What is Wealth?

0:00The Nature of Wealth Most of us think in a sort of vague, unformed way that it would be delightful to be wealthy. Very few of us take the time to really analyze wealth or figure out just what it would mean if we did acquire wealth. It would be important for us to understand the nature of wealth, what it is, and equally what it is not. There are a number of confused ideas in this area. First of all, and perhaps most important, we should realize that money is not wealth. We usually think of money as being wealth because we think of people who perhaps have money in their possession or have access to it as being wealthy. But wealth is really not money or, vice versa, money is not really wealth. Money is a medium of exchange, a transfer agent. Actually, if you have If you have money, then you could convert it into wealth, or you could convert it into other things as well. So, if you think of money as a conversion tool, rather than an

1:19end product, and think of items of wealth as end products, then you would probably come closer to an accurate picture of what wealth is all about. In one sense, money can be classed as Wealth. And this is invested capital. Money that is being used as invested capital, when it is itself engaged in earning a return, could in a sense be classed as wealth. But since it is so readily transferable and can be so easily converted into something else, Human savings and investments are usually not classified as wealth.

2:05They are simply classified as money or as reserves. And when we are talking about wealth, we are talking in some other area. Wealth is the end product. It is the thing that you and I as human beings want in an effort to satisfy some particular desire that we have. Notice why we have to classify money and wealth differently. When we obtain money, the only reason we value it is because we anticipate getting something that we want when we get rid of it. Now when we obtain wealth, it's because the thing that we are getting is something that we want. When we value money the most is at the time we spend it. When we value To the good or service we obtain in exchange for money, we value that most at the time we obtain it. Just to illustrate what I mean, I think this makes the point. When my wife and I, well, prior to our marriage, when I was first courting her, she impressed me very

3:12profoundly by letting me know that she loved money. Now, in point of fact, I found later that she had deceived me. She didn't do it intentionally, and of course this is just sort of a family joke, but anyway, the fact is that I discovered after we were married that she didn't love money at all. She positively detested it. She wouldn't let any of it stay in the house. In fact, she was engaged in a constant daily program of seeing what money we had that she could get rid of. So I had to discuss the matter with her and I told her that she had led me to accept a false premise that here she was a girl that I thought love money, whereas in point of fact she hated it. And I told her that it astonished me to find the number of things that she would rather have than money when she had professed that she loved money. I'm laying this on a little thick, but the fact is that there is a profound

4:07difference from the way we look at money and the way we look at wealth. We get money only because we believe that we could get rid of it when we want to. But we get wealth with So, our way of looking at these two areas is entirely reversed, and we view wealth as the end product that is desired, and we view money as the medium in between our desire and the thing it is that we desire. Now, if we're going to be absolutely precise, I would have to point out that very few of us ever really desire the thing that we get. When you go to the store to buy a good or a service, of whatever nature, the chances are rather good that you don't really want the item that you're buying. You want the satisfaction that you think you can obtain from the item that you're buying. For example, I presume, just to give you a quick look at this, I presume that most of you have at one

5:15One time or another it had a soft drink that we call a cola of some sort. There are many types of colas. Let's just talk about Coke, which is perhaps the oldest beverage of this nature in the field. Is there anybody that knows what Coke is? I venture to say there isn't. We don't any of us know what it is. Well, why do you buy something that you don't I don't even know what it is, because it isn't that you want the coke. It's that you want the satisfaction that you think it will bring you. It isn't the coke that you want. It is the idea which has been captured by the advertising people who promote the coke and the other colas.

6:04They say it refreshes you best. it, whatever it may be, refreshes you. Refreshment is what you're buying. Will coke refresh you? I don't know. Refreshment is a delightful general term, and it has an emotional appeal. We'd all like to be refreshed, whatever that may mean. And so we buy coke as a means to get to a condition of refreshment, which sounds very attractive. Whether it does it or not, that's up to you, but that's how you sell coke. If you were to go on the air or if you were to put an ad in the paper and actually spell out the formula of coke, who would buy it? You're not interested in buying so many grams of this and that chemical. It wouldn't be meaningless to you. You buy it because it appears to you to bring you a satisfaction and that's why you do it. I once asked a class of mine, and all men, how many of them liked razor blades? It happened that with this group

7:04they all shaved, and I could tell it by their appearance, so I asked how many liked razor blades. And several of them admitted to having something of an affection for them. So when we got into a discussion on it, we discovered that actually most men didn't like razor blades at all. So I asked them why did they buy them? Well, it isn't that they like Like razor blades, it's that they would prefer to shave rather than to have the effect of not having shaved. Now, that's a matter of judgment. Some people prefer to shave and be smooth-faced, and others prefer not to. But in any case, you don't like the blade. Very few people... I don't know of anybody but the people who manufacture the blades that have any affection for them, the people buy them because they anticipate a benefit from the effect to be obtained.

