Wealth in a Market Economy vs. Wealth in a Socialistic System
Back in the early 1970s, I had a college professor who liked to compare the form of wealth in a market economy with that of a socialistic system. He noted that the American market economy had factories and businesses generating goods, income, and jobs. These businesses produced consumer goods as demanded by individual consumers. And entrepreneurs tried to anticipate the wishes of the consumers and risked their own capital to supply what consumers wanted in the hopes of earning a profit.
By contrast, he pointed to India, where the bureaucracies had run amok and entrepreneurs practically didn't exist. There, wealth was hidden from the government in the form of precious metals and gems. There were relatively few businesses to serve consumers. And the few that did exist were so regulated that they were extremely inefficient.
In short, in a market economy, wealth is mostly found in the form of capital goods; i.e., productive assets that are used to make other assets or consumer goods. This includes factories, businesses, and productive real estate. Entrepreneurs play a major role in anticipating and meeting the future demands of consumers.
The more capital invested per head of the population, the more productive the people will be, and the higher their standard of living. Conversely, if capital is consumed, regulated/restricted, or chased away, the poorer the people will be.
Under socialism, most assets are owned or controlled by the government...a government that has no incentive to be productive, keep its costs under control, or satisfy consumers (other than the government employees). Thus, they are used to produce items that the government deems to be of utmost importance. Things like weapons and clothes/food for soldiers take priority over consumer goods. Security for the government is top priority. This includes protection from its own starving citizens. See Iran, Venezuela, North Korea, and Cuba, for example. Repression of citizens’ wants, growing government debts and deficits, and military expenditures are the norm under socialism. Consumers take a back seat to government needs.
As the economy transitions from a market economy to socialism, the form in which wealth is stored also changes. Productive assets that are used to create more assets are harder to produce because the government's programs take priority over the production of consumer goods. Rationing of consumer goods is instituted (see United States during WWII). The capital needed to produce those goods is being consumed by the government. Businesses can't compete with governments' taxing power for the capital they need to be productive. And there is also the risk of confiscation, if you try to produce things without government permission. Consequently, the wealth that is not consumed by government shifts from productive assets to assets that will maintain their value but not produce an income...things like precious metals and gems, and more recently Bitcoin. The wealth must wait for a day when it can be smuggled away to a land where the owners can become productive once again, and their wealth is safe from confiscation, taxation, and unreasonable legal judgments.
Bottom line: As a country transitions from a market economy, where individual consumers are king, to a socialistic system, where governments consume the wealth, the form of wealth changes from easily confiscated/taxed productive assets to stores of value that are hidden from government consumption.
Robert F. Sennholz