The Wealth of the People: Your Neighbor's 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 Neighbor's 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. 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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 Neighbor's Wealth An Inquiry into the Relationship between Wealth, Freedom, and Life * * * * * Summary This is the second book of the "Wealth of the People" book series. The series is an inquiry about the requirements for the production of wealth in a society. The first book looked at the economics of Robinson Crusoe alone in an island and concluded that to produce wealth you have to work using your capital structure. The amount of investment in your capital structure determines the income that you can make with your work. Your capital structure is composed of tools that make your physical capital and the knowledge to make them and use them, which is called your human capital. The second book looks at the requirements for the wealth production process to continue when you find a neighbor in the island. An agreement to respect life and property emerges as a requirement for the wealth production process to continue and becomes a factor of production. This agreement and other agreements that will be discussed later can be grouped under the concept of "Social Capital", defined as the existence of agreements between two or more individuals that are needed for the wealth production process to continue. Social capital becomes a requisite for the capital structure to function and in this way becomes a factor of production and a determinant of the income that you and your neighbor can make. The rest of the titles of the "Wealth of the People" series are listed at the end of this book. Introduction The second book of the series "The Wealth of the People" is about the relationship that you need to have with a neighbor in the island if you want to preserve and increase your income. You have to make an agreement with your neighbor of mutual respect for life and property. This agreement preserves the status quo so that each of you can continue working in your respective wealth production activities. Once this agreement is in place, you will find out that you can increase your income through trade. By trading products, your advantage in a wealth production process can be passed to your neighbor in a voluntary agreement that occurs because there is profit for both parties. A simple example shows that both of you can increase your income through trade. It is an economic conclusion of the book that it is to the advantage of both parties to respect each other’s life and property and to engage in free trade. * * * * * The Wealth of the People: Your Neighbor's Wealth An Inquiry into the Relationship between Wealth, Freedom, and Life * * * * * Your Neighbor In book one you were alone in an island working hard to survive and building up your capital structure and one day you find out that there is another person living in the island. How would you approach this person? The first question in your mind would be whether this person will be friendly or hostile. Hostility is a real possibility. Remember that the first people that Robinson Crusoe encountered in his island were cannibals. You would want to know if your neighbor is a threat to your life or a potential friend. Maybe your neighbor is not a cannibal, but he might be tempted to steal your food and tools. As a result of your work and your investment, you should possess some perishable products, some durable goods and some tools. Your neighbor might be tempted to take them all away. Would he be strong enough to try it? Does he have a superior weapon like Robinson's musket that he might be tempted to steal your possessions with impunity? Maybe he is part of a tribe that might enslave you? It could also be that your neighbor discovers that you exist in the island and he thinks that you are the threat. Maybe he will be afraid of you and maybe you are the one that is capable of stealing his possessions. The Cost of Not Knowing Your Neighbor Since you do not know your neighbor, you would have to incur costs to protect your life and property. You will have to spend some time in surveillance to make sure that he is not a threat. You will have to think about investing in a weapon that you might need to defend yourself. You might have to incur the cost of moving your shelter to a hidden or more protected area. These costs will reduce your income because instead of producing other products that you want, some of your time will be spent in surveillance and weapon construction. The Poverty Resulting from Violent Behavior The worst situation that you could have would be to find out that indeed, your neighbor is part of a cannibal tribe, just like it happened to Robinson Crusoe in his story. In this situation, your neighbor is definitely a threat to your life. Your wealth production capacity would be restricted because you would have to produce in hiding being careful of not being detected. The appreciation for human capital is so low in a cannibal and some other cultures of violence that a person life is not valued for the productive work that can be performed in a lifetime. The life of any person becomes expendable. In a productive society, the wealth production capability of a person is very valuable and it is a great productive loss upon death in addition to the personal loss to family and friends. The next worst situation that you could encounter with your neighbor would be that he wants the temporary income that he can get by stealing your food and tools at the expense of your life if necessary. This would be a very short sighted view of your neighbor because the value of the assets is be very low as compared to the value that you can give as a productive person in free trade throughout a lifetime. Nonetheless, this case is still very common today since there are still many societies where people are killed for money, land, and power. Another less common but still existing relationship is if your neighbor wanted to enslave you. If your neighbor has superior strength or a superior weapon he could be tempted to force you to work for him. This would be a relationship with a great drop in income for both parties, because instead of having two people working hard and building their individual capital structures, one individual would be working with very low productivity and motivation under the gun and the other would have very low productivity holding a gun that does not produce wealth. Slavery is a situation of low productivity for all parties. The next bad case and a more common situation could be that your neighbor wants the benefit of your assets but he does not