Poverty sucks. No one wants to be poor. No one wants more poverty. Can we agree on that?
But what is poverty? The shortest and simplest answer seems to be: poverty means having little money, while having much makes one rich. But if we think about it, it’s not really money that we’re after.
Money, after all, is merely a form of currency, a measure of exchange. Money can be inflated and deflated, sometimes to the point of worthlessness. If prices go up, for example, the dollar in your pocket buys less. If someone gave to you a truckload of Zimbabwean Dollars, you sill could not buy much. The Zimbabwean Dollar became worth so little that at one time the Zimbabwe government started printing $100 Trillion Dollar bills!
WEALTH VS. MONEY
If it’s not money, exactly, that people need, what is it? The answer is: wealth. Poverty is the absence of wealth.
Wealth is the work of human minds and human hands that produce things others find to be valuable. The economic “value” in wealth, in other words, requires at least two things:
- Some idea that is innovative, inventing or improving a product or increasing productivity.
- Other people who find the innovation to be valuable.
If others deeply want or need something you have created, invented, or produced, then you become “wealthy.” Other people will likely trade much that they own that is valuable to you, for things you’ve produced or services you offer that are valuable to them. Even the investor is working in the sense that he uses his mind to allocate capital and resources toward innovation and increased productivity, whether he or hired others perform whatever physical labor is required.
When many people put their minds and bodies to work and create wealth, trade then becomes possible. And as trade proceeds, the wealth and value created by some is distributed through markets to others. Those with bigger and better and more valuable ideas and inventions tend to become wealthier, but an increase of some degree in personal wealth is possible for everyone who is willing to work and participate in economic life, so long as each is allowed to keep whatever he or she earns.
LIFE AND DEATH AND…WEALTH
To illustrate the difference between money and wealth, and show how wealth creation solves poverty, let us imagine several people shipwrecked on an uninhabited island. Nothing survives the wreck, save only one item: a printing press filled with paper.
As the people swim out of the ocean and crawl to safety, they’re exhausted. They stare in disbelief and shock. But soon they begin to realize that they’re hungry, thirsty, cold, unprotected from the elements. Every one of them is in dire poverty. They must think and act—they must work!—or they die. What shall they do?
Suppose one of them eyes the printing press and gets an idea: an economic stimulus plan of the kind he learned from his days in government service. He quickly prints lots of dollar bills and distributes them to his fellow castaways. They now have more money than they did before, true. But has any wealth been created? No.
They still have no food, no water, no heat, no shelter, nothing of any economic value that can be bought or sold or traded. They remain as poor as they were before receiving the dollars. The stimulus plan stimulated nothing.
Suppose, however, that another castaway thinks of a way to catch fish. By ingenuity and sweat, he catches lots of fish, more than he can eat. Sure, maybe there were lots of fish swimming in the surrounding waters already, but those fish remained value-less to the castaways until someone had the idea of how to catch and eat them.
Suppose another sets out on her own to find fresh drinking water, collecting and storing more than she can drink, while someone else gathers firewood, and another designs shelters while yet others build them. These entrepreneurial castaways are not merely making, i.e. printing, money. Instead, they’re creating new wealth by thinking, innovating, and producing things others find valuable.
So how will the shelter designer, for example, obtain some of the fisherman’s fish so that he might eat? How will the fisherman obtain a shelter so that he might sleep safely at night? Unless each resorts to stealing, they must produce something their neighbors find valuable in order to engage in exchange. In this way, production of wealth stimulates production of more wealth, and production of more wealth stimulates more trade. The more trade that follows from any increase in production, the more wealth is distributed between and amongst the people, and the less and less poverty we see on the island.
Our motley crew of imaginary castaways began desperately poor, but now they are wealthy, relatively speaking. Through invention, innovation, production, and trade, they have increased their standard of living dramatically. It is the creation of wealth, not the creation of money, which improves our lives. Further, each and every human being has within himself the engine for creating wealth: a free mind that can think and invent, and a body that can work. Each of you, my dear readers, is a wealth-creation machine!
INCENTIVES FOR CREATING WEALTH AND SOLVING POVERTY
Let us agree that wealth must be created, while using wealth productively is what we call, “work.” Still, people are unlikely to work productively if they believe they’ll be punished for their effort (say, in the form of progressive taxation), or the fruits of their labor will be taken away (whether by force or regulations).
In world historical terms, the total amount of wealth on Earth remained relatively flat—and world poverty remained relatively constant and miserably high—throughout most of human history, until the Enlightenment, when the global stock of wealth began to skyrocket. Why?
Individual freedom, property rights that allow a person to keep not only what he has now but also what he might acquire in the future, the rule of knowable, fair, stable laws that provide equal protection for all who live under them, and minimal government interference in the economy led to increases in the creation of new wealth, living standards, and levels of philanthropic aid for those most in need, all to degrees unknown in the annals of history.
The recipe for solving poverty is right in front of us. The question is what do we have the will to do? Shall we re-adopt the policies and practices that helped millions worldwide work their way out of poverty over the last couple of centuries? Or shall we go back to policies and practices that kept most of mankind poor, hungry, and dependent on others, for millennia? The choice is ours, isn’t it?