I wrote in my previous article that we can define wealth as the saved monetary value from meeting demand.
Even the stocks you own that appreciate in value fit this description. Stock prices primarily go up when a company is meeting demand and has increased its earnings (unconsumed income). For the shareholder, the profit could be distributed or reinvested in the company to increase revenues. Either way, the increase in wealth for the shareholder represents the saved monetary value from meeting demand.
Since this is true, then whenever someone or a business meets demand there’s the potential for new wealth to be created. All that’s necessary is to not consume what they’ve earned.
The problem regarding the poor, therefore, is not about “inequitable wealth distribution” that the left asserts as absolute fact. This isn’t the issue because wealth’s not distributed from some source but rather, it’s created by meeting demand.
The problem then becomes clearer. The explanation as to why some in society struggle with unemployment or low incomes is because they’re not meeting the needs within the job market. The employment market needs to improve to create more diverse jobs or people need more training for the positions that are available.
Enacting supply side policies will create more employment opportunities and thereby, a competitive labor market resulting in higher wages. This was the story of the Trump economy before Covid-19. Having a business friendly environment (more freedom) should be our primary goal so manufacturing jobs and others, which train in-house, will return or develop in the U.S.
As I detail in Organic Wealth, supply side economics includes the supply of labor. The more freedom we can give workers, the more they’ll be able to meet demand. For this reason, having a robust jobs training effort will empower and lift up an unskilled workforce. Then, as wages increase, people can create new organic wealth and move up the economic ladder.
The Flow of Income
With a free economy working as it should, the potential for wealth creation is unlimited. The idea of unlimited wealth is simply this: as long as a supply of something meets demand, income will be created which could be saved as organic wealth.
So in reality, income creation is what’s unlimited with the caveat of having to meet demand. The money that’s earned by meeting demand isn’t permanently removed from our economy. It’s mostly recycled and it becomes income again to another party. The key to all of this is consumption.
Whenever income is consumed, it becomes income for someone else. So if you spend $100 this weekend on masks, hand sanitizer and bath tissue; it will become income to the PPE store. The PPE store will then spend this $100 to pay employees or vendors which then becomes income to those people. This can go on and on until it’s finally saved by someone and not consumed.
Consumption occurs because there are suppliers who are working to satisfy the demand of those with income. If a person is enticed with products they want or need, demand is satisfied and their consumption becomes new income for the supplier.
It doesn’t matter, for instance, that Amazon rakes in billions of dollars per quarter. Most of that money is consumed with taxes, employee wages and other expenses. This in turn becomes income to the government, workers and vendors who will then consume their income which will become income again to other people and entities.
I show in my book how the money that’s saved as organic wealth is mostly recycled as well and becomes income again.
Money that’s consumed or saved, therefore, doesn’t prohibit others from earning an income by meeting demand. The reason is because consumption becomes income again to other parties who then are able to demand other products and services. This means the only barrier to wealth creation is being compensated for an equal exchange of labor, talent or from selling a product that meets demand. Up next, an article extrapolated from chapter four.