The Crash Course - Chris Martenson [34]
It bears repeating, however, that all wealth begins with primary wealth; without it, there is nothing. Today, when there is more abundant luxury available to more people than at any point in history, much of it traveling from very far away to arrive in our lives as if by magic, it has been easy to lose sight of this fact, but it remains as true today as ever before.
Money and Wealth
What about money—how does it factor into the wealth story? Money can and should be a store of wealth, but it’s not wealth itself. It’s a way for us to conveniently measure and transfer ownership of true wealth from one entity to another, but just like a stock, bond, derivative, or any other financial product, money is simply a claim on wealth. It also happens to be an exceedingly important social contract that we collectively uphold, a vehicle in which we’ve invested the enormous power to shape lives, nations, and destinies. Ultimately, though, what we call “money” is either a piece of paper (indistinct from any other except for the ink patterns on it) or it’s an ephemeral collection of numbers that exist as a series of ones and zeros on a computer hard drive somewhere.
Money has value because, and only because, we collectively agree that it can be exchanged for something. If we go far enough backward or forward in any line of transactions, that “something” is always some form of primary or secondary wealth. Perhaps we exchange money for a college education; this might seem to be quite different and less tangible than the examples of primary or secondary wealth that I’ve already described. But if we keep following the path of money in that exchange, we’ll eventually find the money in the pocket of a college professor who will use it to buy food, or clothing, or a house, or some other form of primary or secondary wealth.
The point of money is to help us secure those things that we need, beginning at the very bottom of Maslow’s hierarchy of needs.1 We start with food, shelter, warmth, and security, and then progress higher if and only if the base needs have first been satisfied. It’s vitally important, then, that money be stable and trustworthy, because if it’s not, and people begin to suspect that money might fail to enable them to meet their basic needs, the entire social contract that money fulfills will begin to fray. As long as money exists in a balance with actual primary and secondary sources of wealth, then it will retain its perceived value and perform an important function. However, when the supply of money gets out of balance with resources, money’s value can begin to gyrate wildly. We call this process inflation or deflation, depending on whether the gyration goes down or up.
The Nature of Wealth
The idea that monetary wealth originates with the wealth of the earth is hardly new, but abundant primary wealth, as described here, has been such an assured feature of the landscape of the last few centuries that it seems to be almost entirely taken for granted. Over two hundred years ago, the great economic thinker and observer Adam Smith took great pains to describe how wealth came about, but given that he lived during a time of natural primary abundance and poorly formed tertiary paper-based wealth abstractions, he focused mainly on the role of labor in creating wealth. He turned his considerable attention to secondary wealth and did a most credible job of isolating the essential features by which better-organized labor led to greater wealth. Here he essentially discounts the importance of “soil, climate, and territory” compared to the number of people laboring productively:
[T]his proportion [between production and consumption] must in every nation be regulated by two different circumstances; first by the skill, dexterity, and judgment with which its labour is generally applied; and, secondly, by the proportion between the number of those who are employed