What makes a nation wealthy?

April 14th, 2008

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For many people in the West (and including China as well), rising asset values are associated with wealth. As we showed in The Bubble Economy,

Over the course of the past several years, the ?wealth? of many people in the Western English-speaking countries (mainly the US, Australia and Britain) had increased, thanks to the real estate price boom. Consequently, the economies of those countries had been growing and expanding over that period. This type of economic growth is what the IMF called the ?asset-driven growth.? One manifestation of this kind of growth is the rise of ?wealth-creation? fades, which advocate the attainment of riches through property ?investments.?

But what really makes a nation wealth? Recently, we bumped into this article, Once the World’s Great Factory, China Is the Next Great Innovator,

Everyone knows about China’s emergence as a global manufacturing power. Well, guess what: the People’s Capitalist Republic isn’t just emerging or ascending ? it’s exploding. And not only with boatloads of flatscreen TVs and great gusts of atmospheric carbon. The world’s go-to source for low-cost labor is generating mountains of capital, squads of hot new companies, and ? surprise! ? glimmers of innovation.

As we quoted Ludwig von Mises in The myth of financial asset ?investments? as savings,

At the outset of every step forward on the road to a more plentiful existence is saving?the provisionment of products that makes it possible to prolong the average period of time elapsing between the beginning of the production process and its turning out of a product ready for use and consumption. The products accumulated for this purpose are either intermediary stages in the technological process, i.e. tools and half-finished products, or goods ready for consumption that make it possible for man to substitute, without suffering want during the waiting period, a more time-absorbing process for another absorbing a shorter time. These goods are called capital goods. Thus, saving and the resulting accumulation of capital goods are at the beginning of every attempt to improve the material conditions of man; they are the foundation of human civilization.

Thus, the very symbols of ‘wealth’ in a nation may actually hide real poverty.

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