Simple Liberty  



To Alter or to Abolish

Appendix A

The Flow of Wealth

Written by Darrell Anderson.

Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.

Adam Smith, The Wealth of Nations

Humans produce for the sole purpose of consuming. Humans produce wealth to consume that wealth. Producing and consuming wealth is a process of sustaining energy flows. Sustaining energy flows is a part of pursuing happiness. The flow of wealth is nothing more than the flow of energy.

The Law of Conservation of Energy teaches that energy can be neither created nor destroyed but only converted from one form into another. Albert Einstein showed that matter is merely another form of energy. Strictly speaking, humans do not produce, consume, or create, but only convert energy from one form into another.

The Second Law of Thermodynamics teaches that no energy conversion process is perfectly efficient. Every energy conversion process creates unusable energy called entropy.

Humans can sustain their energy flows through two methods, (1) production and subsequent exchange and (2) adversarial raw acquisition. Within human social systems the former method is called the economic means, the latter is called the political means.

Through political systems, many people are continually denied or limited in sustaining their energy flows and their pursuit of happiness through:

  1. The inability to travel freely and uninhibited.
  2. The inability to freely exchange ideas and information.
  3. The inability to defend self, property, family, and community.

Through political systems, a privileged minority of people are able pursue the political means of sustaining their energy flows and to do so under the color of law and with impunity. This process is distorted through several contrived unnatural mechanisms. For example:

To see these effects, look at the accompanying chart and pick any point in the process. For example, because capital projects often are supported today through bank loans, and all bankers charge compound interest, the exponential effects of compound interest propagate throughout the entire flow of wealth. Or, notice that land is one of the elements of production and if there is an artificial scarcity in that element, production is necessarily impeded, affecting the entire aggregate flow of wealth. The effects of taxation are felt at any point in the aggregate flow of wealth because taxation is a coerced redistribution of that flow.

The chart shows how the flow of wealth functions without contrived interference.

The Flow of Energy

Happiness: an interpreted state of personal existence derived from an individual’s perception of his or her survival and well-being.

Work: the process of applying physical force to move objects.

Energy: the capacity to perform work. That capacity exists in the form of atomic, light, mechanical, electrical, magnetic, chemical, and heat energy.

Matter: a form of energy.

Efficiency: the process of controlling energy flows as close as possible to the source of the energy.

The Production of Wealth

Wealth: anything tangible derived from labor that satisfies individual happiness. A form of usable stored energy.

Production: the effort to convert energy from natural resources into a form of energy that is directly useful.

Land: all natural resources, including water, oceans, air, wind, minerals, plants, and animals. All natural resources are forms of energy.

Labor: the process of humans converting energy into work. Human diligence.

Capital: a form of wealth devoted to further producing wealth. Capital is a feedback mechanism from the distribution of wealth back into the production of wealth.

The Distribution of Wealth

Rent: with respect to the flow of wealth, the return received from leasing land. Not to be confused with the general social use of the word, which often is a combined payment of rent, wages, and interest.

Wages: with respect to the flow of wealth, the return for leasing labor.

Interest: with respect to the flow of wealth, the return from leasing capital. Not to be confused with the leasing of currency, the return of which typically is expressed in compound interest.

Income: wealth received. The word has meaning only with respect to an individual and has no meaning with respect to the aggregate flow of wealth. The word loses meaning in a true wealth-for-wealth exchange system because people exchange wealth directly and do not use currency as a token symbol for unfinished exchanges.

Profit: an ambiguous term describing excess income obtained through an exchange of goods or services. The word has meaning only with respect to an individual and has no meaning with respect to the aggregate flow of wealth. The word loses significance in a true wealth-for-wealth exchange system because all exchanges are considered equivalent.

Rent, wages, and interest are relative terms describing the distribution of wealth with respect to the aggregate division of labor. The individual paying rent, wages, or interest sees that wealth as outgo, the receiving individual sees that wealth as income. Income and outgo are meaningful only to individuals and have no meaning within the aggregate flow of wealth.

The Consumption of Wealth

Consumption: the process of converting wealth into usable energy and waste.

Entropy: unusable energy.

[Image: Flow chart created by the author demonstrating that The Flow of Wealth is the Flow of Energy. Important to the text.]
(Click to enlarge)


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