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Where does wealth come from?

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This is the first in a series of edited extracts from Why Things Are Going To Get Worse And Why We Should Be Glad by Michael Roscoe.

Where does wealth really come from?

I explain in the book how material wealth – i.e, the stuff we might normally think of as wealth, such as property and money (rather than ‘intangible wealth’, such as human potential and general wellbeing) must have its origins in the natural wealth of the earth. We add value to the earth’s natural resources through our labour, and this combination of resources and industry is the source of all our material wealth – of everything we have.

global wealth chart

I explore what this means for future generations as we use up, often wastefully, more and more of the earth’s limited resources. I show how over 60 per cent of all current wealth in the world has come from oil and gas, and examine the implications of this conclusion. (I can’t really claim it as fact, as it isn’t possible to prove beyond doubt, but I demonstrate why it must be so. Even in this age of widely and instantly available information, we don’t really know how much wealth there is in this world, or where it all originated.) 

I also show why there is less real wealth in the world than the dollar figures of various estimates (Credit Suisse and so on) suggest, because the value of money has lost its link to the real wealth of the earth, following the end of the gold standard and the subsequent creation of far more credit than the real underlying economy merits. We can expect another crash soon, and we shouldn’t be too surprised if asset values fall by around one third, to reflect their true value relative to basic commodities. For the same reason, we can expect retail prices to rise significantly over the next decade or two.

What gives money its value?

Money originally took the form of a commodity such as gold or silver (or grain, in the earliest cases), and as such it had a recognized market value. After the introduction of bank notes and coins that lacked intrinsic value (ie, weren’t worth their weight in gold), money became representative of a value rather than actually holding that value itself. This ‘representative money’ acted like a certificate to show that a certain amount of gold or silver was stored at the central bank, or treasury, in the way that a note for one pound sterling could be exchanged for one troy pound of sterling silver. In effect it was a promise by the government, or the bank on the government’s behalf, to hand over that amount of bullion. By the 19th century, most of the world’s currencies had become ‘representative’ by being linked to the gold standard, and remained so until the 1970s, after which time money became nothing more than a government promise.

chart total global credit-market debt owed

There’s no particular reason why the value of money should be linked to gold, but there is a very good reason why the quantity of money in circulation should be determined by genuine economic activity; the real wealth of industry. If money doesn’t represent real wealth, what gives it value? What is there to back up that government promise? Nothing.

And this is the situation that we find ourselves in now – I demonstrate in my book how around one third of all money in circulation globally is not backed up by real industrial wealth. In other words, at least one third of government guarantees are worthless because they are based on debt rather than genuine wealth.

Michael Roscoe is the author of Why Things Are Going To Get Worse And Why We Should Be Glad, published by New Internationalist.

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About the author

Michael Roscoe a New Internationalist contributor

Michael Roscoe is a journalist with over thirty years experience on British and US newspapers, having worked at the Financial Times, The Economist, The Daily Telegraph, the Independent, Wall Street Journal and Geographical Magazine. He specializes in the interpretation of data, especially economic data, and the illustration of such information in graphic form, accompanied by clear and concise text that cuts through the jargon to tell the real story. He is the author of Why Things Are Going To Get Worse … And Why We Should Be Glad.


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