7:54I thought that would be important to bring in when we're discussing wealth because although we would classify a razor blade as wealth, it is not something that you really have an affection for, it is something that you can use directly in the obtainment of a satisfaction, whereas money is something that you use indirectly to get a satisfaction, and that's the difference. So we classify them in different ways. Wealth is viewed as an end product leading to a satisfaction, and money is viewed as an intermediary product leading to an end product that will bring you a satisfaction. In the end what we want is the satisfaction, very well. Now wealth can be classified into three general categories. These categories are, one, customer or Consumer Wealth, 2. Entrepreneurial, sometimes called capital wealth, and 3. Political wealth, which could also be classified, I suppose, as economic waste. But these would all be types of wealth. Let me take them in order. The first type of wealth we will call customer

9:11Customer or Consumer Wealth. By all odds, this is the largest category of wealth in the world. The reason being, of course, that every one of us is a customer all the time. That is, we are all consumers. We can't help ourselves. Every living organism is a consumer and man who is the most consumptive of all consuming organisms has a vast array of things and the things that he wants to consume. And this is true of every living human being. Consequently, our demands for consumer goods are virtually limitless. And all of the things that are produced in an effort to satisfy, to bring consumer satisfaction, all of these are classed as consumer goods or customer goods. These would be such things, for instance, as food, clothing and shelter, whatever those things may be, whatever form they may take.

10:03Food would vary the world around, but you have to have some kind of food, because otherwise you can't stay alive. Then there would have to be clothing. There's some type of personal covering in order to protect you from the elements from climate and so on, also to give you some kind of a morale factor in terms of decorative facilities and so on. So these are items in great demand. Then also there is shelter. It happens that the weather of The nature of this world is at times relatively inclement and it is essential that we modify it for our own well-being so it works out that men have figured out how to do that and in very hot climates we air condition and in very cool climates we heat and we now heat with central heating units so that we create our own climate within structures that we build. All of these things are in demand. Everybody wants more of these things and there is a host of other things that we want. There would be vehicles to transport us

11:02at various ways, at various speeds, to various parts of the world, and then there would be other types of comforts and conveniences such as razor blades and curlers for the hair, and a barber shop experience, incidentally we classify services as wealth, even though they do not last, if you get a shoe shine, that is wealth, or if you get a haircut, or a permanent wave, or something of this sort, that's classed as wealth. Anything that you want, as a consumer, however you use it, knives and forks, that's consumer wealth, a camera that you take pictures of your friends with, that's consumer wealth, an automobile that you drive around in, a coke that you drink, whatever it is that you have that goes to satisfy you as a consumer, that is viewed as consumer or customer wealth and obviously that's what it's all about.

11:59The purpose of all production of any good or service is simply for the purpose of creating human satisfaction. That's the whole idea. And so the bigger we can make this column of consumer wealth, the better off we'll all be. And that's the general idea. Now, let's go to the next classification, entrepreneurial wealth. That's too hard to

12:51Money to bear in order to get the capital goods, but it is the entrepreneur who wants the capital goods. Well, what are capital goods? Capital goods are the tools of production, whatever they may be. Now, these are the things that you and I as customers probably don't want. But as producers, and each of us is usually during at least a portion of his life a producer. In our role as producers, we want this other classification of wealth. For example, the type of wealth that I'm thinking about here would consist of such things as a blast furnace, a mill, a press, a locomotive engine, a lathe, a linotype machine. There could be any number of items that we would think of as tools that help us in producing or providing goods or services. So whatever those may be, we would classify those as entrepreneurial or capital goods. To make it clear, very few customers would like to have their own blast Blast furnace out in their backyard. I doubt if you would. But if you're producing steel,

14:19then a blast furnace would be very important to you. Not as a customer, but as a producer. If you... I doubt if very many people would like to have a linotype machine for their very own right in their living room, or even in their bedroom. You don't want a linotype machine as a customer. What in the world would you do with it? But what you want is the newspaper that may come from it, or the printed book or pamphlet or periodical, whatever. You use linotype machines in production. They are not an item to bring customer satisfaction. And there's a whole host of goods that we have learned how to produce that don't really please customers directly, but which create the things that help to please customers.

