At breakfast a few days ago, one of my buddies pointed out that there are only three ways to make money: by putting people to work, by putting money to work, or by discovery. Anything that generates income will boil down to one of those three fundamental Money Making Methods.
But making money and generating wealth are two different things, and we, as a society, confuse them at our peril.
As with money, there are only three ways to generate wealth, the fountain from which all money floweth. You can extract it from your surroundings, you can grow it, or you can build something. Extraction, growth, and creation. Anything else is just three-card monte writ large.
For example: I can create wealth by drilling for oil or digging for coal. Oil and coal are useful materials owing to their energy content, but they are not useful when they lie buried in the Earth’s crust. By taking them out – extracting them, to use the Latin root – we render them usable and therefore useful. We have created wealth. Likewise with all of the extractive industries, such as mining for diamonds or metals. Oilmen and miners create wealth.
If I take a piece of land and grow crops on it, I have created wealth. Food. Raw materials for energy or building. Whatever it is, it wasn’t there before, and now it is. Farmers create wealth.
If we take a mess of steel, rubber, glass, and plastic and build an automobile with it, or if we take wood, brick, and asphalt shingles and build a house, we are creating wealth. If we teach our children the knowledge and skills that will enable them to function in a modern technological society, we are preparing them to be able to create wealth. So: Builders, manufacturers, and teachers create wealth.
If we build a Big-Ass Casino or a Football Stadium so that people will flock in droves to be relieved of their hard-earned money for the privilege of enjoying the thrill of games of chance or of watching Beefy Athletes throw objects at each other, we are not creating wealth. We are creating a venue for the redistribution of wealth – from the less fortunate to the more fortunate (inevitably, in the fullness of time and the workings of probability, the owners of the casino), or from the less-skilled to the more-skilled (the people who can chuck a football well enough that we are suitably entertained thereby).
I cringe every time some politico stands up and proposes the introduction of legalized gambling because of the expected windfall tax revenues it will generate. Not that I have anything against legalized gambling, but it’s simply not an economic panacea. It takes money from one pocket and moves it to another. It generates no wealth beyond the glitzy physical plant in which the casino is housed… a physical plant that is useless for any other purpose.
I cringe every time some politico stands up and proposes that taxpayers subsidize the construction of Yet Another Athletic Stadium. Not only does the tax burden for these ventures typically fall on people who have no say in the matter (e.g., the people who come from out of town and rent cars and hotel rooms, taxes on which are a popular source of funding for sports facilities), but at the end of the day, a honkin’ big Sports Arena generates no wealth. Nothing save the stadium actually gets built. We just pay for the privilege of being entertained. Money is redistributed from the sports fans and the corporations who advertise during televised sports events to the team owners and their players. And the players become rich as Croesus, which frees them to do all the stupid things that stupid people do when they have more money than brains.
Panem et circenses, friends. Bread and circuses. Circuses generate no wealth; at least you can eat the bread. Or the foot-long hot dogs that come wrapped in it.
Money is nothing more than the labor of humans, crystallized. It’s energy, and it behaves much as other forms of energy do. Spread thin, it’s useless. Concentrate it in one place, and it can move mountains. Call it the Thermodynamics of Mazuma.
Wealth, however, is more than just money. It’s a necessary precondition for money to be created. It’s something you can eat, live in, or wear.
There’s a classic California bumper sticker: If you can’t eat it or f*** it, kill it.
It’s a crude (and incomplete) definition of wealth, but it’s a good place to start.