“Equal/stagnant vs growing/unequal”

David MoonBlog

by David Moon

In the 2,100 years from 400 BC to 1700 AD, worker day wages around the world consistently ranged from 15 to 25 times the price of a pound of wheat.

Today, the average U.S. worker earns enough each day to buy 1,500 pounds of wheat. (Daily wages in sub-Saharan Africa are still 21 times the price of a pound of wheat—the same as in 3rd century Egypt.)

What happened in the past 210 years that didn’t happen in the previous 2,100?

The Industrial Revolution and the advent of wealth creation, rather than simple geographic wealth distribution.

Prior to the invention of the steam engine, factory production, iron processes, machine tools and the other inventions of the late 1700s to early 1800s, the wealth of a region was a function of the natural resources and geography of that area.

Some countries, by simple luck or military expansion, had geographic advantages over others, resulting in greater total wealth. Wealth per capita varied inversely with an area’s population. When bubonic plague killed a third of Europe’s population in the mid-1300s, the income and wealth of the survivors increased almost four-fold.

Beginning in the late 1700s, and for the first time in recorded human history, man substantially improved his economic condition by increasing the amount of his production per unit of natural resource.

Machines of productivity rewarded those who invented, owned and operated the machines. The wealth of a nation became more a function of its culture of innovation and adoption, rather than simply how much timber existed within its borders.

Wealth was no longer a fixed commodity that could only be shifted from one person and place to another.

Transferred or redistributed wealth is transient. The recipients of someone else’s wealth maintain their improved economic status only as long as their benefactors continue their largess or a recipient’s superiority allows them to continue taking it by force.

Like countries with different raw materials, people are born with different advantages, based on their intellect or social situation and, as such, have differing degrees of potential.

That is, all men may have been created equal, but all men are not equal, either in their innate abilities or the proportion of their potential that they achieve. As a result of these differences, people’s output differs.

But should a person’s income be based on his output, his ability or his need?

A culture generally apportions wealth on a per capita basis reduces the incentive to create. It is the type of system that produced more than 2,000 years of relative income equality, but no growth in real wages or standard of living.

This notion seems lost on 10 million people who have thus far voted for a man who has spent his life extolling a return to a prehistoric economic system.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).