Economic wealth
   HOME

TheInfoList



OR:

Wealth is the abundance of valuable
financial asset A financial asset is a non-physical asset whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies' share capital. Financial assets are usually more liquid than other tangible assets, such a ...
s or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating
Old English Old English (, ), or Anglo-Saxon, is the earliest recorded form of the English language, spoken in England and southern and eastern Scotland in the early Middle Ages. It was brought to Great Britain by Anglo-Saxon settlers in the mid-5th c ...
word , which is from an
Indo-European The Indo-European languages are a language family native to the overwhelming majority of Europe, the Iranian plateau, and the northern Indian subcontinent. Some European languages of this family, English, French, Portuguese, Russian, Dutc ...
word stem. The modern concept of wealth is of significance in all areas of
economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...
, and clearly so for
growth economics Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
and
development economics Development economics is a branch of economics which deals with economic aspects of the development process in low- and middle- income countries. Its focus is not only on methods of promoting economic development, economic growth and structural ...
, yet the meaning of wealth is context-dependent. An individual possessing a substantial net worth is known as ''wealthy''. Net worth is defined as the current value of one's assets less liabilities (excluding the principal in trust accounts). At the most general level, economists may define wealth as "the total of anything of value" that captures both the subjective nature of the idea and the idea that it is not a fixed or static concept. Various definitions and concepts of wealth have been asserted by various individuals and in different contexts.Denis "Authentic Development: Is it Sustainable?", pp. 189–205 in ''Building Sustainable Societies'',
Dennis Pirages Dennis Clark Pirages (born July 30, 1942; Died October 1, 2020) is an American political scientist, environmentalist and former Harrison Professor of International Environmental Politics at the University of Maryland, College Park, known for his wor ...
, ed., M.E. Sharpe, . (1996)
Defining wealth can be a
normative Normative generally means relating to an evaluative standard. Normativity is the phenomenon in human societies of designating some actions or outcomes as good, desirable, or permissible, and others as bad, undesirable, or impermissible. A norm in ...
process with various
ethical Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and wrong behavior".''Internet Encyclopedia of Philosophy'' The field of ethics, along with aesthetics, concerns ma ...
implications, since often wealth maximization is seen as a goal or is thought to be a normative principle of its own. Robert L. Heilbroner, 1987
2008 File:2008 Events Collage.png, From left, clockwise: Lehman Brothers went bankrupt following the Subprime mortgage crisis; Cyclone Nargis killed more than 138,000 in Myanmar; A scene from the opening ceremony of the 2008 Summer Olympics in Beijing; ...
. '' The New Palgrave: A Dictionary of Economics'', v. 4, pp. 880–883. Brief previe
link
.
A
community A community is a social unit (a group of living things) with commonality such as place, norms, religion, values, customs, or identity. Communities may share a sense of place situated in a given geographical area (e.g. a country, village, ...
, region or country that possesses an abundance of such possessions or resources to the benefit of the common good is known as wealthy. The
United Nations The United Nations (UN) is an intergovernmental organization whose stated purposes are to maintain international peace and security, develop friendly relations among nations, achieve international cooperation, and be a centre for harmoniz ...
definition of '' inclusive wealth'' is a monetary measure which includes the sum of natural, human, and physical assets. Natural capital includes land, forests, energy resources, and minerals. Human capital is the population's education and skills. Physical (or "manufactured") capital includes such things as machinery, buildings, and infrastructure.


