KUFM / KGPR
T. M. Power
All Wealth Comes from the Earth?
Many people dread political campaigns because of the quantity of hot air generated on empty promises and less than accurate attacks on the competition. But one thing that political campaigns are good at is crystallizing conventional wisdom into sound bites and bumper stickers.
One
of the candidates for
This is a popular pseudo-economic assertion that appears to be tied to simple physical reality. After all, if we did not have food, we would starve to death. If we did not obtain materials from our farms, forests, mines, and oceans, we not only would not have food, clothing, and shelter to sustain us, we also would not have the materials with which to make tools. Since human beings as a species are often defined in terms of their tool making, it is hard to imagine human beings even existing without tools.
Clearly, physical reality requires that we have access to materials in order to survive and prosper. Where else can we get those materials but from the earth? In that fundamental sense, working the earth to extract those materials is a prerequisite for all other economic activity. Case proven: All wealth comes from the earth.
This assertion, however, has little to do with economics. At best it is a biological statement or a restatement of the conservation of matter and energy. This assertion does not tell us how we should use our scarce resources to improve our well-being. Taken literally, it seems to imply that the wealthiest nations are those that have the largest percentage of their populations engaged in agriculture, mining, logging, and fishing. But that clearly is not the case. The opposite is closer to the truth: The more reliant a nation is on these basic land-based activities, the poorer and more stagnant the nation tends to be.
Over
the last century or so, agricultural and other commodity values have fallen in
value, not risen in value. That is one of the reasons that nations, as well as
states and communities, that have specialized in agriculture, logging, mining,
and fishing have done so poorly. Look at
Some may see this as a paradox: necessities of life appear to have low economic value. But that was one of the first popular paradoxes that economics as a social science solved by talking about the forces of supply and demand. Knowing that we all need Vitamin C to avoid dying of scurvy or that without selenium we would suffer from heart disease does not tell us anything about how many resources we should devote to obtaining them. Most of us have never paid a cent in our lives for selenium and probably never will. Most of us would laugh if someone offered to sell us Vitamin C pills at a $100 a piece simply because Vitamin C is a necessity. Even desperate political candidates do not assert that all wealth springs from Vitamin C or selenium. Yet such assertions have the same economic content as the assertion that all wealth comes from the earth.
The value of any particular economic activity is determined by the size of supply relative to the intensity of demand. If the supply exceeds the demand, the value falls until some people abandon production of it. If the demand exceeds the supply, the value rises until producers are enticed into expanding supply. In an economic context even a vital necessity may have a low economic value if there is excess supply or inadequate demand. In that situation, wealth is not created by producing more of it. That leads to bankruptcy and poverty.
In general, that is why we have watched for over a century as people left agriculture, mining, logging, and fishing for other economic activities that did not produce necessities. Instead they turned to producing automobiles, computers, or television sets or they turned to providing us with medical services or entertainment.
In
the process, this shift of workers from areas of oversupply and low demand to
the production of new products and services energized the transformation that
created the affluent industrial or post-industrial society in which we now
live. The economic truth is the opposite of what the economic fundamentalists
would have us believe: It was the shift of workers and capital out of
land-based economic activities that created the wealth of the modern era that
led the
All wealth does not come from the earth. It comes from the skills of our workers, the energy of our entrepreneurs, our cultural values that support responsibility and trust, and the stable and equitable public institutions that economic fundamentalists spend so much time attacking.