Does having "a big pile of stuff" make you wealthy?...
The True Nature of Wealth
In the first entry of this series, I talked about the three levels of human need (Level 1 Needs, Level 2 Wants, and Level 3 Desires) and showed that these needs can be met by goods, services, and intangibles. With that understanding in place, defining true wealth becomes a simple matter...
Wealth: a good, service, or intangible that meets a human need, want, or desire.
To give a basic example of why this definition works, imagine that someone came and dumped a large pile of infectious medical waste in your living room. This would leave you with a big pile of stuff, so would you be wealthy? Of course not... but why? Because it is of no use to you. In fact, having it around would threaten an intangible aspect of your real wealth: your health. And since it is doubtful you could find anyone to accept the waste in trade for something you can use, you'd probably have to pay someone to properly dispose of it. In the end, this particular pile of stuff would not only fail to add to your real wealth, it would actually drain you of it.
The Two Types of Wealth
The previous example brings up another aspect to understanding true wealth, and it is this: there are two types of wealth, which I call "primary wealth" and "secondary wealth"...
> Primary wealth is a good, service, or intangible that meets your needs, wants, or desires.
> Secondary wealth is a good, service, or intangible that does not meet any of your needs, wants, or desires, but meets those of another person.
With these definitions in mind, let's explore a basic example of each kind of wealth...
> Primary Wealth: If I was given a bag of rice, it would represent primary wealth to me because I have use for it. I eat rice quite often.
> Secondary Wealth: If I was given a can of hairspray, I'd have no use for it (since I'm bald), so it would not represent primary wealth to me. I do, however, know people who do use hairspray, and I'm confident that I could trade it for something I actually want, so it does represent secondary wealth to me.
Needless to say, if I was given the pile of infectious medical waste, it wouldn't represent either primary or secondary wealth to me. I can't use it and I don't know anyone else who could use it either, so I have no confidence that I could trade it for something I really need.
The Four Types of Trades
Another thing to note about wealth is that both primary and secondary wealth can be bartered, and since secondary wealth is of no personal use to you, it is useful only in barter. Given that there are two types of wealth, there are only four fundamental types of trades people can make...
1) They can trade primary wealth for primary wealth. When trading primary wealth, people will typically trade forms of wealth that are lower on their hierarchy of needs for those that are higher. An example of this would be a survivor of a hurricane trading her designer handbag for some canned goods to feed her family. The handbag represents a Level 3 Desire for her (she can physically survive without it, and not having it will cause no persistent pain), whereas the food represents a Level 1 Need (she and her family are hungry and require the food for physical survival).
People will also typically trade forms of primary wealth they possess in oversupply for those they possess in undersupply. An example of this would be if I ran out of flour but had plenty of sugar, so I traded some of my excess sugar for some of my neighbor's flour. The flour and sugar are on the same level in my hierarchy of needs, but since I have an undersupply of one and an oversupply of the other, I'd barter to ensure I have both needs covered.
2) They can trade secondary wealth for primary wealth. People will typically exchange things they can't use for things they can. An example of this would be me trading the can of hairspray for a measure of rice.
3) They can trade primary wealth for secondary wealth. People won't typically do this unless they are expecting to turn around and trade the secondary wealth for something they need more than what they gave up. An example of this would be me trading my television (something I use) for a nice necklace (which I have no personal use for) in hopes of exchanging the necklace for the warm companionship of a lady (something I'd like more than my TV).
4) They can trade secondary wealth for secondary wealth. People will typically do this to trade something that is less marketable for something that is more marketable. As an example, if I had acquaintances who were gamers and I had a car part I had no use for, and a trading partner had acquaintances who were gearheads and he had a video game he had no use for, we might make an exchange. Although I have no personal use for a video game, I'd have an easier time marketing it to my network for something I do need.
Wealth and the Hierarchy of Needs
Pondering the 4 types of trades brings to mind another important thing to remember about wealth: to experience the feeling of abundance, one must meet her hierarchy of needs in the proper order. This means that you must see to your Level 1 Needs first (so you can physically survive), your Level 2 Wants second (so you can live without persistent physical or mental pain), and your Level 3 Desires last (since it's kinda hard to experience pleasure when you are dead or in pain).
Many immature humans find out about this aspect of wealth when they go out and blow their money on partying (a Level 3 Desire) and find they have no money left to pay for food, rent, water or electricity (all of which are Level 1 and 2 for most folks). And after Hurricane Sandy came through, many who lived in homes full of fine furnishings, stylish clothes, and exquisite jewelry didn't exactly feel wealthy when they had no food to eat, no water to drink, and no sewage system to carry away their waste.
Having laid out the basics of what wealth really is, we can now go on to figure out what money really is. So until the next post in this series, review the definitions in this entry and ponder a few questions...
Is money/currency wealth?
If so, what type of wealth is it?
If you consider it wealth, why is that? What gives it the status of being wealth?
Till next time, much love....
