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The Wealth of the People: Your Wealth An Inquiry into the Relationship between Wealth, Freedom, and Life By Fernando Urias * * * * * SMASHWORDS EDITION * * * * * PUBLISHED BY: Fernando Urias on Smashwords The Wealth of the People: Your Wealth An Inquiry into the Relationship between Wealth, Freedom, and Life Copyright © 2011 by Fernando Urias The author acknowledges the trademarked status and trademark owners of various products referenced in this work, which have been used without permission. The publication/use of these trademarks is not authorized, associated with, or sponsored by the trademark owners. Smashwords Edition License Notes Thank you for downloading this free e-book. You are welcome to share it with your friends. This book may be reproduced, copied and distributed for non- commercial purposes, provided that it remains in its complete original form. If you enjoyed this book, please return to Smashwords.com to discover other works. Thank you for your support. * * * * * Dedication This book is dedicated to the billions of people that live in poverty. I hope that this inquiry may help in the improvement of any country that might need it. Acknowledgements The intellectual debt of this book is great. It goes back many years in my life. It starts with a paperback copy of Ayn Rand’s “The Fountainhead” that I found buried in the sand of a beach in Mazatlan, Mexico in the spring break of one of my college years. I started reading "The Fountainhead" that night and finished it before the trip was over. Back in college at the University of Texas in El Paso, I was able to read the rest of her works. After reading Ayn Rand I was elated by the possibilities of free economies. I continued to read anything that could find that would throw any light on the subject. In this pursuit I found Ludwig Von Mises, Friedrich A. Hayek, Murray N. Rothbard, Milton Friedman, Adam Smith, and many others. This book and the book series that will follow contains what I was able to understand from all these readings as the causes of wealth in a society. I am very thankful for the opportunity to publish a digital book and I look forward to the possibility of reaching people in their smartphones in places where printed books might still be relatively difficult to obtain. Thanks to Smashwords.com and Mark Coker for providing this media. I am thankful to my parents, Mama Blanca (Blanca Vega de Urias) and Papa Jojo (Fernando Urias Escobar) that held as their highest priority to give a good education to their children. This education came at the cost of many other things. Disclaimer This book is designed to provide information and entertainment. It is published with the understanding that the publisher and author are not engaged in rendering legal, economic, accounting, political, financial, or any other type of professional service. If legal or other expert assistance is required, the services of a competent professional should be sought. It is not the purpose of this book to reprint all the information that is otherwise available to authors and publishers but instead to complement, amplify, and supplement other texts. You are urged to read all the available material and learn as much as possible about economics and human organizations and tailor the information to your individual needs. Every effort has been made to make this book as complete and as accurate as possible. However, there may be mistakes, both typographical and in content. Therefore, this text should be used only as a general guide and not as the ultimate source on economic or social organizations. Furthermore, this manual contains information on economics and social sciences that is current only up to the publishing date. The purpose of this book is to educate and entertain. The author and publisher shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to have been caused, directly or indirectly, by the information contained in this book. * * * * * The Wealth of the People: Your Wealth An Inquiry into the Relationship between Wealth, Freedom, and Life * * * * * Summary The wealth of a nation is its people. If this is true, why are there so many nations that have so many people that are not wealthy? What is missing? Ask a citizen of wealthy country to explain why this is so and he might have some notion that he will express with insecurity. Ask a citizen of a poor country why his country is not wealthy and he will have plenty of blame to throw around but chances are that he might not even have a notion. It is a simple question with a complex answer. If it had an easy answer, everybody would answer correctly. Why some nations are wealthy and some others are not? The answer must have elements of economics, philosophy, political science, history, business, psychology, religion, and other disciplines. This series of books is an attempt to break this complex answer into simple elements that might be easily explained. This will attempted by reviewing one element in each book, starting with simple elements and building up to more complex conclusions. This is the first book of the series. It is about the wealth of a single person in an island. The titles of the rest of the series are listed at the end of this book. Introduction I have been blessed with the experience of living in two countries. One is a wealthy country and the other is a country in development, which is a nice way to say that it is not wealthy. The one in development is older telling us right away that age is not a cause of wealth. I have experienced the contrast of the living, business, cultural, and political conditions in both countries and this experience has fueled a desire to try to explain the differences. This bicultural experience, an interest in economics, and an education in engineering might allow me to have a unique perspective on the subject. The first book is about producing wealth in a desert island, just like Robinson Crusoe in Daniel Defoe's novel. Welcome to the first book. * * * * * The Wealth of the People: Your Wealth An Inquiry into the Relationship between Wealth, Freedom, and Life * * * * * Alone in an Island Imagine that you are the sole survivor of a shipwreck in an island. Instead of having the benefits of the remains of the shipwreck as Robinson Crusoe had, all you have are the clothes that you are wearing. What would you have to do to survive? You would have to fill your basic needs with your bare hands. You would have to find out how to satisfy your thirst and hunger. You would have to find or build a shelter to sleep at night free of any wild animals or nasty insects. Eventually you would have to make clothes to replace the ones you are wearing. The Definition of Wealth Upon your arrival in the island you would be poor. To