necessarily want to kill you. He would like to enjoy the temporary benefits of stealing your food and your tools. He might not have a great use of your tools because a person of this mentality would probably not know how to use them or would use them without maintenance until they will break down. In this unfortunate case, he would take the physical things that you have and leave you with nothing. Your neighbor would improve his income momentarily with the stolen food and tools but he will drop to a level of poverty as soon as the food runs out and the tools break down. Your income would drop immediately after the moment of the crime. You would have to build your capital structure again and you would probably not do so until you can ensure that they will not be stolen again. The first tool that you would probably build after this experience would have to be a weapon that you would use to defend yourself in case he comes again to repeat his crime. You would have to invest time in the protection of your wealth production process. The most common situation of violent behavior or implied violence would be if you neighbor wants the benefit of the wealth production capacity of your tools but does not want to enslave you or kill you. If he has a superior weapon, he might decide to come to you periodically to collect part of the wealth that you are producing, probably in the form of food or finished goods. He would not be interested in taking your tools because he would not know how to use them or have no interest in working. Under the threat of violence, he would let you know that he expects to have a certain amount of food ready for payment when he comes to collect. The effect of this fee on your wealth producing ability will be that it will overcrowd your investment budget and eliminate your willingness to invest. The burden that your neighbor might require under this relationship might be so great that you will not be able to improve your capital structure. The Effect of Violence on Investment A situation of violence or lack of protection of property is critical for the existence of tools. Since tools are physical items that can be stolen, they are very valuable for the service they provide, and they are costly because of the time it takes to build them, they will not be built in a society that does not protect them. A society that does not protect life and property and the tools of production is condemning itself to poverty. If your tools were stolen in the island, your income would drop to the level that you had before you had your tools. You would be thrown into a poverty level where all you could do is to produce the minimum amount of perishable goods that you could produce without tools. You would try to produce with the minimal possible investment until you felt confident that any new tool that you would build would not be taken away from you. You would not be able to produce the income that you would have been accustomed to until you can recreate all the physical capital goods that you were using in your production process. Violence Makes Weapons a Tool of Production If you would experience violence in the island, you would have to invest time in a weapon to defend yourself and your tools before you could go back into a wealth production activity. Your weapon would be a necessary tool in your wealth production process. If your weapon is a spear or bow and arrows, it could also serve as a hunting tool. Violence Increases Costs If you are in an environment with violence, you would have to spend considerable portions of your time in surveillance or in escape, instead of using the time to produce goods that will satisfy your needs or investing in tools for better methods of production that will increase your income. Violence Reduces Human Capital In the case of violent behavior, even your human capital would be adversely affected. Although nobody can take away your mind and what you think, the threat of a violent attack would distract you from productive enterprises and direct your mind to find ways of self-defense. The stealing of your goods or tools will make you fear that your neighbor will not respect your life. A violent experience would instill fear in your find .Your creativity to invent new and better wealth production processes would not be restored until you would know that you are no longer under the threat of violence. Although your neighbor would not be able to take away your human capital, what you have learned, and you would not start from zero to recover, you would have to invest the time again to produce the physical tools. The Violence Principle of Wealth Production Violence is devastating for the process of wealth production. Violence stops or slows down the production of wealth. It is not possible or very difficult to produce wealth under violent conditions. Violence or the threat of violence makes the investment in tools stop because there is no motivation to invest large amounts of time on tools that will be taken away by violence. The Low Cost Solution If you could find a way to trust your neighbor and make your neighbor trust you, at least to the point where both of you can be assured that you are both going to respect each other's life and property, then you could maintain the wealth producing levels that each of you had achieved with your respective capital structures. Trust is much easier to achieve if you and your neighbor speak the same language, if you are from the same culture, or if you profess the same religion but these are not necessary and neither are they sufficient conditions. The condition that is necessary and sufficient is for both of you to want to become wealthy and to know that to do this you have to have a mutual respect for life and property. If you and your neighbor find a way to trust each other, your wealth producing capability will not be deteriorate when you share the island. You could live away from each other and go on with your respective enterprises and live as is if the other did not exist. You would avoid the cost of surveillance and weaponry. Ideally, you would look for trust by a coincidence of values. You would want to know that your neighbor appreciates life and has learned to respect property to the same level that you would so that you do in order to avoid the costs of surveillance and self- defense. You might have differences in other values, but if you have coincidence in respecting each other’s life and property and in wanting to become wealthy, then you can have a wealth production process that is less costly. The Agreement to Respect Life and Property To continue your wealth production activities, you need to approach your neighbor and reach an agreement of respect of life and