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 ...
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 ...
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, Du ...
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 anal ...
, and clearly so for
growth economics and
development economics, 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, ed., M.E. Sharpe, . (1996)] Defining wealth can be a
normative process with various
ethical implications, since often wealth maximization is seen as a goal or is thought to be a normative principle of its own.
Robert L. Heilbroner
Robert L. Heilbroner (March 24, 1919 – January 4, 2005) was an American economist and historian of economic thought. The author of some 20 books, Heilbroner was best known for ''The Worldly Philosophers: The Lives, Times and Ideas of the Great ...
, 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, t ...
, 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 harmoni ...
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'', 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 philosophe ...
.
In popular usage, wealth can be described as an abundance of items of economic
value
Value or values may refer to:
Ethics and social
* Value (ethics) wherein said concept may be construed as treating actions themselves as abstract objects, associating value to them
** Values (Western philosophy) expands the notion of value beyo ...
, 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 ar ...
,
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 genera ...
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 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; and the
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used fo ...
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 genera ...
,
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.
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 pro ...
, as it came to be known, consisting of both the
natural capital and the
infrastructural capital
Public capital is the aggregate body of government-owned assets that are used as a means for productivity.Aschauer, D. A. (1990). Why is infrastructure important? Conference Series roceedings Federal Reserve Bank of Boston. Pp. 21-68. Such asset ...
, 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'') distinguishes in the ''
Grundrisse'' 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
''Trillion'' is a number with two distinct definitions:
*1,000,000,000,000, i.e. one million million, or (ten to the twelfth power), as defined on the short scale. This is now the meaning in both American and British English.
* 1,000,000,000,00 ...
(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 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 anal ...
, 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 of a group of people understood as defined by th ...
– 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 c ...
s owned net of all
liabilities owed at a point in time. For national wealth as measured in the
national accounts, 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 Distribution may refer to:
Mathematics
* Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations
*Probability distribution, the probability of a particular value or value range of a vari ...
.
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 from that wealth, as measurable ''over'' say a year is a ''
flow
Flow may refer to:
Science and technology
* Fluid flow, the motion of a gas or liquid
* Flow (geomorphology), a type of mass wasting or slope movement in geomorphology
* Flow (mathematics), a group action of the real numbers on a set
* Flow (psyc ...
'' 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, an ...
theory the '
wealth effect' may refer to the increase in aggregate consumption from an increase in
national wealth. One feature of its effect on economic behavior is the
wealth elasticity of demand, which is the percentage change in the amount of
consumption 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'' by
John Stuart Mill, ''
The Wealth of Nations'' 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 and
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used fo ...
) 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). An example of the latter is
generational accounting of
social security systems to include the
present value projected future outlays considered to be liabilities. Macroeconomic questions include whether the issuance of government bonds affects
investment and
consumption through the
wealth effect.
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 ...
is a method of
social accounting 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 ...
s.
In both Marxist and Weberian theory, class is divided into
upper,
middle, and
lower, with each further subdivided (e.g.,
upper middle class).
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 colou ...
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
''Trillion'' is a number with two distinct definitions:
*1,000,000,000,000, i.e. one million million, or (ten to the twelfth power), as defined on the short scale. This is now the meaning in both American and British English.
* 1,000,000,000,00 ...
(US$418.3×10
12) 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
''Trillion'' is a number with two distinct definitions:
*1,000,000,000,000, i.e. one million million, or (ten to the twelfth power), as defined on the short scale. This is now the meaning in both American and British English.
* 1,000,000,000,00 ...
was estimated to be stored in
tax havens 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 – typicall ...
*
Productivity improving technologies (historical)
*
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
*
List of wealthiest historical figures
References
Further reading
*
*
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