be wealthy is to have plenty of resources to sustain your life. You have your mind and your body which are very valuable but they would not be sufficient to make you feel wealthy. You would want to have plenty of water, food, clothing, and a good shelter. Your Assets To satisfy your needs, you would have to use your mind and your body. Your mind and your body are your assets. You would have to use your mind to think where to find water to drink and you would have to use your legs to walk until you find it. You would have to think what vegetables to eat and walk to collect them. You have to use your assets, which at this point are only your mind and your body, to produce the products that you need. The Natural Resources To satisfy your needs you would also have to use the natural resources of the island. You would have to find fresh water in a creek that you could drink without getting sick. You would have to pick vegetables that you could eat. You would have to find out how to hunt an animal. You will have to figure out how to start a fire to cook the animal. You would have to use earth material, such as mud, stones, and sticks, to build a shelter. The Production Process To meet each of your needs you have to go through a production process. You have to engage your mind and your body in a process that will give you the products you need. Even the simple task of drinking water from a creek is a production process that converts the natural resource “water in the creek” into the product “water in your mouth”. Each production process will consume your time. It will require the use of your mind, your body, and your time. Your Labor Every production process requires the use of your labor. Your labor is the exertion of your effort during a period of time. When you are involved in a production process, you are working. You are executing the actions required to produce the products that will satisfy your needs. You might think that the work is pleasant or that it is not but it does not matter because you have to do it to survive. To produce the product “water in your mouth” that will satisfy your thirst, you would have to find a creek that has drinkable water. You would have walk to it and when you get there, you would have to kneel to get your face close to the surface of the water, form a cup with the palm of your hand, and carry the water to your mouth. Drinking water with the palm of your hand is one of the methods by which you can transform the “water in the creek” natural resource into the “water in your mouth” product. There are many other ways to do it. Your Costs There is no money in the island but you will be incurring costs to obtain the products that you want. You would measure the cost of getting a product in terms of the time that it takes you to produce it. If it takes you thirty minutes to go to a creek to drink water to satisfy your thirst, you will think that satisfying your thirst costs thirty minutes. If you have to satisfy your thirst four times per day and each time it takes thirty minutes to walk to the creek, then the cost of satisfying your thirst in a day would be two hours. Your Income Your income is the amount of wealth that you can produce with your work in a period of time. In society, your income is the amount of money that you are paid for the time worked. In the island there is no money but you would have an income. Your income would be the set of products that you would produce. If you spend thirty minutes to go to a creek to drink a pint of water, this pint of water is your income. If you go to the creek four times a day and you drink one pint of water each time, your income would be four pints of water at the cost of two hours of work. If you spend one hour collecting one pound of vegetables, this pound of vegetables would be part of your income. If you hunt a wild turkey in two hours, the turkey is your income for the hunting work of two hours. The sum of all these products is your income for the day. In a day like this, you might earn four pints of water, one pound of vegetables, and one turkey at the cost of five hours of labor. The Labor Principle of Wealth Production To produce wealth you have to apply your mind, your body, and your time into actions that will result in the products that you need. Wealth is the result of working in a productive activity. Your income is the amount of wealth produced by your work during the time that you work. The Production of Wealth The title of this paragraph: "The Production of Wealth" is meant to bring to mind the work that needs to be done to produce wealth. It is suited better to understand the essence of wealth than the more common title: "The Creation of Wealth". The word "creation" gives the idea that wealth is created out of nothing. Wealth has to be produced and its production requires the use of human labor. If you think of an apple as wealth, you can think of an apple hanging from a tree in the middle of a forest, like the forests that exist in fairy tales, and say that this apple was created. The reality is that an apple available in a supermarket is not created but produced. It has to be harvested, packed, refrigerated, transported and it comes from an orchard where apple trees are planted, fertilized, irrigated, pruned, and tended for several years by people that get paid to do so. An apple in a supermarket is wealth that has to be produced. Your Time Budget To produce the products that you need, you have a finite amount of time. The day has twenty four hours and in this time, you have to sleep, eat, and work. Your effective working hours might be fourteen hours or less. Whatever this number is, it is a finite number. You are on a time budget. Depending on the conditions of the island, you could spend most of the day to barely complete a meal. Without any tools to produce food, you would be in a state of hunger and poverty. The Value of Your Products The value of the products that you would choose to produce would come from the satisfaction that they will provide to you. The value of the water that you drink comes from the satisfaction of your thirst. There is no way to measure this satisfaction and compare it to the satisfaction of eating an apple. All you know is that you are thirsty and hungry and that you need to drink and eat. You make the decision to produce these products considering your need, the cost of the products, and your budget. The Time Budget with the Highest Value You would have to decide which set of products that will fit in your budget will give you the greatest value. There is nobody in the island that will lend you anything so you have to stay within your time budget. You will not be able to produce many products that are of high value because you cannot afford them. There are many things that