Organic Wealth takes you on a journey. It begins with how wealth is created in capitalism and finishes with how wealth is destroyed in socialism. The winding road between them makes the drive both enlightening and inspiring. You’ll agree that it’s worth the ever changing scenery.
Most of the first chapter, Wealth is Created, is available to read with Amazon's Sneak Peak feature. Please do. The adventure begins there where I assert that wealth is created organically, hence the title of the book.
One of the greatest benefits for individuals living within free market capitalism is the method of wealth creation. The process starts when people are free to take something of value such as their labor and to exchange it for income within a marketplace.
Having the freedom to meet demand encourages people to earn more than just enough to survive. We not only desire a better quality of life today, but we also want to invest in the future. In summary, freedom begets income creation which begets wealth creation.
Earning an income or some other gain and then saving it is how wealth is created in capitalism. Most new wealth is created this way while asset appreciation makes up the rest. In order to initially buy assets without a loan, however, requires saved income.
What this means is that anyone can create wealth. All that’s necessary is meeting demand in a marketplace and saving a portion of one’s income. Then, bingo, new wealth is created.
Those in the media and on the political left who bemoan wealth inequality never encourage those without wealth to create their own. They don’t even propose policies that would produce a tight labor market. In fact, they usually support the opposite such as supporting open borders, increasing the corporate tax rate, and much more regulations that drive jobs overseas.
Polices that harm the labor market leads to lower or stagnant wages which makes it almost impossible to save and invest. Having a strong job market means employers competing for workers, which leads to higher wages. This, of course, will allow people to save and invest more.
Wealth Creators Are Not the Problem
The main question is do people who build wealth remove the opportunity for the rest of society to create their own? Do they even diminish the chance even slightly?
I prove in Organic Wealth that the answer is no. Those who create wealth are essentially building wealth out of thin air. It’s brand new wealth that never existed before because it’s not the result of a wealth transfer. As such, they’re not preventing others from doing the same.
Let’s say, for example, there’s a large private company that earns billions of dollars each year. The sole owner is the only person who receives the company’s profits which equates to $100 million yearly. Did this company or owner cause anyone else in society to lose their wealth or their opportunity to build wealth for themselves?
Those who bought the products from the company didn’t lose anything because the items met the buyer’s demand. They got what they wanted. The transactions were each a net zero being equal on both sides.
The billions the company earns are mostly paid out to employees, vendors and government treasuries, which becomes income to those people and entities. The people who receive that money will consume it which then becomes income once again to others. So the billions that were removed from society is put right back in as income. No wealth or income was lost as a result.
As for the owner’s profit of $100 million, it will be exchanged for other assets. The profit won’t likely remain as cash. If any money is saved, however, it will be used by banks to loan out. Loaned money, of course, is consumed in our economy and becomes income once again.
Any assets the owner purchases becomes income or a gain to the seller of the assets. This person could then consume that money in our economy. If the seller instead just buys other assets with their new money, then those sellers could consume the proceeds. This could go on many times until it’s eventually spent in our economy by someone instead of just buying other assets.
Money is withdrawn from investment accounts continually to raise funds to consume. For instance, this occurs with venture capital or to lend to others who will spend it. Also people sell assets for other reasons like to buy luxury items, to purchase a second home, to give to charities or for traveling. It’s especially true at retirement when people live off their investments. Let’s not forget times of economic hardship or when estates are ultimately liquidated.
On a side note, the same process is true for stock buybacks that the left says doesn’t benefit our economy.
The bottom line is that people who have large amounts of unconsumed income are not permanently removing money out of society because it finds its way right back in as income. Since this is true, the real issue then is assisting people so they can meet the needs of a marketplace to earn an income. Additionally, we need to encourage more saving and investing. This should be our focus and not on those who have created wealth.
Wealth creation should be encouraged and celebrated, not vilified. Next up is a concept from chapter two, Equal Transactions.
