Sunday, 23 March 2008

Wealth = Virtue

...or, the lack of money is the root of all evil.

One of the advantages of knowing no-one within 7000 miles is the tremendous amount of spare time I have for academic pursuits. Going through most of the 100 Greatest Books series, I find myself with knowledge about the groundwork of Western economic and social theory, and its antonyms. The Wealth of Nations, The Social Contract, Das Kapital.

I hadn't though a lot about economics in the past, preferring to stick with the "It's Not Fair" theory of university students and other over-privileged and lazy people who don't feel like questioning broadly-reasoned beliefs in unfamiliar fields. The supply of money, inflation rates, the exchange of international currency and the creation of wealth were things other people, you know, did. Old, fat people who wore ties and drove dull but expensive cars.

However, working at the ignominious bottom of a corporate structure has made me question why such wage-slave jobs exist, how they are different to Industrial Revolution-era jobs, why such roles are given such low value, and if life today is actually any better than some historical zero-point of life quality. Clearly someone was making money from my labour. The questions for me were, how is money made, and is life better now than before?

To establish a zero-point scenario where results from work and from process are clear, let us imagine Robinson Crusoe (AKA Alexander Selkirk) on his island. He has no society; he has no technology; he has no infrastructure. His economic status is zero, and his environment is likewise, unclouded and unimproved.
The first priorities for Crusoe are to drink, to eat, and to shelter from the elements. Therefore he must gather, hunt, locate potable water, and construct a home from materials. Let's assume that during his first three months he carves out for himself a workable routine which provides food and water, and that he has somewhere dry to lay his head. He spends most of his waking hours collecting and preparing food and water; say, eight hours a day. This leaves him two hours of sunlight with which to engage in other activities.
In the book (and now documentary series) 'Guns, Germs and Steel', Jared Diamond explains that farming high-yield grains and domesticating work animals allowed Middle Eastern prehistorical societies to grow and develop at an unprecedented rate. Other societies, such as those in Papua New Guinea, are stuck with yams and pigs to this day. If Crusoe was able to catch goats or large herd animals, his access to protein and outsourcing of hard physical labour would increase the amount of free time he had during the day; let's say it is now four hours. Increasing efficiency and leveraging his own effort, Crusoe creates greater freedom over time.

Looking back even 200 years, our lives are populated with evidence of incredible 'wealth' -- instant communication; instant information; cheap, varied and accessible food; near-universal medicine; myriad consumer goods. Our lives are measurably more powerful than at any point in history. So when does nirvana arrive?

Money is an abstraction which evolved from the need to formalize trade promises. In a month my harvest will be rotting in the field, but I shall need food and other things then, as now. Money pauses my trade's value until I choose to un-pause it by spending.
Today money is even more abstracted; barely 5% exists as physical paper or coin, the rest electronic juggling balls handled by banks. Major institutions create money by making loans, as follows.
If I put $10 in the bank, the bank may loan out $90 to someone based on the $10 security. They then receive payments on the loan, which both reduces the $90 loaned out and increases the security dollar value. When $1 is paid back, the security is now $11 and the loaned amount is $89. The bank may then loan a further $10: $9 based on the extra dollar as security and $1 because the current loaned amount is reduced by that amount.
The Reserve Bank/Federal Reserve controls inflation and interest rates by limiting or increasing the amount of security banks keep. It is through this cycle of controlled release of capital that goods and services, which often derive their value from increased efficiency, are created.

So now we have societies with great wealth and fairly easy standards of living. Why aren't we all happy?
What I wonder about dissatisfaction in wealthy countries is whether total wealth or relative wealth is more important. If no-one has a TV, I don't feel bad about not having one. If everyone has a TV, I feel bad about only having a black-and-white set. In absolute terms, of course I'm better off; in relative terms, my goalposts have shifted. I've become a Player Hater.

An interesting statistic from Freakonomics was murder rates per capita from the 19th century (in America) until the present day. The rates declined by orders of magnitude. OECD countries are hugely safer than in the past, and wealth is a major cause. When work provides a living wage, when public services are sufficient, when life expectancy is long, people are persuaded to lead civil lives. The social contract breaks down when crime is seen as necessary and germane. Corrupt countries like Zimbabwe do not have the requisite wealth or perceived promise of a better future which is necessary for people to lead obesient lives.

I don't think that wealth by itself creates any personality shift, either beneficial or corrupting, because people adjust so quickly to situations. However, poverty brings into sharp relief the needs upon which life is built, which tap into far stronger motivations than the need to watch the last episode of 'Lost'.


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