The tragic sight of children starving in developing nations evokes the desire to eradicate poverty forever. To be effective is such a quest, however, we need to understand what wealth is and how it is created.
We usually equate money with wealth, but they are really two different things. Imagine a person stranded on a desert island without food, water, shelter, or medicine, but with $1 billion in gold coin. Is this person wealthy?
Hardly! Food, water, shelter, and medicine — prerequisites for survival – are true wealth. Money can only buy available goods or services. If no wealth is available, money is worthless.
For most of human history, people lived in poverty at about $1000 per year. However, in the early 1800s, that began to change. What we now call the developed countries began making wealth at a much more rapid rate. Third World countries remained poor.
What was the difference between countries that became rich and those that remained poor? Studies have shown that the most important determinant of whether a country will be wealthy is how free it is from government aggression. The United States in the early 1800s was more economically free than modern nations had ever been. The British government relaxed some of its restrictions on British citizens shortly after the American Revolution, making it much freer as well. Some European countries followed their example. The nations which remained poor did so because they also remained less free.
Hong Kong, one of the most densely populated countries in the world, with virtually open immigration and almost no resources, went from abject poverty in the early 1950s to a per capita income that rivalled that of the United States in 1996. Hong Kong was consistently rated as one of the freest nations in the world prior to its takeover by China in the mid-1990s.
Studies also show that when nations abandon even some aggression through government, wealth creation in those countries increases. The poor benefit the most by this shift. For them, the increased wealth means a full belly and a chance at life. Encouraging economic freedom in the developing nations would be the fastest way to make starvation a historical curiosity.
Wealth is virtually unlimited, because it stems from use existing resources in new ways, often times by replacing the use of scarce resources with more abundant ones. Yet jobs, the source of modern day wealth creation, often seem limited. In the next post, we’ll explore how jobs and wealth creation can be thwarted by some of the very laws we hope will alleviate the suffering of the poor.
Dr. Ruwart shares these posts as part of a “Cliff Notes” version of her award-winning international best-selling libertarian primer, “Healing Our World.” The next post from “Healing Our World” will be “How Jobs Are Destroyed.” If you’d like to learn more about wealth creation before the next post, check out Chapter 2 of the 1993 edition of Dr. Ruwart’s book, “Healing Our World,” in her Free Library at https://ruwart.com/product/healing-our-world.
