Inflationomics

Inflationomics - Wealth

Wealth

What is Wealth?

Wealth is in the eye of the beholder. One man’s treasure is another man’s junk. Wealth is anything someone values. Thus, it could be land, gold, food, shelter, or even peace of mind. In short, wealth is a man-made concept. Without people, there wouldn’t be any wealth.

Where does Wealth come from?

For most people, wealth is something that makes their lives better…a very subjective concept. It could come from anywhere. It could be something that is taken out of the ground in the form of a metal, food, or lumber, for example. Or wealth could be something that is man-made such as a telephone or computer; i.e., something that makes one more productive, thus giving one more leisure time or more money. Some people also value holding someone else’s debt obligation as a form of wealth.

How does someone become Wealthy?

It depends on what one wants. Most people trade their labor, or knowledge, or accumulated wealth for something of value that someone else is willing to trade. This process is what occurs in free markets between two or more individuals or businesses. Under these conditions, both sides benefit from the exchange.

Some people take wealth from others. This is what thieves and governments do. Under these conditions, only the thief or government benefits.

How does someone become Poor?

Generally, one consumes or loses his/her wealth. This can occur due to many different factors. It could happen by giving one’s wealth away, or by consistently selling it at too low a price (at a loss), or by having it wear-out, or by being restricted in what one is allowed to trade, or by having it taken or stolen from him/her, for example.

Where in the world is Wealth safe?

If we look at the level of taxation, we find the top two tax havens to be Hong Kong and Switzerland. These are places where people of wealth have traditionally parked their money for safety because those jurisdictions charge little or no tax on wealth and have not been inclined to seize wealth. If we measure wealth in terms of economic freedom, we find that the top four countries in the world are: Singapore, Switzerland, Ireland, and Taiwan.

More recently, some people have invested in crypto-currencies, thinking that they are safe. This may not be the case.

Where in the world is the best place to accumulate wealth?

If we visit Forbes, who keeps track of billionaires, we find more than 1,500 billionaires in the United States, more than any other country in the world. That suggests that the United States is still the land of opportunity, in spite of the fact that the United States taxes its citizens on world-wide income, no matter where in the world they reside.

What kind of wealth has been most popular during times of inflation?

Inflation is often thought of as a tax because it takes away some of the value of one’s money and it is imposed by the entity that controls the money supply, either directly or indirectly; i.e., government. It also makes long-term planning more difficult because investors can’t count on the money to maintain its value in the long run. If inflation gets out of control, businesses will fail, some goods will become scarce, capital will be consumed, and standards of living will decline. Depending on how long the inflation lasts, how much capital has been consumed by it, and what kind of medium of exchange emerges after the inflation, it could take a generation or two to build up that country again.

Traditionally, gold, silver, land, art, some collectibles, and other tangible assets have been safe havens for wealth during times of inflation. Some people believe that Bitcoin will also serve as a safe haven because of its limited quantity, despite how easily it can be tracked.

What would a wealth-tax do to wealth?

Assuming the wealth tax is only imposed in one country and not the whole world, wealth would either flee that country, or it would stop growing, or both. There would be a disincentive to accumulate wealth in the country that imposed such a tax. Savers would be fighting an uphill battle. It would also change the form of wealth from capital assets to assets that can be more easily hidden, such as precious metals, gems, and now crypto-currencies. Capital assets would not be replaced or adequately maintained. That country would eventually become a third-world country.

Are you expecting more inflation in your country?

If you are expecting more inflation in your country, you might consider:

  1. Moving your wealth to a safer, less-taxing, less inflationary jurisdiction,
  2. Changing the form of wealth to something that’s easier to hide or move,
  3. Changing what you value to something that isn’t as valuable to other people and is less likely to be stolen or confiscated,
  4. Working twice as hard to maintain what you have.

Robert F. Sennholz

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