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Rob’s comments below are in italics.
Derek’s comments below are in normal font.
We're talking about wealth creation and wealth acquisition today. Where do we need to begin?
Well, I was reflecting on the fact that, as we discussed in earlier issues, wealth is brought into existence by purposeful work. You could take a bunch of bricks and turn them into a house. You could take a bunch of wood and turn it into furniture. You could connect up some pipes and create a plumbing system for a home.
All of these would be examples of creating something that didn't exist before through the action of purposeful work. It would take a certain amount of materials, one or another, a certain amount of energy and some intentionality.
Once we've created something with our activity, we can then trade that with someone who has created different work. This is the core of all economic activity, as long as there has been any organised human society. As an analogy to the energy laws, there is a similar pair of laws in the realm of economics and wealth creation.
There's a constancy law which is essentially that at any given period of time, the amount of wealth which is created is going to be equal to the amount of wealth which is acquired by somebody else. Either the creator of the wealth keeps it, in which case they acquire it, or they trade it or engage in some other transaction with someone else, and then it is theirs. In a reasonably equitable, balanced, fair, just society, it would be traded with somebody who has created a more or less equivalent amount of wealth. Obviously, the equivalence is in the eyes of the beholder.
I was going to mention that, so different people, you know, one man's junk is another man's gold.
Yeah. Having said that, there's an analogy with the other energy law. We've got a conservation law, and then we've got the entropy law, which is essentially that every time there's an energy transaction, a proportion of it becomes unavailable for doing useful work. It dissipates as low-grade heat.
If an electric current is flowing down a wire, the wire has a certain amount of resistance, regardless of how small it is. That will dissipate a certain amount of energy in the form of heat. If you're pushing, doing any mechanical movement, there's going to be a certain amount of friction and rolling resistance and so forth again, which turns it into heat. So you never get 100% conversion.
The same thing applies to any trade or exchange of the products of one person's labour with another. There's always a certain amount of transactional cost of one or another, which doesn't quite even it out.
We need to look at is how it's working out in contemporary society. The transactional costs represent a significant portion of the wealth that has been created. This is because a great deal of it is going to either people who are managing to extract more value than they're bringing.
I was just thinking about all of the taxes that I pay!
Yeah. We've mentioned before that, if you look at it in a certain way, you might find that you've been taxed at a total rate of 95%. We're not just talking about the actual taxes paid to the government, but also the various layers of profit that exist between the manufacturing of, let's say, a bar of soap and the cost of that bar of soap to the eventual consumer.
Now, some of those are legitimate transactions. The retailer who sells it to you is going to make a living out of making it available to you in a convenient way. There's a certain amount of transportation involved, but also a vast amount of, to put it bluntly, sheer profiteering in the entire system. There is a significant amount of internal bureaucracy.
If there is a highly inefficient transfer like that or if it becomes deeply inequitable at some point, the system must either topple over or implode. It can't carry on forever.
Yeah, exactly. It's reached that point, you know. It's a worthwhile exercise to look around at the items in your supermarket cart and ask what it took to produce this bar of shaving soap, for example, or this carton of washing-up liquid, or whatever. You'll find that many of these products are primarily made of water, or they're composed mainly of very inexpensive oil or a combination of the two. They've traces of various active chemicals, which are often not expensive in themselves.
Very often, the actual genuine costs of an item that costs maybe three or four or five pounds or more might be literally pennies. Then you've the packaging, which is typically discarded at the end of the day. In many cases, I'm convinced that the packaging costs more than the contents. So we're all doing that. That does hold out a quite optimistic opportunity for the future, because these things could come full circle.
Small entrepreneurs have been priced out by large corporations that have economies of scale, which, on the face of it, we can't compete with. However, they also face diseconomies in terms of their superstructure, particularly in the centralisation of their manufacturing and distribution hubs, which necessitates the transportation of goods throughout the country.
There is a real opportunity for small, local, ethical, and honest businesses to move in and reestablish that territory. That is a worthwhile opportunity that we should start exploring and considering.
More of a localisation rather than a globalisation.
Yeah.
My mum buys some chocolate from a lady who lives near where my parents live, and she just serves the local area; it’s all handmade. It's easier to put together something that's more crafted and human, rather than having a mass-produced feel. There's probably a snap back on that as well, where people feel like they've lost that local connection.
Yeah. For instance, if you want really good-quality marmalade, it costs about £8 a kilogram in the shops. If you get the absolute most basic marmalade, it's still about £3 a kilogram. To make it yourself, the cost is approximately £1 per kilogram.
Okay, you've to use a bit of energy to cook it on the stove, and you've to spend some time doing it. But it's a big gap. That marmalade you make yourself for a pound a kilogram is going to be better than all but the very most luxurious top-end of the range. In the future, I see us doing far more of that.
I've got a habit of buying quite expensive local honeys. But I'll maybe skip the ‘manufacturing’ part myself!
Well, it'd be even cheaper if you had your own beehive!
Yeah, it would. It would be good to have some more bees. Full stop.
So that was what I was reflecting on. Perhaps if we all start looking around ourselves and conducting a quick, informal audit of what's gone into this and what that really ought to cost, it could be quite hopeful.
That could lead you down some wild rabbit holes when you start investigating what's in your toothpaste, where the ingredients come from, and how they make it.
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