How the wealthy become wealthy.

pot_goldIt was a reference to ‘trickle down economics’ that started me on this thought path.  The proposal that simply allowing the wealthy to become even wealthier could generate additional wealth that in a flow on process will trickle throughout the economy and result in everyone being wealthier.  Yes, even Wikipedia seems to largely discredit the idea, but it is still pushed by various politicians.  Cynics may point out those same politicians need to keep their wealthy backers happy in order to fund their re-election, but surely their must be some truth to the idea or we would not vote for them anyway?

Ok, here is my conclusion: the wealthy get wealthy by gaining a small share of wealth from each member of a large population.  To get wealthier, they require either a larger share from each individual, or a larger population.In more ancient times, the ‘Lord’ earned taxes from the farmers who worked the land. Then there were even wealthier ‘Kings’ who earned taxes from a larger population.  In the days when the wealth were the Pharaohs or Egypt, and the emperor of Rome, the way to greater wealth was to expand the empire.  Today, with free trade, the businesses that are the source of todays great wealth ‘expand into new markets’.

Always the peasants/customers get something in return for their contribution to the wealth. It may have been the use of the land to grown their crops or protection from invading armies, and today it may be their own piece of flat pack furniture or copy of some software, but still there is something in exchange.

The principle still follows, the actual wealth enjoyed by the wealthy, is created by many not so wealthy who build the residences of the wealthy, build the ships of the wealthy, grow the food for the wealthy or otherwise ‘work for the wealthy’. The usual trend is a flow of hard wealth from the masses who in exchange receive less tangible wealth.

Being wealthy is relative.

None of the Kings of England have ever owned even single flat screen TV. Very few ever holidayed in the Bahamas, and in fact most did not even have flushing toilets. But all were considered extremely wealthy, simply because they hard from more wealth than most people in society.

Wealth today is earned by companies, and wealthy people are major owners or ‘shareholders’ of those companies.  Microsoft, and in turn Bill Gates, became wealthy because a large population of people exchanged a small amount of their wealth for computer software.  Apple computer mostly because a large population swapped some of their wealth for an iPhone.

It does seem logical that the more wealth the population contributing has, then the more wealth there is available to earned by the wealthy, which is a concept know as ‘trickly up wealth’. Generally based on the idea that masses gaining wealth is in the interests of the wealthy, since the wealthy derive their wealth from the masses.  But then consider that the Sultan of Brunei and  Carlos Slim of Mexico are some of the riches people in the world and their fortunes appear to be mostly aggregated from ‘masses’ who a very far, and it seems the world is full of examples why this does not apply.  Then there is the fact that by increasing the wealth of the ‘masses’, inherently the ratio of wealth of the wealthy, and thus how wealthy they are perceived to be, decreases.

So even ‘trickle up’ wealth is not supported by real evidence. Further, despite the fact that the very wealthy employ people in the spending of their wealth, the spending and the earning do not necessarily occur at the same time, and even the spending is just partially undoing the concentration of wealth that resulting in the wealthy being wealthy.

The idea of ‘trickle down’, where the first step is the make the wealthy wealthier, ignores the basic concept that the wealthy become wealthy as a byproduct of new wealth being created, as they collect part of this new wealth.  Without some external factor creating the new wealth, the only way to make wealthy even wealthier is to transfer wealth from the masses to the wealthy.

‘Trickle down’ wealth is a concept with no substance at all.

 

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