Of course, in one sense it is indisputable that wealth is socially created, but in a sense directly opposite of what is meant by Marx, Jacobin, or Piketty. We can produce more and better outputs if we cooperate – more specifically, if we specialize in our productive tasks and then exchange the fruits of our labor for the fruits of other individuals’ labor, all voluntarily offered. The greater the number of people who are party to this cooperative effort, the greater the amount of wealth created per person. An extensive system of specialization and exchange enables each individual to consume far more than he or she could have ever produced on his or her own. Each and every person in modern society daily consumes goods and services that were produced by the effort, creativity, and cooperation of countless individuals, and in some cases literally billions of individuals.
Yet for this productive social cooperation to arise and continue, each individual must be adequately informed about how he can best assist his fellow humans and appropriately incited to do so. This information and these incentives come from prices, wages, and other signals that emerge and adjust on free markets. This understanding of the social creation of wealth makes clear the importance of these market signals and the danger of interfering with them. This understanding also makes it impossible to take seriously the mystical notion that wealth is created by social forces independently of human institutions, human action, and the incentives and constraints that guide human action.
Importantly, these incentives and constraints exist at the margin, meaning this: Although we are all part of a vast globe-spanning economy in which countless strangers do many different things almost none of which is under our individual control, each of the gazillions of daily decisions is conditioned by the unique information, constraints, and expected benefits that each person confronts at each moment of decision. In a market economy, each individual can and does exercise meaningful control over his decisions and actions. If the information that each person has is reasonably accurate, if each person is appropriately constrained from interfering with the decision-making processes of others, and if each person is free, within these constraints, to choose those courses of action that he believes are best for him, each person will act in ways that, when combined with the actions of others, contributes to massive production of wealth.
Although “social” in the sense that this market system of wealth creation involves untold numbers of strangers all cooperating to produce wealth, it works only if each of the individuals chooses and acts in ways that contribute to wealth creation. And individuals will generally choose and act in these ways only if the incentives that each of them confronts as individuals prompt them to do so.
Jacobin, Marxists, Piketty, and most progressives look only at “the economy,” supposing that it’s the elemental organism, with a will of its own, that produces all the wealth that we observe, and, thus, that “the economy” imposes its will on investors, workers, and consumers. But they are deeply mistaken. The elemental decision-making creatures in any economy are individuals. Much or little wealth is produced depending on how much or little individuals are prompted to choose and act in ways that lead to the production of wealth. There’s a reason, after all, why the “socially created” wealth in countries such as the United States, Sweden, and Singapore is multiple times greater than is the “socially created” wealth in countries such as Cuba, Venezuela, and Malawi.
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