We do need some kind of financial system as a means to store wealth and make transactions. Can you imagine the gold or goods you’d have to haul to trade for something like a house or car? Could you imagine storing a lifetime of job earnings & savings in your basement without money? However, currencies and the financial system tend to distort true financial wealth. For example, imagine you bought ten steaks a year ago at $150 and put them in your freezer. If the cost for the same steaks is now $200, has the true value really changed? You can’t feed any more people than you could a year ago.
Or consider a house. Say you paid $400,000 for a home 5 years ago. Chances are now that same house would sell for $500k or more. The selling price likely went up for two reasons: 1) the value of the the U.S. dollar is less (i.e. inflation), and 2) the demand for housing (for example, due to more births and immigrants) increased by more than the supply. However, did the real value of the house go up by 25 percent? The exact number of people are able to live there as five years ago. In truth, the house likely decreased in real value. The roof, furnace, carpets, driveway, etc. are all five years older. Therefore, they’ve experienced wear & tear like any other asset. As houses age, they don’t retain near the same value unless you put a lot of time and money into maintaining & improving them.
Also, when it comes to national wealth, GDP numbers seem to be the only measure used by the media and economic analysts. But GDP doesn’t factor in consumption and destruction of accumulated wealth. For example, say you were paid in cans of food, and you have 100 cans stored in your basement at the beginning of the month. You earn 500 cans, but your family eats 600 cans. You’re now less wealthy than you were at the beginning of the month despite earning 500 can. GDP includes those 500 cans, but not the original 100 cans you consumed. Imagine your city constructed five buildings this year, but you live in a war zone, and ten buildings were destroyed by bombs. Is the city better off despite adding five buildings worth to GDP? This is why it’s a myth that war is good for the economy.
So, if you take changing demand and the financial currencies out of the equation, the true wealth of a society (economically speaking) is the accumulated supply of goods & services, past & current year, factoring in the remaining useful life of the goods. This means the true creators of wealth in society are the enterpreneurs and producers–the farmers, construction workers, factory builders, and so on. Anyone who contributes to that output, whether increasing efficiences or maintaining the health & happiness of the workers, are contributing to that production and wealth creation.
Then, there’s the wealth destroyers, dominated by one group–governments. They consume much of that accumulated wealth while producing little or nothing. If that isn’t enough, they hamstring the true producers of society. Here’s an illustration: I worked 15 years programming software & databases to help energy companies file their taxes, including ones like Kwik Trip that sell fuel. These companies not only have to pay energy taxes, they have to track & report origins, destinations, carriers, buyers, sellers, and a thousand other things depending on the state and type of fuel. Federal, state, local, and government agencies all pick out cash at every step while forcing companies to file ridiculously complex returns. The tax reporting & tracking are so complicated that I was involved with dozens of other computer nerds running two startup companies dedicated to the task.
Think about the effects. Not only are all these government units siphoning cash that could be used to hire more people and invest in more fuel development, they’re taking away time from the productivity of all the workers who must dedicate themselves to the tax filing. This includes people directly working for the energy companies, as well as people my former co-workers and myself, who had scarce expertise in high tech areas and could have been making productive companies more efficient, but instead are wasting all our time on the useless task of tax reporting, producing ZERO wealth for society. You see the same kind of inefficiences and waste in almost every industry that involves government intervention. Just ask a medical coder or anyone who works for the health insurance industry. The inefficiences just add to the colossal waste of resources government dedicates to making war, restricting our freedom, and taking out money. Governments’ response to Covid was perhaps the biggest destroyer of wealth in our generation. They shut down all that productive capacity, increased our consumption, and provided incentives for not working.
Politicians like to brag that they’ve created jobs or paid for so-and-so, but they really only take from certain groups so they can give to others. They’re nothing more than inefficient distributors of wealth, not creators of goods & services that represent true societal wealth. And in the process, they usually line their own pockets, while funneling resources to donors and foreign governments.
The very goal of the study of economics is to maximize productive output, given the constraints of limited land, labor, and capital. Letting the market operate free from government interference ensures there’s a bigger pot of wealth in the world to distribute.
