Wealth is usually defined as an abundance of resources. A country’s wealth is its natural, capital, and human resources. Individuals and households typically define wealth as their net worth, the value of their assets (dwellings, land, stocks, bonds, cash, and collectibles) minus the amount owed on those assets. Many people think of wealth as having lots of money, which can result from the accumulation of wealth and can be used to create wealth. Wealth is distinguished from income in that individuals and countries have a fixed level of wealth at any point in time, while income is a flow of payments over time. Bill Gates is probably the wealthiest person in the world; one website (www.webho.com/WealthClock) continually updates its estimate of Gates’s wealth ($70 billion in 2002).
Wealth has been the subject of inquiry and concern for hundreds if not thousands of years. The Hindu deity Lakshmi is the goddess of wealth. In the 16th and 17th centuries, mercantilism dominated economic thinking. Under mercantilism, a country’s wealth came from the accumulation of gold and silver. Physiocrats, who opposed mercantilism, believed that agriculture was the primary source of economic wealth and advocated a laissez-faire (let be) doctrine, supporting the private control and allocation of resources rather than government domination.
Adam Smith (1723–91), considered the “father of modern economics,” wrote The Wealth of Nations (1776), in which he argued that the market system best promoted society’s interests. Smith believed that in a perfect world, a “self regulating market system would automatically satisfy the needs of society,” which was to “produce the greatest good for society as a whole.” At the time, governments readily granted monopolies to favored interest groups and used protective subsidies to assist local manufacturers to compete against foreign rivals. Smith stated that individuals, pursuing rational self-interest, would create wealth through efficient production and competition, and consumers would allocate their scarce resources to maximize well-being.
In recent years, with the huge increase in U.S. economic growth and wealth, one organization, Responsible Wealth, has questioned the distribution of wealth. The group states its goal is to put “a spotlight on the dangers of excessive inequality of income and wealth in the United States.” To address these dangers, Responsible Wealth advocates fair taxes, a living wage, greater corporate responsibility, and broadened asset ownership for all Americans. The group’s tax-fairness proposals include preserving the estate tax and pledging to give the proceeds from the 1997 capital gains tax cut to support groups that organize for tax fairness. Their living-wage proposal suggests that an increase of the federal minimum wage by at least 60 percent would be needed to bring workers up to the federal poverty level. In 2001 Santa Monica, California, instituted a citywide living-wage regulation, significantly raising the wages of all city employees.
Responsible Wealth and other groups challenge what is known as trickle-down economics. This theory suggests that as a nation’s wealth grows, everyone will benefit. Trickle-down economics is associated with the policies of the Reagan administration (1980–88), during which significant tax benefits were provided to businesses and affluent Americans. Part of the argument for this was that these groups would save and invest increasing output, income, and wealth in society. Critics of the trickle-down theory asked that they “not be the last drip.”
In recent years one of the interesting debates regarding wealth is the so-called “wealth effect.” The wealth effect is the degree to which changes in wealth influence consumption spending. Federal Reserve System chairman Alan Greenspan and others debated to what extent increases in paper wealth—the value of peoples’ investment and retirement portfolios—affected their present consumption spending. Most analysts agree that part of the economic boom in the late 1990s was attributable to the wealth effect.
See also capitalism.
Further reading
“Major Schools of Economic Theory,” Federal Reserve Bank of California. Available on-line. URL: www.frbs.org. Responsible Wealth website. Available on-line. URL: www. responsiblewealth.org.