What is Wealth?
Wealth is the ability to fulfill wants.
This has been a topic on my mind for at-least a decade now. Wealth is conflated with Money as “value of financial assets owned by an entity”. I’ve come to the theory that Wealth is “the ability to fulfill wants”.
This theory is based on the following:
pg’s essay: “How to make wealth”
Yuval Harrai’s Home Deus book
Adam Smith’s Wealth of Nations book
Loretta Graziano’s Meet Your Happy Chemicals book
Richard Dawkin’s Selfish Gene book
Also been pondering on YC motto “Make something people want”, but what do people really want?
Innate wants
By default, entropy drives things from order->disorder. Heat -> Cold, Alive -> Dead, organized -> disorganized. With that definition, meaning of life can be seen as a way to fight death. Nature via DNA has figured out a way to fight entropy.
“In us and every other living organism -- come from an unbroken line of successful ancestors. Describing the body as a "survival machine" for the self-replicating information it contains, genes that are good at making these bodies can therefore persist through countless generations, meaning successful genes are potentially immortal” via Richard Dawkins.
Our innate needs are tied to long term survival of us and our keen. We feel happy every time we do something that is good for our survival. Dopamine and endorphin reward us for seeking our desires and let us combat physical pain. Oxytocin lets us enjoy our social lives, while serotonin rewards us for acquiring more resources and power in social hierarchy.
The argument is that, although we may feel like our wants and desires are limitless and different, they still share a common theme. 99.5% of our DNA is same across humans, therefore our innate hardwired desires must also be quite similar. Extending that, happiness corresponds to long term survival of our genes and our brain chemicals reward us for that.
Being rich != Being wealthy
Money is merely a means of exchange, a way to barter. Its value is intrinsically tied to what it can be traded for. As the saying goes “money doesn’t make you happy, it’s what you do with it that makes you happy”.
The big mental shift for me was to understand that wealth can be generated. You can take raw materials as input that are cheap in value and combine them to a high value output. e.g a restaurant taking vegetables and turning into mouth-watering dishes, construction company buying bare piece of land and building luxury mansions on it, Aircraft manufacturers making planes from metals. The price is intrinsically tied to what another person/party is willing to pay for it I.e How much they value it in its final combined form.
The value of technology is fundamentally tied to its wealth generation ability, and wealth is fundamentally tied to how well it can satisfy human wants. Technology is not a zero sum game. Good technology, offers more value at the same price over time. Electronics have exponentially gotten better doubling in many dimensions every 2 years.
This is in contrast to owning scarce resources and renting it out. In a city like San Francisco, there isn’t much new housing. As the industry booms, the same house goes higher in price but not necessarily the value it offers. It only goes higher due to its artificially scarce nature.
The other big mental shift is that wealth isn’t always correlated to its price. Oxygen is very essential to our survival, however due to its abundance, it is a free resource. In US healthcare is tied to your employer and obscenely expensive, however in Australia and many other developed countries, healthcare is universal and affordable. You get the same value at a radically different price, due to how efficiently healthcare is distributed.
Some nations have figured out how to build things they need and sell surplus to other nations, some nations are over dependent on their imports. Covid-19 was a great example where trillions of dollars in US economy could not provide the masks and other personal protection equipment needed for front-line workers. That was a reminder that US is rich, but not wealthy.
Sure, trade makes us wealthier by giving access to a wider range of good and services but that only works when the trade is fair in an open market. Too much power in one hands means an otherwise abundant resource is artificially made scarce. This is why monopolies are terrible.
The price of something is a function of its desirability and scarcity.
In summary, wealth is the ability to get what we want, what we want is rooted to our long term survival as a species. Focusing on fundamental parts of our wants such as housing, nutrition, healthcare, environment, clean water and energy, transportation etc moves the needle. Policies, infrastructure and technology that make the above more abundant make us wealthier.
Another great article! One way I've heard wealth framed is as "stored karma points." You provided a good or a service to others? You get karma points! What I like about this framing is that reciprocity is built-in: if you have a want, you need to do at least that much for others to earn it.
Of course, there are some people and professions out there who get karma points by gaming the system, but for most "main street" and tech businesses, it works pretty well as a mental model.
My favorite definition of money (in terms of wealth) is "life energy" (a definition given in the book "Your Money or Your Life"). It is the only consistently represented thing in all wealth transactions. Somebody's life energy was involved. Though as automation becomes a thing and spreads that life energy may well have been spent a long, long time ago.