What does it mean to be wealthy?

The legend of King Midas dates back to the early days of Greek mythology and tells the story of a King, for whom everything that he touched turned to gold. Like all folk stories, the tale can be told in different ways. Aristotle reports that he died of hunger. Other versions say that he was rescued by the gods, when he repented after turning his daughter, Zoe (or ‘life’) into gold. Here in one story that has lasted over centuries is the conundrum of wealth. Is wealth the accumulation of money and property that can enable us to do the things that what we want to do, or is it those things themselves?

The artist and critic John Ruskin in the nineteenth century declared that there is no wealth but life – and in doing so, he was declaring himself for King Midas’ daughter: family, relationships, purpose, meaning, wellbeing – these to Ruskin are then true wealth. But the story of King Midas doesn’t necessarily so neatly line up with that – legends never do. He was, after all, already a King, with kingly possessions and a kingdom’s obedience. So, an alternative interpretation is that wealth may be gold – something that is scarce, desired, tradeable – but there are limits to wealth. In wealth, as in life, balance is everything.

The property that King Midas accumulated, gold, is scarce, famously so, and tradeable, reliably so. It is emblematic of wealth, in the sense that a stock of wealth today is something that we believe will allow for a flow of benefits and entitlements tomorrow. The term ‘capital’ captures both this sense of wealth, and offers an accounting framework for how future benefits may be valued or, if your wealth is in a form akin to a metal that rusts, depreciated. There are, of course, more forms of capital than money or precious metals – mainstream economics includes, typically, land, labour and physical structures and equipment – but, conventionally, the value of such capital can still be measured in terms of money. It is not gold per se. But, with a reference price, it can be counted in terms of gold coins.

What marked out King Midas though was not that he had too much gold. That is a different legend, the one of Croesus. It was that he loved gold so much that he turned other things, including those that had value of a different form, into gold. In terms of economics, this comes to the heart of the issue of wealth – what forms and combinations of capital do combine to increase the flow of benefits and services more widely. How wealth is spent is easier to trace. How wealth is created over time in the most effective way remains, if not a mystery, certainly a conundrum.

There can, for example, be more forms of capital than those that are measured in traditional economic terms. One model of this is to characterise four forms of capital – environmental capital, human capital (including knowledge, skills and health), physical capital and social / organisational capital (including legal, political, community, family, organisation and firms). This feels more encompassing, but, in turn, less likely to be reduced to the calculus of money. Even if there are attempts from time to time to do just that, putting a price, or a shadow price, on what is outside of conventional markets in order to understand or adjust for wealth that can’t be counted in gold, there are limits. What price parenthood? What price the butterfly?

There is a long tradition of radical economic thinking that argues that prices established in money terms in the context of a market trade between two or more parties is blind to these wider forms of potential wealth, because they suggest that it is possible or even desirable to cash them in for money. John Ruskin, in the nineteenth century context of the British Industrial Revolution, had a name for this. He distinguished ‘wealth’, as life giving, and ‘illth’ as economic activity that created ugliness and unhappiness. One hundred years later, President Kennedy sparked a debate that continues today about the measurement of wealth in national accounts – again contrasting what is measured in economic terms as wealth as measuring all but that makes life worthwhile. The ‘Nobel Prize’ Economist Herbert Simon argued that most wealth was created on the back of a common inheritance from previous generations. A more recent prize winner, the late Elinor Ostrom focused on wealth outside of the market, in the form of commons. These are ideas reflective of the co-operative tradition of commonwealth and common ownership.

The challenges these perspective throw up are far more than the issues of unconsidered costs, which might lead you to consider such ‘externalities’, or narrow measurement, which might tell you to broaden your national accounts or indicators of progress. The crunch issue is the extent to which we can draw down one form of capital, in order to build another. After all, it has been a hallmark of modern economic development that it draws into the market those activities that were previously outside of the field of monetary exchange, whether household work or subsistence farming… and assigns a lower status to what is left.

Some forms of capital, though, cannot simply be cashed in. Some environmental assets, such as the diversity of species, may have a value beyond a narrow market price (that is, in turn, ‘discounted’ over time, leading inexorably to a short-term view of what may be long-run assets). But they may also be critical to our survival, in which case no amount of money gain will capture quite what we are doing. This is the argument of Herman Daly, a pioneer of the field of ecological economics. What we take for economic growth is, in his words, uneconomic growth.

In short, then, to assume that wealth is narrowly financial is as impoverished an account of economic life as assumptions of poverty that start and end with income and expenditure. It is important, but far from the whole story – and in turn may be a framing that becomes problematic, for example if today’s economics rights and rents are at odds with a climate constrained world tomorrow. Today’s wealth may not be that of tomorrow.

