The Wealth of Nations, Essay Example

Nowadays the term “wealth” requires special attention due to the tendencies in development of the majority of countries. The increased importance of such issues as preventing ecological crisis and social protection of people is closely connected to the national wealth, as the elements of the latter form basic factors of sustainable development. That is why understanding the process of creating national wealth and determination of every single element’s impact help us not only to understand the processes of simple and extended reproduction, but to clarify the conditions for sustainability in economic growth.

According to the dictionary, wealth is abundance of valuable material possessions or resources (Merriam-Webster). When speaking about economics, we may say that wealth is the total sum of all material benefits in society’s possession created during the previous period of its development. In a broad sense, wealth means everything in a nation’s possession, not only material values, but all natural resources, climate, artworks and many other things. However, some of these things are extremely difficult to count in monetary terms.

Different schools suggested different definitions for the national wealth. Mercantilists considered money (gold) to be the only source of wealth. Adam Smith defines wealth as the annual produce of the land and labor of the society (258-259).

Criticizing the Smith’s definition of wealth, Bullock states that most economists prior to his time defined wealth as the accumulated stock of durable goods in society’s possession.

According to World Socialist Movement, wealth is anything useful produced by human labor from materials found in nature. In capitalist society, Marx said, wealth takes the form of an immense accumulation of commodities.

As we see, the concept of wealth in economics is changing and constantly expanding, reflecting economical, social, ecological and other progress of the human society.  The evolution of the viewpoints to the concept of wealth goes arm in arm with the idea of sources and mechanisms of economic growth, its goals and priorities. The tendencies for humanization and environmental safety are getting extreme importance nowadays.

The sources of wealth are labor and nature. The wealth consists of:

• Natural wealth
• Material wealth
• Immaterial wealth

Natural wealth is land, forests, natural resources and everything else created by the nature. All natural resources can be divided into two parts: resources in use (working mines, pits, rivers, forests etc.) and explored resources. Natural resources can be renewable and nonrenewable. The example of the former is a forest, since new trees can be planted instead of those cut down. Oil, however, is nonrenewable scarce resource, because it takes thousands of years to renew used oilfields.

The difference in reserves of natural resources impacts the level of life in many countries. For example, the early economical progress of the United States was partly connected with the existence of large squares of free land that was good for agriculture. Nowadays Near East countries like Saudi Arabia and Kuwait are in the list of the riches countries due to the large reserves of explored oil.

Although natural resources are one of the main factors of economical prosperity, their existence is not an indispensable condition for creating efficient production. For example, Japan became one of the richest countries in the world having not so much natural resources in its possession. It was due to the successful foreign trade. Japan imports many natural resources (for example, oil) and exports finished commodities in countries rich with national resources.

Material wealth is the product of the “second nature”; it is created by the human.

There are two types of economic goods:

• Articles of consumption;
• Means of production

The level of economical development of a country is usually judged by the volume, variety, and quality of articles of consumption and by the level of society’s provision with those resources.

However, to get these articles of consumption, we need to create goods of the second type – means of production (plants, factories, machine tools etc.). We must also remember that economy involves reproduction processes. All material goods created sooner or later wear out.  Thus, they need to be reproduced. It forms a continuous process of creating new articles of consumption and means of production instead of those used.

During the reproduction processes people took energy resources and materials from the nature and, in the end, give back waste from production and consumption. It is somewhat like the circulation of the materials.

Immaterial wealth is formed by investing in human. It can be presented using two points of view:

• Research of the elements of immaterial national wealth that determine the quality of the labor force and informational aspects of wealth: scientific and technical, educational, cultural potential of the society.
• Estimation of the safety of one’s existence (governmental, individual, ecological safety etc.)

The research of immaterial forms of wealth is closely connected with researching their interaction with economic growth and dynamics of material elements of wealth. We may say that intellectual and cultural potential are the main source for the growth of wealth and increasing the quality of life in the modern world. However, achievements in this sphere can be the source of growth only when the science, education, culture and medical treatment are financed properly. That is why it is important to analyze the material side of the question together with immaterial one.

Today’s science concentrates on the role of the human, preserving environment and natural resources. The latter are interpreted not as bottomless container of “nature’s gifts”, but as a scarce resource which requires efficient use and renewal.