15:05And that's what we mean by entrepreneurial goods. Incidentally, there are certain types and of course, there are three types of goods that will fit into both categories. They have no specific characteristics that would limit them to one particular column. For instance, take a chair. That's a ubiquitous sort of thing, wherever people are, you would certainly want one as a customer, you'd want to be able to sit down, but as say, a man in business or as any kind of worker in any kind of a job, you'd like to be able to sit down too. could be an item of production, and it could be an item of customer demand. So it could be moved either way. This would be true, too, of a number of buildings. You could have a building that people could live in, and as such, it's a customer item.

15:55But if a lot of people could live in it, more than, say, just one family or one unit, whatever that might be, then probably we would think of it as a production item, as an entrepreneurial tools such as a major apartment house or a hotel. We would think of that as a tool. You and your mate would probably not like to live just by yourselves in, say, a five hundred room hotel. It would be sort of meaningless. You'd rather have a house. So we think of a house as an item of consumer goods, but a hotel as an item of producer goods. That is, it's entrepreneurial. It's the kind of thing that men want to have when they're engaged in Business Activities or Industrial Activities, but not the kind of thing that they would want for themselves personally. Now if you happen to have a piece of paper and put these two columns down, label one at the top entrepreneurial goods or capital goods and the other one at

16:54the top customer goods, then you'll see as you extend these columns down and write down various items that you can think about and then classify them in one column or the other A man looking about him in the society he lives in begins to think that there is a particular good or service that people would like and that he can figure out how to provide. He has special knowledge, perhaps, or he has taken note of some particular requirement that people have. So he goes to work to produce a product. Let me just call it a widget. I'll use that term.

17:43It simply means a handy-dandy household item that everybody would like to have because it's so convenient, whatever it may mean. So here is a man who discovers that people would like to have widgets. At least he thinks they would. So he proceeds to make them. Now take a look at your entrepreneurial column. Put down widget. Okay. Widgets are being made by an Entrepreneur. Now when he gets some of them made, he takes them over to the column where the customers are, and he offers them for sale. He says, how about buying my widget? Well, the customer says, what in the world is a widget? How does it work? And it's demonstrated. And the customer says, gee, I'd like to have one of those. Fine, says the fellow who has made them, that'll be $10. And the customer says, what in the world is $10? Never heard of it before. Well, says the entrepreneur, I'll tell you what you do, since you don't I don't have money. Let's work it this way. You come on back to where I produce widgets,

18:38and you can go to work helping me make widgets, and I will pay you $100 a week. And it only costs $10 to buy a widget. So after you've worked with me for a week, or as long as you like, you could afford quite a number of widgets. So you come over and give me your services, and I will pay you in money and then you can buy widgets and wadgets and blidgets and blodgets and gidgets and gadgets and whatever else is available because you'll have the money not only to buy what we make but what everybody else is making as well. So that's what happens. The goods are taken from the entrepreneurial point of origin and moved over to where there may be a demand and then the The person wanting and making the demand has to have a tangible demand. That is, he has to be able to command an exchange by virtue of the fact that he too has something that the fellow wanting to sell the widget wants. In this case, the fellow wanting to sell the

19:38widget wants money, but the customer doesn't have the money, but he does have service. He has energy and time. So now the widget maker hires him in order to provide the service. He pays him with money, now the money flows from the point of origin over into the customer area and the man having the money now spends some of it to buy a widget and the money flows back. So if you followed me here, what you will see is goods moving from the entrepreneurial column into the customer column, services moving from the customer column into the entrepreneurial and Money Moving from One Column into the Other and Back. And that is the way it works.

20:24In other words, there is a mutual exchange of goods and services facilitated by a mutual exchange of money. And if you have a free market and there are no inhibitors installed to prevent this free exchange, then you will tend to have a maximization of both columns. More and more goods will be produced because more and more persons will be willing to exchange their time and energies for the money that it takes to buy the goods and the services once they're provided. And so you tend to maximize human well-being by taking off the restraints and letting people go ahead and produce and buy what they will anywhere in the world. Now that would be the ideal. That would be the maximization.