But, as with the legends of old, these are claims that have life that is sometimes unconstrained by the fact and evidence to back them. It is a tendency of us all to look to stories that confirm our existing beliefs, rather than to keep a genuinely open mind. I was pleased this year to be part of a Wealth Commission set up by the University of Birmingham, which was an attempt to explore some of the facts that lie behind one of the most enduring challenges of our day – how to generate and distribute wealth and prosperity in ways that are self-reinforcing rather than self-defeating. My contribution was to help explore these competing ideas of wealth.

The legend of King Midas echoes today. Our own balance of wealth has shifted in recent years, in terms of a less even distribution of people, for all the widening of growth around the world, who are able to share in prosperity. It has also shifted in terms of a perceived decline of the quality or sustainability of the social, civic and natural environment, just as the reach of financial factors in decision-making is larger than ever.

So, what does it mean to be wealthy? It suggests, I think, that you have the means, the mindset and the relationships that allow you to sustain what matters all around you.

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3 thoughts on “What does it mean to be wealthy?

  1. Dear Ed, as you say, the wealth conundrum exists because our “framing” of the issue has become “problematic”. Our thinking is contaminated by the invisible hand of “ our existing beliefs”. For example, when you say that we can “characterise four forms of capital – environmental capital, human capital (including knowledge, skills and health), physical capital and social / organisational capital (including legal, political, community, family, organisation and firms)”, this might “feel more encompassing”, because of the mention of “human capital”; but unless we broaden the definition of “human capital” and distinguish it from “environmental capital” we will never be able to establish a healthy relationship relative to the “calculus of money”, and consequently the destructive “reach of [distorted] financial factors in our decision-making” will continue to become worse.

    We need to reframe our thinking in terms of distinguishing between “human capital” and the “Natural factors of production”. Essentially “Capital” is human ability, applied in the fulfilment of human needs, where each one can “invest” his or her innate human talents to assure the social well-being and ecological sustainability that is the source of their quality of life. The return that each one gets for investing their innate talents (their capital) is: (1) the accomplishment of their highest human potential, both materially and spiritually, as well as (2) receiving their due rights, in the form of money, so that they can live by using and consuming the goods and services produced by others. In the context of this paradigm, money is restored to its original function: a species of credit, and hence a social relation involving rights and obligations.

    Regarding “property rights”, what is produced by human work is an “added value” to some pre-existing good of Nature, so it is not possible to consider the factor of production that pre-exists in Nature as part of the “added value” that results from human work. Natural factors of production cannot thereby be considered the property of those who use them to create an added value – only the added value belongs to them. In the final analysis, Humankind is a product of Nature, and Nature belongs only to its Creator, or at least to itself. Therefore the Natural factors of human production cannot be disposed of as human property, whether private or collective, but only as something which Humankind has a “right of use”, in order to fully play its part in the evolutionary process of Creation on planet Earth.
    In exercising its right to use the Natural factors of production, each society and individual needs to ensure the sustainability of such usage, by taking into account the need to recycle the finite availability of material elements, and to safe-guard and regenerate ecological systems.

    Besides land, other Natural factors of production include : rivers, lakes, seas, forests, soils, seeds, extractive minerals, things that exist because of the action of the sun and the moon (wind, tides, solar energy), the radio spectrum, the area in space useful for satellites, genes, human faculties, including intellectual capacity, etc
    In order that society can finance the recycling and restoration of the Natural factors of production, as well as to regenerate the only form of capital there is – human ability (through education and Culture in its broadest sense), we can adopt the approach proposed by the 19th Century economist, Henry George: where the “right to use” the Commonwealth of Nature is conditional on sustainable use, and on the payment of an “economic rent”, in the form of a “sustainability tax” on the unimproved value of the Natural factors of production.

    As Henry George foresaw, a sustainability tax would be economically efficient, fair, and equitable; and could generate sufficient revenue so that other taxes (e.g. taxes on profits, sales or income), which are less fair and efficient, can be reduced or eliminated. As a progressive tax, it would be paid primarily by those who have an exclusive right of use over Natural factors of production, which belong to all, and would thereby promote efficient production for the common good and reduce economic inequality. Economic stewardship would replace the endemic social and environmental abuses inherent in the present paradigm of the privatisation of economic rent.

    As the economist Michael Hudson points out in “The Bubble Economy as a 2 part play for Privatisation”: “This post-bubble environment of debt-strapped austerity is empowering the financial sector to become an oligarchy much like landlords in the 19th century. It is making its gains not by lending money – as the economy is now “loaned up” – but by direct ownership and charging economic rent. So we are in the “economic collapse” stage of the financialized bubble economy. Coping with this legacy and financial power grab will be the great political fight for the remainder of the 21st century.”