property. You want your neighbor to respect your life and property and you would offer in return to respect his. This agreement would allow both of you to continue your lives in the island producing wealth according to each other's capital structure. The agreement would be based on the advantage that this agreement brings to both parties. The agreement to coexist in peace is better for both of you than the violent alternatives. The agreement is advantageous to both because both want to preserve your lives and engage in wealth producing activities. The agreement to respect life and property has to include the respect of property. An agreement to respect life without the respect for property would result in a fight that could risk your lives and would cause the same surveillance and weaponry costs in the wealth production process as if there was no agreement. The Respect of Life and Property Principle of Wealth Production To preserve and continue to increase your wealth production capability in the presence of a neighbor, you have to make an agreement of mutual respect for life and property. The Foundation for Law If you make an agreement for respect of life and property, you would have the basis of the first law between you and your neighbor. Laws are enforceable agreements between people that live together on the expected behavior in society. Laws are enforceable by the state but since there is no state and no police between you and your neighbor, the agreement is not yet a law but a voluntary agreement base on the common advantage and common trust. There is no state to guarantee that it will be carried on. You and your neighbor are the guarantee. The main ingredient of the agreement is that the agreement is advantageous to both of you. The agreement to respect life and property, based on the knowledge that it is advantageous for both parties is the foundation of the law that can be written when a state is in operation. The lack of an agreement due to the lack of knowledge of the citizens of a country would make the law very difficult to enforce. Education and knowledge is the basis for the law and the state can be tasked by its citizens to handle violations of the agreement as exceptional conditions. Social Capital [...]... 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 as the ability of a society to learn and agree on the rules that are necessary for the production of wealth This is the key for the wealth of the people in society This is the ingredient... change your eating habits Fernando Urias uriasf@aol.com The Wealth of the People” Book Series The task of explaining the causes of the wealth of the people in a society is a long and complex subject for a single e-book To facilitate the explanation and the delivery of the material, an e-book will be published in each logic set of topics The following are the planned titles of the book series: Your Wealth. .. property The wealth of social capital starts with the preservation of the wealth created by the physical tools In the first book it was concluded that the best way to accumulate wealth is by having tools that are part of the wealth production process The first wealth contributing factor of social capital is that it allows the possibility of this occurring Without social capital, the wealth of the tools... is the beginning of the establishment of social capital in a society The Property of the Natural Resources When you were the only person in the island, you could have thought that the whole island belonged to you With the discovery of your neighbor, you would need another agreement regarding the property of the natural resources, including the land, the water in the creeks, and other resources in the. .. will be hurting yourself because you will lose your customers If you service your customers without taking care of yourself, then you are losing the purpose of your being You need to service your customer the best way you can without damaging yourself This means that by being part of the equation of your survival, your customers are almost part of your family The Combined Capital Structure The combined... Instead of diluting your investment budget in the production processes of several products, you can concentrate your investment in the production of one product while your neighbor can concentrate his investment budget in the production of another product improving the efficiencies of both wealth production processes The Wealth of Social Capital The wealth brought by the improvement of the physical tools... This book explains the wealth production results when there is a market that brings the competitive advantage of every individual to the table The Wealth of the Business Enterprise The fourth book is about the function of the business enterprise to produce wealth for its customers, its owners, and its employees The Wealth of the State The fifth book discusses what happens when we remove the assumption... trade The cost of the trade is distinguishable from the cost of production In modern economies, one of the major components of the cost of trade will be the transportation cost The trade between two people requires the time and the place where they will meet and this means that there is a cost associated to get to the place and the time to evaluate the transaction and make the purchasing decision The. .. with the trade of one turkey For your neighbor, his meal cost can decrease from three hours to two hours thanks to your offer of the sale of one turkey for one pound of vegetables This means that there is synergy in the trade transaction Synergy means that the total is more than the sum of its parts You and your neighbor are more valuable together than the sum of both of you working independently in your. .. Your Wealth The first book looks at the time savings gained by a single person increasing his physical and mind assets in an island The Wealth of Your Neighbor The second book is about the agreements that two people have to make to be in a path of increasing their respective wealth The Wealth of the Market The third book explains the opportunities offered by a free market to produce wealth for the people . and your neighbor can make. The rest of the titles of the " ;Wealth of the People" series are listed at the end of this book. Introduction The second book of the series " ;The Wealth. investment budget in the production of another product improving the efficiencies of both wealth production processes. The Wealth of Social Capital The wealth brought by the improvement of the physical. into the picture, the quality of the product will be defined by the supplier that takes the leadership in the quality and value yielded by the wealth production process. The Cost of the Trade The