21:09Unfortunately, however, there is this third column of wealth that I mentioned. This is the political column, the political area, where we have a special type of wealth. Now, this particular type of wealth is not entrepreneurial and it is not customer. It's the type of wealth that people want when they are engaged in their role as a politician. Now, a political Political Activity is a very interesting one because it is a consumptive activity. The politician is engaged in the uses of power and his function is to exert power, to regulate, inhibit and control others. So he needs certain types of equipment and things to do that.

22:00A typical type of political good would be, say, an M1 tank, or an atom bomb, or some other item of military hardware by means of which he could intimidate or kill anyone who disagreed with him. Now, that way he is able to obtain greater and greater power, and the The more power he has, well then the better off for him as a politician. So this is the kind of good that will tend to accumulate in the political column. It would be the human inhibitors, the various tools and items of equipment by means of which one man's will can be invoked and then overimposed upon the wills of others.

22:54Thus in the political column you would find such items as a pentagon building and tanks and atomic powered submarines and dive bombers and fighter bombers and all kinds of ballistic missiles and warheads of a thousand varieties and so on. Now these are things obviously that customers don't want and note the difference between an item of political good and an item of entrepreneurial good. You see, the customer wouldn't want Money, the One. There isn't any customer that would like to have his very own little blast furnace in his backyard. Equally, a customer wouldn't want his very own M1 tank parked in his basement. He doesn't want that. It's not a convenient item to bring him satisfaction.

23:40But the difference between the blast furnace and the tank now must be seen. If you have a blast furnace, you can produce items made of steel that customers want. But if you have have a tank, you produce death, and customers don't want that. So in point of fact what you have here is an item, I'm speaking now of the political, the items in the political column, you have items of production which are not wanted by producers because they don't produce anything excepting unwanted conditions, that is they produce death and destruction. And that isn't what you and I want as customers. We don't want that. So we have death and destruction producers in this area. They don't produce satisfactions for customers. They produce dissatisfactions, but at the same time they are non-productive.

24:33They don't produce goods and services, and they don't satisfy customers. Now, when you have entrepreneurial goods, that doesn't satisfy customers, but it does produce goods and services that will satisfy customers. In the end, the purpose of the market is to satisfy customers. So here you have a column of wealth that is dysfunctional and destructive. In fact, the better it is, the bigger it is, the more of our wealth that drifts into this column, the less we'll have in the other columns. Now here's an interesting thing. Where does it come from? Well, the items in the political column are also produced in the entrepreneurial Entreprenuers make customer goods, and they make political goods, and they even make their own entrepreneurial goods, because all production occurs in the entrepreneurial column. But there is a profound difference as to the effect that this has on the market when entrepreneurial goods are stockpiled. You see, to begin with, the businessman, the entrepreneur, can't really tell the difference between an ordinary customer, you and me, and a politician, because

25:48both are making demands upon him. If anything, the businessman tends to favor the politician because he's a better customer. He's got more money, and he can afford to buy just a whale of a lot more things than you and I individually as customers. So, you see, A businessman, if he could line up with maybe two or three politicians, well, he doesn't have to really worry about an awful lot of other customers. He's got two or three really big order men in the bag, so to speak, and so he tends to cater to their wants. But here's what happens. As he begins to provide the goods and services that the politician wants, then he has to turn off the amount of goods and services that he otherwise could have provided for customers. And over a period of time, the customers get less and less in the way of satisfactions, and the politician gets more and more.

26:50Now, this is readily seen in countries other than ours. Ours is an extremely wealthy country, and the consequence is that this peculiar phenomenon is not as readily grasped here as it is in other places. In most places, you'll hear it said constantly that there's a big argument between guns and butter. In other words, that's a way of saying, will the marketplace produce satisfaction for customers, called butter, or will it produce satisfactions for politicians, called guns? In this country, we seem to have the ability to produce an in abundance of both. And so people think, well, we can do both. But in point of fact, every time we produce something for the political column, that means that there is something that is not being produced for the customer column. And what it really boils down to, and the way we discover it here, is that there is an increased price in the customer column, And we think that that's what it is, but the increased price in part comes from a scarcity

28:00of customer goods that otherwise could be present. It's an extremely important point to keep in mind. Thanks very much.