you would like to have but you would not have the time to make them. In the island, the set of products that would fit your budget and might have the highest value to you could be four pints of water, one pound of vegetables, a wild turkey, and other products that would bring you the highest satisfaction possible. Maybe you would spend two hours working on your shelter and one hour working on your clothes. You will also have meal times and resting periods. In doing all these activities, you would fill up your time with the production of products and the activities that would maximize the value of your time budget. Your Time is Your Money You probably have heard the saying that time is money. In the island, there is no money but your time is literally your money. If you want to buy a product, you have to buy it from nature using your time and your work. The famous phrase could be restated more correctly as “time and work is money”. In the process of working, you are exchanging your time and your work for the products that you need. Increasing Your Income Since you would not have any tools, you would spend the whole day to produce a very small amount of the products. The amount of products that you can produce with your bare hands is very limited. Your income would be low. You would be poor. You would want to consume more but to consume more you have to produce more. How can you do it? How can you increase your income? Working for the Longest Time One of the ways to increase your income is to work as many hours as you can. The quantity of products that you will produce will be in proportion to the hours worked. If you work ten hours instead of eight, you income should be twenty five percent greater because ten hours are twenty five percent greater than eight hours. You can maximize your income by maximizing the hours worked. Working Fast Another way to increase your income is by working fast. If you work slowly, you will produce very few products. To increase your income working fast, you have to work as fast as possible without causing damage to yourself or to the material that you are working with. There is no use of spending three hours collecting vegetables at a very fast pace if you hurt your back and you have to stop for a week to heal or if the vegetables that you pick spoil easily because they were damaged during the picking process. To maximize your [...]... the people that are its customers The Wealth of the State The fifth book discusses what happens when we remove the assumption that everybody is going to behave correctly The book explores the historical formation of the state and the implications for the production of wealth The Wealth of Social Capital The sixth book is the core of the series Social Capital is defined in this book as the ability of. .. of the project of one hour per day is the profit of the project The total profit of the pouch project is the cost difference between having it and not having it Without the pouch, you would spend two hours a day to satisfy your thirst With the investment of the pouch, your process of satisfying your thirst would cost only one hour Since the pouch lasts twenty days, the total profit of the pouch is twenty... increasing their respective wealth The Wealth of the Market The third book explains the possibilities offered by a free market to produce wealth for its people This book explains the wealth production results when the competitive advantage of every single individual is brought to a free market The Wealth of the Business Enterprise The fourth book is about the function of the business enterprise to produce wealth. .. repeating the search The value of the knowledge of the location of the creek is worth several hours to you Your ability to think, talk, and read are all part of your mind assets Your Human Capital The idea of making a pouch, the knowledge of its manufacture, the willingness to invest the necessary time, and the method of using it are all necessary elements of the water pouch production process These attributes... income, which is your capability of producing wealth in a period of time The Increase in Your Physical Assets The water pouch would be an addition to your physical assets When you arrived at the island you had your mind, your body, and your clothes Now you have you mind, your body, your clothes, and the water pouch The water pouch increases your income as many other tools will To increase your wealth, you... get water for your needs, lowering your income Your labor and your capital structure determine the amount of income that you can make Your capital structure determines how much wealth you can produce with your labor At the same time, the assets of your capital structure are part of your wealth since they are of great value to you The value of a physical capital asset can be calculated from the benefit... accumulate wealth if you consume everything that you produce The Limits to Your Wealth The first limitation to increase your wealth is in your human capital It is in your mind It is your motivation To be wealthy in the island you have to work hard, think well, and restrict your consumption to maximize the work and the investment time The strength or lack of strength of your motivation is your first... significant amounts of time to improve your production processes to keep your income and your wealth always increasing The Investment Principle of Wealth Production To increase your wealth production capability, you have to develop ideas and build tools that will increase the productivity of your time The use of these ideas and tools will increase the output of your production process and increase your income,... and at the same time and for the same reason, they are part of your wealth The value of a physical capital asset is derived from the time that it saves in the production process The water pouch that lasts for twenty days will allow you to do twenty daily trips of thirty minutes for a total of ten hours of work instead of eighty trips at the cost of forty hours The pouch is worth thirty hours of wealth. .. support these methods These investments in the production processes make you more productive, require less of your time, and make you wealthier The Capital Structure Principle applies to the two aspects of your capital structure, the physical tools that you need in the production process and the human capital required to design them, make them, use them, and maintain them Your wealth starts with your . is the first book of the series. It is about the wealth of a single person in an island. The titles of the rest of the series are listed at the end of. the use of your mind, your body, and your time. Your Labor Every production process requires the use of your labor. Your labor is the exertion of your effort