History

Adam Smith, in his seminal work ''
The Wealth of Nations ''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the '' magnum opus'' of the Scottish economist and moral philosopher Adam Smith. First published in ...
'', described wealth as "the annual produce of the land and labor of the society". This "produce" is, at its simplest, a good or service which satisfies human needs, and wants of
utility As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosoph ...
. In popular usage, wealth can be described as an abundance of items of economic value, or the state of controlling or possessing such items, usually in the form of
money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are as ...
,
real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...
and personal
property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
. An individual who is considered wealthy, affluent, or rich is someone who has accumulated substantial wealth relative to others in their society or reference group. In economics, net worth refers to the value of
assets In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...
owned minus the value of liabilities owed at a point in time. Wealth can be categorized into three principal categories: personal property, including homes or automobiles; monetary savings, such as the accumulation of past
income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...
; and the capital wealth of income producing assets, including
real estate Real estate is property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more general ...
, stocks, bonds, and businesses. All these delineations make wealth an especially important part of social stratification. Wealth provides a type of individual safety net of protection against an unforeseen decline in one's living standard in the event of job loss or other emergency and can be transformed into home ownership, business ownership, or even a college education by expending the wealth to complete a purchase of such. Wealth has been defined as a collection of things limited in supply, transferable, and useful in satisfying human desires. Scarcity is a fundamental factor for wealth. When a desirable or valuable commodity (transferable good or skill) is abundantly available to everyone, the owner of the commodity will possess no potential for wealth. When a valuable or desirable commodity is in scarce supply, the owner of the commodity will possess great potential for wealth. 'Wealth' refers to some ''accumulation'' of resources (net asset value), whether abundant or not. 'Richness' refers to an ''abundance'' of such resources (income or flow). A wealthy individual, community, or nation thus has more accumulated resources (capital) than a poor one. The opposite of wealth is destitution. The opposite of richness is poverty. The term implies a social contract on establishing and maintaining ownership in relation to such items which can be invoked with little or no effort and expense on the part of the owner. The concept of wealth is relative and not only varies between societies, but varies between different sections or regions in the same society. A personal net worth of US$10,000 in most parts of the United States would certainly not place a person among the wealthiest citizens of that locale. However, such an amount would constitute an extraordinary amount of wealth in impoverished
developing countries A developing country is a sovereign state with a lesser developed industrial base and a lower Human Development Index (HDI) relative to other countries. However, this definition is not universally agreed upon. There is also no clear agreem ...
. Concepts of wealth also vary across time. Modern labor-saving inventions and the development of the sciences have vastly improved the standard of living in modern societies for even the poorest of people. This comparative wealth across time is also applicable to the future; given this trend of human advancement, it is possible that the standard of living that the wealthiest enjoy today will be considered impoverished by
future generations Future generations are cohorts of hypothetical people not yet born. Future generations are contrasted with current and past generations, and evoked in order to encourage thinking about intergenerational equity. The moral patienthood of future g ...
. Industrialization emphasized the role of technology. Many jobs were automated. Machines replaced some workers while other workers became more specialized. Labour specialization became critical to economic success. However,
physical capital Physical capital represents in economics one of the three primary factors of production. Physical capital is the apparatus used to produce a good and services. Physical capital represents the tangible man-made goods that help and support the produ ...
, as it came to be known, consisting of both the
natural capital Natural capital is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms. Some natural capital assets provide people with free goods and services, often called ecosystem services. All of t ...
and the infrastructural capital, became the focus of the ''analysis of wealth''. Adam Smith saw wealth creation as the combination of materials, labour, land, and technology in such a way as to capture a profit (excess above the cost of production).Smith, Adam.
An Inquiry into the Nature and Causes of the Wealth of Nations
''
The theories of
David Ricardo David Ricardo (18 April 1772 – 11 September 1823) was a British political economist. He was one of the most influential of the classical economists along with Thomas Malthus, Adam Smith and James Mill. Ricardo was also a politician, and a ...
, John Locke, John Stuart Mill, in the 18th century and 19th century built on these views of wealth that we now call classical economics. Marxian economics (''see
labor theory of value The labor theory of value (LTV) is a theory of value that argues that the economic value of a good or service is determined by the total amount of " socially necessary labor" required to produce it. The LTV is usually associated with Marxian ...
'') distinguishes in the ''
Grundrisse The ''Grundrisse der Kritik der Politischen Ökonomie'' (''Foundations of a Critique of Political Economy'') is an unfinished manuscript by the German philosopher Karl Marx. The series of seven notebooks was rough-drafted by Marx, chiefly for ...
'' between material wealth and human wealth, defining human wealth as "wealth in human relations"; land and labour were the source of all material wealth. The German cultural historian Silvio Vietta links wealth/poverty to rationality. Having a leading position in the development of rational sciences, in new technologies and in economic production leads to wealth, while the opposite can be correlated with poverty.


