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Wealth Itself Is a Process, Not a Hoard of Stuff

This is a letter to the socialist girlfriend of Cafe Hayek patron Rob Stockton, who has met with no success in persuading his girlfriend to abandon her socialist beliefs – but at least he’s gotten her to read Cafe Hayek!

Ms. Kemppainen:

Thanks for your e-mail.

You ask that I reconsider my “out-dated image of socialism” so that I “will appreciate that a country that has as much wealth as we have can afford to eliminate huge wealth differences.”

I don’t here wish to join the debate over just what socialism is or isn’t and, hence, whether my image of it is or isn’t outdated. But I will express my disagreement with your description of America ‘having’ much wealth.

Of course we Americans are extraordinarily wealthy relative to people in most of the rest of the world today and, even more so, relative to almost everyone in the past. But this wealth is not owned by us collectively. It’s owned in parcels by hundreds of millions of distinct individuals. Likewise, this wealth is not created by us collectively. It is created by distinct individuals, each in his or her commercial and industrial dealings with others.

These dealings are as productive as they are precisely because they are mostly regulated by, and mediated in, competitive, private-property-based markets. I’m convinced that the more the state restricts these dealings the less will be the wealth that most individuals operating in markets will be able to produce.

A more important point: to speak of ‘having’ wealth creates a dangerous misimpression. We Americans are wealthy not because we have somewhere in a holding pen a gargantuan stock of stuff called “wealth” that we, either individually or collectively, can access and then somehow distribute. No such massive store of real wealth exists.

Instead, we Americans are wealthy because we live our lives as part of an on-going global process of wealth creation and distribution. This process consist of every activity from bakers awakening early each morning to prepare the muffins that we buy at Au Bon Pain to Wall Street wizards assuming personal risks as they direct financing to where it will be most productive. Because state intervention too often slows and distorts this process much as sand slows and distorts the operation of gears, state intervention obstructs the daily process of creating and distributing the real goods and services of which our wealth actually consists.

In short, if this process of wealth creation is slowed, we become less wealthy because, again, our wealth is not accumulated stuff; it is the smooth and successful 24/7/365 operation of a process of producing and exchanging goods, services, and capital goods.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

UPDATE: I updated this letter, on the suggestion of Bill Wood, to include “and exchanging” in its final sentence.