The Crash Course - Chris Martenson [33]
The landed gentry of antiquity were as wealthy as their lands were productive and their holdings expansive. Before the Industrial Revolution (in other words, not all that long ago), this very basic connection was not only well understood, it formed the basis for societal hierarchies. There were wealthy people who owned land, and then there was everybody else. The same is true for weak grades of mineral ores as compared to high grades, or an overharvested fishing ground as compared to a healthy one. Poor primary wealth translates into poor secondary wealth.
We can transform primary wealth into secondary wealth more intelligently, quickly, and cost-effectively with every passing year as we evolve continued improvements in technology and processes. But no matter how good we get at making these transformations, there can be no secondary wealth unless there is primary wealth to begin with. Unless there are trees to mill, there’s no lumber; no oil means no gas; without ores we can’t refine new metals; and plants will not grow if they don’t have the nutrients and water they need. Without primary wealth there cannot be secondary wealth. The second depends on the first; it’s a requirement.
The final layer, tertiary wealth, consists of all of the paper abstractions that we layer upon the first two sources of wealth. Derivatives, stocks, bonds, and every other paper vehicle you can think of comprise forms of tertiary wealth. Such “wealth” is a claim on the other two forms, but it is not wealth itself. If you grow wheat, you can always eat it if circumstances require, but good luck obtaining any sustenance from your (paper or electronic) wheat futures contracts. To repeat, third-order wealth is a claim on sources of wealth, and not a source of wealth itself. The distinction is vital.
Without the prior two forms of wealth, third-order wealth has no value and no meaning at all. For example, imagine that we hold stock in a mining company. One day the stock has lots of value, perhaps billions of dollars’ worth. But if the next day the mine collapses, dragging the refinery and all of the capital stock of the entire company down into its hole, which then irrevocably floods. Our stock shares in the mining company—our tertiary claims on that mining wealth—become totally worthless. The reason for this is simple: The earth is the source of primary wealth. The long chain from primary wealth to tertiary wealth begins with the abundance of the earth and ends with some impressively complicated paper-based abstractions that even the brightest Wall Street minds sometimes have trouble deciphering.
As you read this book, it will be helpful to recall that what most people call “wealth” isn’t actually an independent source of wealth, but is instead a dependent claim on wealth. In a world of limitless natural resources (primary wealth), the distinction between independent and dependent wealth is irrelevant. We can ignore it, concentrating instead on playing the game of accumulating as much wealth of all kinds as we can while it’s our turn to be in our prime. But in a world of limited resources—soon to be limiting resources—the distinction is vital, especially when the claims on that wealth are literally manufactured out of thin air.
For many of us, tertiary wealth is all that we know; it seems very real, and we base many of our future expectations and dreams on how much of it we hold. Stocks and bonds have been tangible, useful vehicles for storing