Amount of wealth in the world

The wealth of households worldwide amounts to US$280 trillion (2017). According to the eighth edition of the Global Wealth Report, in the year to mid-2017, total global wealth rose at a rate of 6.4%, the fastest pace since 2012 and reached US$280 trillion, a gain of US$16.7 trillion. This reflected widespread gains in equity markets matched by similar rises in non-financial assets, which moved above the pre-crisis year 2007's level for the first time this year. Wealth growth also outpaced population growth, so that global mean wealth per adult grew by 4.9% and reached a new record high of US$56,540 per adult.
Tim Harford Timothy Douglas Harford (born 27 September 1973) is an English economic journalist who lives in Oxford. Harford is the author of four economics books and writes his long-running ''Financial Times'' column, " The Undercover Economist", syndi ...
has asserted that a small child has greater wealth than the 2 billion poorest people in the world combined, since a small child has no debt. According to the 2021 global wealth report by McKinsey & Company, the worldwide total net worth is currently at US$514 trillion in 2020, with China being the wealthiest nation with net worth of US$120 trillion. However, another report by Credit Suisse in 2021 found that the total wealth of the US still exceeded that of China, with the US having US$126.3 trillion and China having US$74.9 trillion.


Philosophical analysis

In Western civilization, wealth is connected with a quantitative type of thought, invented in the ancient Greek "revolution of rationality", involving for instance the quantitative analysis of nature, the rationalization of warfare, and measurement in economics. The invention of coined money and banking was particularly important. Aristotle describes the basic function of money as a universal instrument of quantitative measurement"for it measures all things ..making things alike and comparable due to a social "agreement" of acceptance. In that way, money also enables a new type of economic society and the definition of wealth in measurable quantities, such as gold and money. Modern philosophers like Nietzsche criticized the fixation on measurable wealth: "Unsere ‘Reichen' – das sind die Ärmsten! Der eigentliche Zweck alles Reichtums ist vergessen!" ("Our 'rich people' – those are the poorest! The real purpose of all wealth has been forgotten!")


