The simple truth is that you cannot run an economy without creating real wealth. Real wealth has not and never will be created from financial speculation. Aristotle made that point some time ago. He was right at the time and he is right now. Labour generates wealth by the application of its skills to the natural resources of the world. Finance merely facilitates the process. That is not to denigrate finance. It is important. But by itself it is not capable of generating wealth, and cannot be the basis for an economy.
We\’re using Aristotle in economics now?
So, let us try and unpack this set of assumptions. Only labour applied to natural resources can create real wealth, eh?
So let\’s take a form of financial speculation shall we?
How about insurance? It is nothing at all but financial speculation. It is the simple act of working out the statistical likelihood of something happening (a car crash, house fire, early death), charging a pool a premium slightly above that statistical risk and paying out the damages to those unfortunates who suffer the disaster (or, obviously, their heirs).
In fact, you end up charging slightly less than the premium due to the statistical risk because you can invest the money in the interim (this is essentially what Warren Buffett has done. He realised that instead of investing his own money in his extraordinarily good stock picking skills he should buy an insurance company and invest the float in his extraordinarily good stock picking skills) and since your competitors are doing this basic insurance underwriting is usually a money loser. The profit comes from the, erm, financial speculation with the premiums while you have them, the float.
Now, is the existence of insurance real wealth or not?
I certainly think it is although your opinion might differ.
But much more interesting even that this is Ritchie\’s absolute insistence that all of the things which tax buys us is real wealth. I mean he has been endlessly saying that, hasn\’t he?
That the reduction in child poverty as a result of income redistribution is real wealth? That the education of such children is real wealth?
And, erm, what are the natural resources of the Earth to which labour is applied to create this real wealth?
Err, yes, quite. Hoist, petard, QED.
For, with his very restrictive definition of \”real wealth\” and how it is created he\’s just insisted that fully 80% of our economy isn\’t wealth producing: you know, all those pesky services?
For example, everything done by his paymasters in the PCS union is not producing real wealth: for taxmen do not apply their labour and skills to the natural resources of the Earth, do they?
I do, working with rare earths, but taxmen do not. So I, on my tod, produce more real wealth than Serwotka\’s Army, eh?