On the macro level, wealth reflects long-term results of production. It is based on some key principles:

• Accumulation;
• Long-term use;
• Renewal (as a result of human actions or nature’s impact);
• Alienability and onerousness (means that in some circumstances elements of a nation’s wealth can circulate on a market).

The growth of the national wealth is one of the key factors of economic growth. At the same time the results of the production are accumulated in the national wealth. It grows and renews at the expense of the products produced. The growth of the national wealth is the essential requirement for increasing the level of live of the society; it is one of the long-term priorities of the economical policy of the government. The volume of the nation’s wealth, its structure and dynamics are the main indicator of a country’s social and economical development in a long-term aspect. The main tendencies in renewal and accumulation processes are judged using the changes in the structure and volume of the wealth.

The first attempt to appraise national wealth was in France in 1789, in the United States – in 1805. American economist Raymond Goldsmith in his work The national wealth of the United States in the postwar period calculated the volume of the national wealth in the USA during 1898-1948, 1905-1950 and 1945-1958. He used the method of perpetual inventory, which is used even now by many the economists. Briefly summarizing Goldsmith’s ideas we may say that wealth is the total sum of all natural, material and immaterial assets possessed by the society.

As we see, the idea of measuring a nation’s wealth as the total sum of different kinds of accumulated capital was born more than three hundred years ago. Since that time there were periods of precise interest and attempts to realize it on practice and periods of absence of necessary data and methodology. We had already mentioned the theories of classical school and labor theory as well as Goldsmith’s fundamental work.

In the middle of the XX century the interest for measuring wealth renewed due to the development of the international standard system of national accounts by the United Nations Organization.

The main influence on the wealth is made by the government. It is responsible for preserving and multiplying nation’s wealth. Increased role of efficient technologies in production, development of professional human capital, efficient and safe use of natural resources – these are the key principles for changing the structure of wealth.

We may suggest the following measures to influence the nation’s wealth:

• Improvement of the regulatory and legal base;
• Creation of mid-term and long-term development programs for country and regions to achieve the optimal structure and proportions of the wealth renewal;
• Adjustment of the consumption and accumulation sectors according to the goals of sustainable development;
• Efficient and rational use of material, immaterial and natural resources;
• Efficient innovation policy;
• Encouragement of the investment in expansion of the production to create new work opportunities.

Drawing a conclusion we may say that wealth in common sense, as we are used to think, is ruled by the simple principle “more is better”. When speaking about wealth in economics, this simple principle, despite its obviousness, cannot be applied. It is caused by the dual nature of wealth – it is the result and precondition for further development at the same time.

Accumulation of the capital stock, for example, can be surplus sometime. When such situation occurs, the capital is spare and production facilities stand idle or produce useless goods, wasting natural resources. In this case the “growth of wealth” means multiplying the losses.

Thus, wealth as an economic concept is the unity of two sides – material and social. We may say that this is a feature of any economic concept, but wealth is an obvious case of their unity and interaction.

The most radical turnabouts in economical development were accompanied by the changes in the structure of wealth. These changes can be a smooth adaptation of the social structure of wealth to new tendencies and priorities, but they also can be in a form of redistribution of the property. The latter, as the history shows, is usually very destructive for the wealth of the nation (including the human factor) and harms its renewal.

We may also underline that measurement and analysis of wealth nowadays become “task tools” for forming the sustainable development strategy. It is caused by the number of factors. Firstly, wealth reflects some quantitative and qualitative parameters of the environment, which is one of the priorities in economical development now. Secondly, modern concept of wealth in one sense overcomes the traditional separation of wealth from the person; the concept of wealth becomes not only the expression of some material objects, but the embodiment of the level of the humanity’s development.

Works Cited

“wealth.” Merriam-Webster Online Dictionary. 2010.

Merriam-Webster Online. 17 April 2010 <http://www.merriam-webster.com/dictionary/wealth>

Bullock, Charles J. Adam Smith and “The Wealth of Nations”. Ed. Neilson, William A. New York: P.F. Collier & Son, 1909–1914.

An introduction to Marxian economics 1: the labour theory of value. 13 Aug. 2006. 14 Apr. 2010.            <http://www.worldsocialism.org/articles/introduction_to_marxian_economics1.php>

Goldsmith, William R. The national wealth of the United States in the postwar period. New York: Arno Press, 1975.

Beinhocker, Eric D. Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics. Boston: Harvard Business School Publishing, 2006.

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. 5th ed.  London: Methuen & Co., Ltd., 1904.