Origins of Wealth

No single sentence does a better job of characterizing the world-view of the modern anti-capitalist. First of all, it can be applied quite liberally, no pun intended, since almost everyone knows of somebody richer than themselves. Additionally, it paints in the colors of right and wrong and presents economics as a moral question. It has urgency, as any call to action must: the plight of the poor grows darker by the hour! But most important, it has somebody to hate. Few things are as good a motivator as hate. All sorts of things, both good and bad, have been driven to fruition by a generous helping of bad feelings.

Of course, none of this means that famous sentence is true.

The income gap is widening, or at least that's what some of the report writers say it's doing. They also say the rich are indeed getting richer, though the poor may not necessarily be getting poorer. In any case, I know which side of this gap I would like to be on.

The question is how to get there. To be wealthy one needs wealth. Where does wealth come from anyway? My holdings make it painfully obvious that I most certainly do not know. So, I looked it up.

Around 10,000 years ago, the world saw the end of the Glacial Epoch, the twilight of the Upper Paleolithic, the dawn of the Mesolithic and probably a few other words and terms found only in history books and the Smithsonian Institution. Around this time, human beings were making a significant gain in quality of life. They had just completed construction of the first man-made dwellings. Of course, these weren't quite abodes on the order of the Barbara Streisand estate. They were holes in the ground. Or, as the Encyclopedia Britannica puts it, they were "subterranean pit homes" (we used to make these in the Army, complete with thirty-six inches of packed-earth-on-timbers overhead cover and a grenade sump). Around the same time, man began to make specialized tools, such as spear-throwers, harpoons and clothing, all of which were a giant leap forward from simple tools such as big rocks.

While these were great improvements over life as it had been previously known, they didn't do much for additional technological development at the time. The reason was that man's most common economic activity was still hunting and gathering. It was not until around 7000 BC that the first farming villages appeared and allowed for a couple of truly amazing things: domestication of animals as livestock and specialization of labor. These things were amazing because they allowed Mesolithic man to stop being a generalist and start being a specialist. No longer did stone age man have to divide his precious daylight hours between mammoth hunting, tool-making and subterranean pit home digging. Now, man could pick one of those things (or farming) and do it all the time. Partly, this was because he, his family and the other folks on the block lived near fairly permanent food and water sources, could stockpile food when successful in producing a surplus, and therefore had a little tiny bit of free-time, (but no television). As important, however, was the domestication of animals for livestock. This is because animals provided something beyond just wool, leather, milk, meat and so on.

They provided money.

Cattle were the first medium of exchange, and mediums of exchange allow people to make one thing all day long, sell it to somebody else, and get paid with a goat. People then collected their earned goats and spent them in transactions with other specialists to purchase things they wanted to own. Specialization reduced production times and costs per unit and increased skill in production processes so that the quality of products like clothing went up while their cost in things like goats went down. The limitations forced by goat gestation periods and the law of diminishing returns in wild-goat-capturing enforced a conservative monetary policy that would have earned higher marks from Milton Friedman than our current Federal Reserve System.

Goats, however, are hard to fit in your pockets, and thus more practical currencies had to be developed. Metals saw use in Egypt as early as the 4th millennium BC. By 650 BC the Lydians had begun minting coins and by the mid-6th century they were on a bimetallic standard of gold and silver. Along with these monetary developments went improvements in all sorts of crafted goods as well as in means of transportation, growth of towns and cities, and establishment of trade routes that allowed goods from far off to compete against each other in markets their makers would never see. And without doubt there came also the first wholesalers, retailers and speculators and also bandits, burglars, and shoplifters. This meant that with the development of production and trade came civilization. Laws were needed to establish acceptable and unacceptable behaviors and men were needed to enforce them. The Code of Hammurabi established law, order and property rights; so do the Ten Commandments.

There have been significant improvements in efficiency since, such as movable type, magnetic compasses, nautical clocks, steam, electricity, internal combustion and computers. There have also been inefficiencies such as government waste, protectionist barriers to trade, subsidization of failing firms, minimum wage laws, price-ceilings, command economics, and reckless monetary policies. Still, no matter from which era, which country or which people, wealth comes from the same place: production. You make it. Economics is not a zero-sum game. If it were, the Army wouldn't have to teach soldiers how build foxholes. They would have grown up in them.

Wherever there are large numbers of have-nots, it is because something is in the way of production. The path to a more wealthy society - where per capita incomes are higher and fewer people are "left behind" - is one in which government stays out of the way of private citizens trying to make a buck. No central government directed familial groups of stone age people to dig subterranean pit homes. No central government directed the ambitions and work of Thomas Edison or Henry Ford, of Bill Gates or Steve Jobs. They had things they wanted to do and they went about doing them.

The work done by ambitious private citizens, when successful, produces wealth. Certainly, it produces wealth for the producer - no doubt Bill Gates does not often check between the couch cushions for nickels and dimes - but it also produces wealth for the rest of us. Henry Ford's work on the production processes for automobile manufacture spawned a drive to manufacturing efficiency that makes car ownership an almost universal American characteristic. Not every one drives a Lamborghini, but a Ford will get you to work and back just the same. It is from private production that we get all the things we want and need, even those things provided by government. Fire departments, police departments, courts, social services, and the armed forces are all funded by taxes drawn off the wealth produced by the private sector.

So wealth comes from production and production comes from private citizens taking action to achieve their own private, personal goals - whether to cure a disease, build a better mousetrap or just to make enough money to buy a really nice house. And since that is where wealth comes from, then opposition to personal production, such as anti-capitalism, protectionism, and burdensome government regulation, are things that are simply in the way.