    When Hudson uses the term “the financialized bubble economy”, he is talking about the same thing that Aristotle called “Chrematistics” and which John Ruskin referred to as “illth”. About 2,400 years ago, Aristotle warned us about the critical distinction between “Oikonomia” – the management of the household or commonwealth (the origin of our word “economy”) and “Chrematistics” – the management of money. Aristotle cautioned that the management of money should remain a pure servant of the economy, and that the notion that “money can beget money” (interest or usury) is unnatural and catastrophic to the realisation of the human self and human society, as it distorts the process of investment of individual ability (human capital) in the right functioning and evolution of human society.

    The paradigm that money is a species of credit involving rights and obligations implies pure double entry accounting, where interest or usury can be seen for what it is: the illegitimate systemic and perpetual transfer of economic rights to added value, from the users of the social accounting institutions to those who manage or control such institutions (today we call them “banks”). The notion that the Natural Commonwealth can be “purchased” and privatised enables the holders of accumulated purchasing power (economic rights) to doubly enslave the rest – as Michael Hudson points out. Humanity needs to restore social accounting institutions that enable everyone to invest and grow their human capital for the individual and common good, for present and future generations. Such institutions can best function as a Third sector (civil society) public service, so that they are owned by their users on a cooperative basis, and employ competent professionals to operate them. In this way such institutions are also free of undemocratic political lobbying.

    Capital, money, work and the Natural factors of production, including land, will no longer be treated as commodities subject to speculative abuse within the economy. Only human added value will be exchanged (bought and sold) within the economy. The systemic mutual corruption between the political and economic domains, such as the revolving door between Government and Corporations will not be able to continue; due to the consequent empowerment of civil society as a transformational cultural force, capable of transitioning the current bipolar social order between governance and economy, into a tripolar social order between the domains of culture, economy and governance, whereby each of these three social domains is granted their own jurisdictional limits and hence relative autonomy. This tripolar social order enables each domain to recover its essential nature: fraternity in the economy; egality in governance and the cultural freedom necessary for the development and implementation of every human individual’s talents and abilities.

    References:

    (1) Toward a General Theory of Credit and Money, by Mustafa Moini

    (2) Dépolluer l’économie, Michel Laloux

    • Dear Ed,

      One vital contribution to the debate of modern economic crisis, is the decades of advances in neuroscience and recent developments in psychology pointing to the fundamental importance of emotional health as the key driver of all human activity. There is now a clear scientific understanding of how human emotional needs drive human behaviour and that the “machine” that constitutes the human body and mind has evolved to constantly seek to meet these needs. In short emotions drive the whole show. People set up situations to modulate their emotions all the time. As Joseph LeDoux explains in his book “The Emotional Brain”, “While conscious control over emotions is weak, emotions can flood consciousness. This is so because the wiring of the brain at this point in our evolutionary history is such that connections from the emotional systems to the cognitive systems are stronger than connections from the cognitive systems to the emotional systems”. A society based on emotional well being is the society we need to now focus on creating and this emotional well being can be clearly defined.

      Joanne Theaker

  2. What an interesting piece. Thank you. Much to digest and from the two
    comments. I’ve long been struck how the Midas story, like its later versions
    (e.g. Volpone -‘good morrow to the world. And next my gold. Open the shrine
    that I may see my saint’; Eugenie Grandet) are all reactions to a phase of
    the expansion of commodity relations and the first transformation of money
    into capital. I’ve always felt a little uneasy about using the terms human
    capital, social capital and so on, because it obscures the fact that money
    capital is ‘self expanding value’ – that its only raison d’etre is to
    expand. Human, social, and indeed environmental capital don’t have this
    same impulsion. As you say they are all forms of wealth – but what Volpone
    and M. Grandet are doing is to lose themselves into the infinity of monetary
    expansion to the exclusion of all else.

    On the other hand there is a real sense in which there is social, human and
    environmental capital in as much as they contribute created/stored up
    qualities to the process of production. In this sense they are like machines
    which are ways of capturing/freezing and then replicating previous
    innovation. Ricardo looked at machines in this physical sense. Marx too but
    then he said they then contribute to the creation of value in its monetary form.

    So this leads to a distinction of capital (and perhaps wealth) as
    contributing to production and money as stored up value which has the
    capacity to purchase. Midas is about the latter. Eugenie Grandet about the
    former (since M Grandet’s accumulation of money is swamping all human
    values/relationships).

    There is also lurking here a distinction between stock and flow – noun and
    verb. Is wealth a stock – but Ruskinite life a form of flow.

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