Economic analysis of wealth accumulation

In
economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...
, wealth (in a commonly applied accounting sense, sometimes savings) is the net worth of a person, household, or
nation A nation is a community of people formed on the basis of a combination of shared features such as language, history, ethnicity, culture and/or society. A nation is thus the collective Identity (social science), identity of a group of people unde ...
– that is, the value of all
asset In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can ...
s owned net of all liabilities owed at a point in time. For national wealth as measured in the
national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry ...
, the net liabilities are those owed to the rest of the world. The term may also be used more broadly as referring to the productive capacity of a society or as a contrast to poverty. Analytical emphasis may be on its determinants or distribution. Economic terminology distinguishes between wealth and income. Wealth or savings is a '' stock'' variable – that is, it is measurable ''at a date'' in time, for example the value of an orchard on December 31 minus debt owed on the orchard. For a given amount of wealth, say at the beginning of the year,
income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...
from that wealth, as measurable ''over'' say a year is a '' flow'' variable. What marks the income as a flow is its measurement per unit of time, such as the value of apples yielded from the orchard per year. In
macroeconomic Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...
theory the '
wealth effect The wealth effect is the change in spending that accompanies a change in perceived wealth. Usually the wealth effect is positive: spending changes in the same direction as perceived wealth. Effect on individuals Changes in a consumer's wealth cause ...
' may refer to the increase in aggregate consumption from an increase in
national wealth National net wealth, also known as national net worth, is the total sum of the value of a country's assets minus its liabilities. It refers to the total value of net wealth possessed by the residents of a state at a set point in time. This fig ...
. One feature of its effect on economic behavior is the
wealth elasticity of demand {{Original research, date=January 2013 The wealth elasticity of demand, in microeconomics and macroeconomics, is the proportional change in the consumption of a good relative to a change in consumers' wealth (as distinct from changes in personal in ...
, which is the percentage change in the amount of
consumption Consumption may refer to: *Resource consumption *Tuberculosis, an infectious disease, historically * Consumption (ecology), receipt of energy by consuming other organisms * Consumption (economics), the purchasing of newly produced goods for curren ...
goods demanded for each one-percent change in wealth. There are several historical developmental economics points of view on the basis of wealth, such as from ''
Principles of Political Economy ''Principles of Political Economy'' (1848) by John Stuart Mill was one of the most important economics or political economy textbooks of the mid-nineteenth century. It was revised until its seventh edition in 1871, shortly before Mill's death ...
'' by John Stuart Mill, ''
The Wealth of Nations ''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the '' magnum opus'' of the Scottish economist and moral philosopher Adam Smith. First published in ...
'' by Adam Smith, ''Capital'' by
Karl Marx Karl Heinrich Marx (; 5 May 1818 – 14 March 1883) was a German philosopher, economist, historian, sociologist, political theorist, journalist, critic of political economy, and socialist revolutionary. His best-known titles are the 1848 ...
, etc. Over the history, some of the key underlying factors in wealth creation and the measurement of the wealth include the scalable innovation and application of human knowledge in the form of institutional structure and political/ideological "superstructure", the scarce resources (both natural and man-made), and the saving of monetary assets. Wealth may be measured in nominal or real values – that is, in money value as of a given date or adjusted to net out price changes. The assets include those that are tangible (
land Land, also known as dry land, ground, or earth, is the solid terrestrial surface of the planet Earth that is not submerged by the ocean or other bodies of water. It makes up 29% of Earth's surface and includes the continents and various isla ...
and capital) and ''financial'' (money, bonds, etc.). Measurable wealth typically excludes intangible or nonmarketable assets such as human capital and social capital. In economics, 'wealth' corresponds to the accounting term ' net worth', but is measured differently. Accounting measures net worth in terms of the historical cost of assets while economics measures wealth in terms of current values. But analysis may adapt typical accounting conventions for economic purposes in social accounting (such as in
national accounts National accounts or national account systems (NAS) are the implementation of complete and consistent accounting techniques for measuring the economic activity of a nation. These include detailed underlying measures that rely on double-entry ...
). An example of the latter is
generational accounting Generational accounting is a method of measuring the fiscal burdens facing current and future generations. Generational accounting considers how much each adult generation, on a per person basis, is likely to pay in future taxes net of transfer p ...
of
social security Welfare, or commonly social welfare, is a type of government support intended to ensure that members of a society can meet basic human needs such as food and shelter. Social security may either be synonymous with welfare, or refer specifical ...
systems to include the
present value In economics and finance, present value (PV), also known as present discounted value, is the value of an expected income stream determined as of the date of valuation. The present value is usually less than the future value because money has inte ...
projected future outlays considered to be liabilities. Macroeconomic questions include whether the issuance of government bonds affects investment and
consumption Consumption may refer to: *Resource consumption *Tuberculosis, an infectious disease, historically * Consumption (ecology), receipt of energy by consuming other organisms * Consumption (economics), the purchasing of newly produced goods for curren ...
through the
wealth effect The wealth effect is the change in spending that accompanies a change in perceived wealth. Usually the wealth effect is positive: spending changes in the same direction as perceived wealth. Effect on individuals Changes in a consumer's wealth cause ...
. Environmental assets are not usually counted in measuring wealth, in part due to the difficulty of valuation for a non-market good. Environmental or
green accounting Green accounting is a type of accounting that attempts to factor environmental costs into the financial results of operations. It has been argued that gross domestic product ignores the environment and therefore policymakers need a revised model t ...
is a method of
social accounting Social accounting (also known as ''social accounting and auditing'', ''social accountability'', ''social and environmental accounting'', ''corporate social reporting'', ''corporate social responsibility reporting'', ''non-financial reporting'' or '' ...
for formulating and deriving such measures on the argument that an educated valuation is superior to a value of zero (as the implied valuation of environmental assets).


