Abundance of financial assets or possessions
Wealth
is the abundance of
valuable
financial assets
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
word
weal
, which is from an
Indo-European
word stem.
[1]
The modern concept of wealth is of significance in all areas of
economics
, and clearly so for
growth economics
and
development economics
, yet the meaning of wealth is context-dependent. A person 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).
[2]
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 people in different contexts.
[3]
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.
[4]
[5]
A
community
, 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
definition of
inclusive wealth
is a monetary measure which includes the sum of natural, human, and physical assets.
[6]
[7]
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
[
edit
]
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(
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Around 35,000 years ago
Homo sapiens
groups began to adopt a more settled lifestyle, as evidenced by cave drawings, burial sites, and decorative objects.
[8]
Around this time, humans began
trading
burial-site tools and developed trade networks,
[9]
resulting in a
hunter-gatherer
lifestyle.
[10]
Those who had gathered abundant burial-site tools, weapons, baskets, and food, were considered part of the wealthy.
[11]
[
need quotation to verify
]
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
.
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
,
real estate
and personal
property
. A person 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.
[12]
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
wealth of income producing assets, including
real estate
,
stocks
,
bonds
, and
businesses
. All these delineations make wealth an especially important part of
social stratification
. Wealth provides some people "safety nets" of protection against unforeseen declines in their living standard in the event of emergency and can be transformed into home ownership, business ownership, or college education by its expenditure.
Wealth has been defined as a collection of things limited in supply, transferable, and useful in satisfying human desires.
[13]
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 person, group, 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. Such an amount would constitute an extraordinary amount of wealth in impoverished
developing countries
.
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.
Physical capital
, as it came to be known, consisting of both the
natural capital
and the
infrastructural capital
, became the focus of the
analysis of wealth
.
[
citation needed
]
Adam Smith
saw wealth creation as the combination of materials, labour, land, and technology.
[14]
The theories of
David Ricardo
,
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
.
[15]
[16]
Global amount
[
edit
]
Countries by
total wealth
(trillions USD), Credit Suisse
World regions by total wealth (in trillions USD), 2018
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
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.
[17]
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.
[18]
[19]
[20]
Another report, by
Credit Suisse
in 2021, suggests the total wealth of the US exceeded that of China, US$126.3 trillion to US$74.9 trillion.
[21]
Philosophical analysis
[
edit
]
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.
[15]
[16]
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.
[22]
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 Armsten! Der eigentliche Zweck alles Reichtums ist vergessen!" ("Our 'rich people' ? those are the poorest! The real purpose of all wealth has been forgotten!")
[23]
Economic analysis
[
edit
]
"Savings" redirects here. For the concept of non-expenditure of income per unit of time, see
Saving
. For savings as a business objective, see
Procurement § Performance
.
In
economics
, wealth (in a commonly applied
accounting
sense, sometimes
savings
) is the
net worth
of a person, household, or
nation
? that is, the value of all
assets
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.
[24]
The term may also be used more broadly as referring to the productive capacity of a society or as a contrast to
poverty
.
[25]
Analytical emphasis may be on its determinants or
distribution
.
[26]
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
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
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
, etc.
[27]
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
) 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.
[28]
Macroeconomic questions include whether the issuance of government bonds affects
investment
and
consumption
through the
wealth effect
.
[29]
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
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).
[30]
Versus social class
[
edit
]
Global share of wealth by wealth group, Credit Suisse, 2021
Global share of wealth by wealth group, Credit Suisse, 2017
Social class
is not identical to wealth, but the two concepts are related (particularly in
Marxist theory
),
[31]
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 assets
.
[32]
In both Marxist and Weberian theory, class is divided into
upper
,
middle
, and
lower
, with each further subdivided (e.g.,
upper middle class
).
[31]
The upper class are schooled to maintain their wealth and pass it to future generations.
[33]
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 income and consume many things, typically limiting their savings and investments to retirement
pensions
and home ownership.
[33]
Below the middle class, the
working class
and
poor
have the least amount of wealth, with circumstances discouraging accumulation of assets.
[33]
Distribution
[
edit
]
Though the 10th percentile of American households have zero net worth, the 90th percentile has $1.6 million of household wealth.
[34]
Higher educational attainment in the US corresponds with median household wealth.
[35]
Median wealth of married couples exceeds that of single individuals, regardless of gender and across all age categories.
[36]
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$418.3×10
12
) at the end of the year 2020.
[37]
For 2018, the World Bank estimated the value of the world's produced capital, natural capital, and human capital to be $1,152 trillion.
[38]
According to the
Kuznets curve
, inequality of wealth and income increases during the early phases of economic development, stabilizes and then becomes more equitable.
As of 2008
[update]
, about 90% of global wealth is distributed in North America, Europe, and "rich
Asia-Pacific
" countries,
[39]
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
.
[40]
According to Richard H Ropers, the
concentration of wealth in the United States
is "inequitably distributed".
[41]
In 2013, 1% of adults were estimated to hold 46% of world wealth
[42]
and around $18.5
trillion
was estimated to be stored in
tax havens
worldwide.
[43]
See also
[
edit
]
Wikiquote has quotations related to
Wealth
.
References
[
edit
]
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[...] around 35,000 years ago [...] we begin to see the first evidence of a more settled lifestyle, with burial sites, cave drawings, and decorative objects.
- ^
Beinhocker, Eric D. (2006).
The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics
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ISBN
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between
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- ^
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The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics
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ISBN
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. Retrieved
April 4,
2023
.
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hunter-gatherer lifestyle
.
- ^
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.
Further reading
[
edit
]