In Praise of Wealth, and of Its Cause – Freedom

Wealth. The immediate reaction for many, at least in wealthy countries, on hearing the word is often a negative one.  We have been conditioned by the political left and by parts of the political right to associate “wealth” with greed, selfishness, and lack of compassion. With just a little consideration though, this narrative can’t be right.  The opposite of wealth is poverty. Poverty is obviously bad. Therefore, its opposite – wealth – must be good.

Poverty does not have causes. Poverty is not a thing, but rather is a deficiency.  The most extreme poverty is lack of nourishment, lack of safe water, lack of medical care to prevent and treat disease, lack of shelter, lack of clothing, etc. Extreme poverty is the natural human condition, and that has been our state until just relatively recently. For most of human existence, life was hard – wanting of adequate food and shelter – and short.  The best one could hope for was to survive childhood, and on most days to have adequate subsistence. This was our lot for millennia.

Economists have estimated that between 1 AD and 1820 worldwide annual GDP per capita increased a meager 50%, “growing” from $175 to $250 (1990 dollars). The more developed countries of western Europe were much “wealthier”  with an estimated annual per capita GDP of $1700 in 1820 – less than that of Mozambique today.

It should be understood that most fundamentally, wealth is not the money, or silver or gold that one has, but rather the value of the goods and services one is able to consume.   From that perspective, most of the poor in our country today are by many measures far wealthier than the Kings and Queens of 19th century Europe.  They have tremendously better access to basic sanitation, clean water, safe and healthy food, medical care, refrigeration, etc.  Further, most today have goods and services that those royals could not have begun to imagine – air conditioning, cell phones, computers, internet access, cars, etc.

The World Bank defines an individual to be extremely poor if their consumption is less than $1.90 per day (in 2005 dollars).  This World Bank data is adjusted for inflation and purchasing power. By their analysis, 95% of the world’s population lived in extreme poverty in 1820.  By 1990, that percentage had fallen to roughly 40%, and to 30% by 2000. The global percentage of persons living in extreme poverty today is less than 10%.

Between 1990 and 2015, the world population grew by 2 billion people and yet the overall number of people living in extreme poverty fell by 1.25 billion; or by another measure, during that time frame the number of severely impoverished individuals decreased by 50 million persons every year.  In 1820, world population was approximately 1 billion. Today it is an estimated 7.5 billion. Think of it.  There are fewer people living in extreme poverty today – roughly 750 million – than there were in 1820 even though the world’s population has increased by 7 ½ fold.  At this rate, global extreme poverty will be eliminated in another 15 years. Extraordinary!

How in the course of 200 hundred years did humanity escape the nearly universal impoverishment that was our plight for thousands of years to now live in world where extreme poverty is on the brink of extinction? How in the course of 200 hundred years, did the poor in the developed countries of our time attain more wealth than the royalty of relatively yesteryear? How are more and more people joining the developed world including hundreds of millions of individuals in India and China in just the last 10 years?

Pretty clearly, all this good did not come from wealth redistribution. It is estimated that total world GDP in 1820 was only $200 billion. That wouldn’t go very far among the 7.5 billion persons on the planet today.  So what has happened?  The undisputable answer is economic growth – wealth has been created and that wealth creation has been profound. Since 1820, world GDP has increased 400 fold to an estimated $80 trillion.

Unlike poverty, wealth does have a cause. In a word, that cause is “freedom”.  Anywhere a society has developed protections of individual freedoms and property rights, free markets have spontaneously emerged.   And it has been those markets that have created all our wealth.

Liberal society was born first in early 18th century western Europe with the enactment of policies promoting and protecting the freedom of the individual as expounded by John Locke and the economic freedom as championed by Adam Smith.  That freer society subsequently spawned the Industrial Revolution, and the Industrial Revolution was the beginning of the end of extreme poverty in western Europe.

Meanwhile across the Atlantic, our Declaration of Independence articulated the principles of individual freedom as never before.  The Declaration was actualized in our Constitution and Bill of Rights forming a government whose sole charge was to protect our God-given inalienable individual rights of life, liberty, and property. From that foundation in freedom, our fledgling country grew into the world’s biggest economy in a mere 100 years.

Yet, our country’s astonishing economic growth pales in comparison to that of contemporary India and China. As their governments have “allowed” more freedom in their economies and those economies have integrated into the global economy, world GDP has increased from $40 trillion to $80 trillion in the last 10 years.

Freedom causing economic growth is irrefutable, notwithstanding the constant attacks from the right and left on individual freedom. Canada’s Frazier institute has compiled an index of the Economic Freedom of the World for 30 years running.  Their index considers 5 measures: size of government, property rights, sound money, access to global markets, and business regulation.  Over those many years, their collected (real world) data consistently demonstrates GDP per capita is highest for the freest economies particularly for the poorest persons.  The 2016 index findings are typical, demonstrating that the top 25% freest economies had a GDP per capita 8x that of the bottom 25% (least free) economies. The poorest 10% in the top quartile of freest economies had 11x the income of those in the least free quartile.  These findings corroborate findings from a study of 118 countries followed over a 40-year time frame that found that income growth for the poor did not follow changes in income distribution but rather increased with economic growth.

Further analysis of economic data, not surprisingly, reveals increased life expectancy, increased literacy rates, better stewardship of the environment, and societal equality all track economic growth (wealth creation) that freedom engenders.

A final thought: Does expansive, interventionist, paternalistic, coercive, or special interest-serving government protect and promote, or rather, abuse and stifle freedom and its blessings?

May freedom grow, reign, and continue to create the wealth that has relieved so much human misery and given us so much satisfaction!

Please join the campaign for liberty.

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2 Responses to In Praise of Wealth, and of Its Cause – Freedom

  1. Rich Grimmie says:

    Fantastic and well said. Keep ’em coming.

  2. Jim Clymer says:

    Great analysis! Not something you’d hear on CNN or MSNBC

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