Sociological treatments


Wealth and social class

Social class is not identical to wealth, but the two concepts are related (particularly in Marxist theory), leading to the concept of socioeconomic status. Wealth at the individual or household level refers to value of everything a person or family owns, including personal property and
financial asset A financial asset is a non-physical asset whose value is derived from a contractual claim, such as bank deposits, bonds, and participations in companies' share capital. Financial assets are usually more liquid than other tangible assets, such a ...
s. In both Marxist and Weberian theory, class is divided into upper, middle, and
lower Lower may refer to: *Lower (surname) *Lower Township, New Jersey *Lower Receiver (firearms) *Lower Wick Gloucestershire, England See also *Nizhny Nizhny (russian: Ни́жний; masculine), Nizhnyaya (; feminine), or Nizhneye (russian: Ни́ ...
, with each further subdivided (e.g.,
upper middle class In sociology, the upper middle class is the social group constituted by higher status members of the middle class. This is in contrast to the term ''lower middle class'', which is used for the group at the opposite end of the middle-class strat ...
). The upper class are schooled to maintain their wealth and pass it to future generations.Sherraden, Michael. ''Assets and the Poor: A New American Welfare Policy''. Armonk: M. E. Sharpe, Inc., 1991. The middle class views wealth as something for emergencies and it is seen as more of a cushion. This class comprises people that were raised with families that typically owned their own home, planned ahead and stressed the importance of education and achievement. They earn a significant amount of income and also have significant amounts of consumption. However, there is limited savings (deferred consumption) or investments, besides retirement pensions and home ownership. Below the middle class, the
working class The working class (or labouring class) comprises those engaged in manual-labour occupations or industrial work, who are remunerated via waged or salaried contracts. Working-class occupations (see also " Designation of workers by collar colo ...
and poor have the least amount of wealth, with circumstances discouraging accumulation of assets.


Distribution

Although precise data are not available, the total household wealth in the world, excluding the value of human capital, has been estimated at $418.3 trillion (US$418.3×1012) at the end of the year 2020. For 2018, the World Bank estimated the value of the world's produced capital, natural capital, and human capital to be $1,152 trillion. According to the
Kuznets curve The Kuznets curve () expresses a hypothesis advanced by economist Simon Kuznets in the 1950s and 1960s. According to this hypothesis, as an economy develops, market forces first increase and then decrease economic inequality. The Kuznets curve ...
, inequality of wealth and income increases during the early phases of economic development, stabilizes and then becomes more equitable. , about 90% of global wealth is distributed in North America, Europe, and "rich Asia-Pacific" countries, and in 2008, 1% of adults were estimated to hold 40% of world wealth, a number which falls to 32% when adjusted for purchasing power parity. According to Richard H Ropers, the concentration of wealth in the United States is "inequitably distributed". In 2013, 1% of adults were estimated to hold 46% of world wealth and around $18.5 trillion was estimated to be stored in
tax haven A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
s worldwide.


See also

*
Gross National Happiness Gross National Happiness (GNH), sometimes called Gross Domestic Happiness (GDH), is a philosophy that guides the government of Bhutan. It includes an index which is used to measure the collective happiness and well-being of a population. Gross Na ...
*
Happiness economics The economics of happiness or happiness economics is the theoretical, qualitative and quantitative study of happiness and quality of life, including positive and negative affects, well-being, life satisfaction and related concepts – typically t ...
*
Productivity improving technologies (historical) The productivity-improving technologies are the technological innovations that have historically increased productivity. Productivity is often measured as the ratio of (aggregate) output to (aggregate) input in the production of goods and services. ...
*
Quality of life Quality of life (QOL) is defined by the World Health Organization as "an individual's perception of their position in life in the context of the culture and value systems in which they live and in relation to their goals, expectations, standards ...
*
Working time Working(laboring) time is the period of time that a person spends at paid labor. Unpaid labor such as personal housework or caring for children or pets is not considered part of the working week. Many countries regulate the work week by law, ...
*
List of wealthiest historical figures Many historical individuals have been described as one of "the wealthiest" ever. This list presents individuals prior to the beginning of contemporary history (which began after World War II) and gathers published estimates of their ( inflation-a ...


References


Further reading

* * {{Authority control