange for some rice & fish. The storm left plenty of firewood on their island.
Sue and Sam agree. After all, rice and fish have a limited shelf life, (poor stores of value). A new rice paddy will increase the amount of rice available (investment creating a productive asset that lessons the probability of future starvation), easing the collection process. Bob agrees to repay borrowed rice and fish with rice from the paddy and some of his firewood.
With some work, this story can show many things. In this case, it shows non-inflationary investment, debt funded by past savings, in productive capacity which eventually leads to deflationary forces on the value of rice.
It would be just as easy for Bob to promise to give the other islanders a share of future rice harvests, had their need not been so immediate. If this were the case, his investment is funded soley by 'future promise to pay', and could be either 'equity or debt' backed by the rice paddy. But it isn't the equity or debt that is the wealth, it is the ability of the rice paddy to produce goods with value.
Until Bob actually uses the borrowed resources to create some form of productive capacity, debt he creates may strain his ability to uphold his future promise to pay. As would a follow on storm that destroys the newly built rice paddy. Here, the form of his promise to the neighboring island (debt vs equity) might take on more importance.
It is this ability to produce something of value to the tribe today and in the future that is the true store of wealth. The use of pearls to facilitate trade or act as a store of wealth are side shows. |
