How is Wealth Created?
We have found this to be a most interesting question. We live in a capitalist society, the world is/has increasingly adopted the tenets of capitalism and yet when we typically ask this question of someone we find that it is a question that most people have never considered. Yet when you pause for a moment and consider our economic world and the human endeavor that many of us seek, we will quickly realize that without a flourishing wealth creation process, our standard of living and financial well-being would be only a fraction of what it is or could be. Taken a step further, we would quickly come to the conclusion that there would be very little need for capital markets and an investing process without a wealth creation process.
Wealth is Created by the Ownership of a Growing Business Over Time
That is it. There is nothing else that we can think of that actually creates wealth. There are many examples of the transfer of wealth, but nothing else actually creates wealth. For further validation one need only consider the level of wealth creation that took place prior to the industrial revolution. (See World GDP Chart) It was/is the progression of this historical event that allowed for the development of a middle class and an almost infinite number of businesses. The businesses that prove successful provide the very foundation of the wealth creation process. Before the industrial the world GDP per capita was mostly flat. It did began to rise a small amount in the 14th and 15th century as the invention of the printing press had a positive effect and more trade was incorporated into society. But it was the industrial revolution in the 18th century that really changed the world and allowed for greater standards of living and higher GDP per capita. This process continues today as more of the globe is participating after the fall of the Berlin Wall.
From our perspective as wealth managers it is critical that investors who wish to either accumulate or preserve personal wealth embrace an investment process that allows them to participate in the wealth creation process.
It is also necessary to distinguish between the wealth creation process and the ambition of making money. To many, they can look the same. In reality, they are quite different. Wealth is created over time; making money largely ignores the function of time. Therefore, in the real world application, making money can be a zero sum game at best and in many instances the summation of these activities are less than zero.
We are always pleased to discuss this topic and provide specific example upon request.