Economic Outlook: The Basis of Real Wealth

In a guest piece, commodities trading expert R.E. McMaster discusses the centrality of land and labor in the production of real wealth.

| January/February 1981

067 real wealth - Fotolia - SOMATUSCANI

R.E. McMaster pointed out in 1981 that real wealth — all wealth — is based on land and labor. 


Every so often we "open up" this space, and use it to provide a forum from which to present the views of various economic writers and thinkers. In the past few  years we've so featured the work of Walter Prescott Webb, C. Vernon Myers, and others. Well, the following essay—reprinted with permission from Mr. R.E. McMaster's economic newsletter, The Reaper—struck us as just the sort of common sense analysis that MOTHER EARTH NEWS' readers would appreciate and profit from. R.E. has, in relatively few words, cut through much of the mumbo-jumbo that characterizes the public statements of the economic "establishment," and revealed the simple, beautiful truth that any nation's real wealth is based solely upon the richness of its natural resources and the productivity of its people.   

Bread Is Basic

When we talk about economics these days, the words and phrases which quickly fill the air are: "supply side economics," "marginal utility," "Chicago vs Keynesian economics," "monetary and fiscal policy," "inflation," "petrodollar recycling," and so forth. All these buzz words are evidence of the frame of reference from which they spring, that of urban intellectuals. They are products of a culturally sophisticated age, marked by mathematical complexity and computer technology. Collectively, economists focus on money as an absolute in the financial/economic system. Money is king, and calls all the shots. Money is the measure of wealth and worth, both net and personal. We are dealing here with a mind set that saturates our society.

In a few moments of fleeting fantasy, let's assume that we are the remnant of a boatload of people. We are shipwrecked and marooned upon an island in the Pacific. All we have are the clothes on our backs and the resources of the island, in terms of economic goods. With no hope of rescue, we start to build an economy. We begin with the basis of economic production:. land and labor. These two must work in harmony for there to be economic progress and production. (Notice that there has to be production before there can be consumption. Our economic order today often gets the cart before the horse.)

Assuming that our island is located in a moderate climate, receives ample rainfall and sunshine, is blessed with lush vegetation, trees, fertile valleys, streams, and an abundance of animals, we have the foundation necessary for producing economic wealth. Certainly, we should be thankful that we aren't marooned on a desert island. The resources available on an arid island wasteland make the production of economic wealth far more difficult, if not impossible.

Next, let us assume that the men and women who were shipwrecked with us are of strong, hard-working stock. So, our labor resource is the best possible, too. If we were marooned with a group of elderly people, or young children, or sick or lazy individuals, we would quickly learn that our labor force was marginally productive. So, it becomes readily apparent that high quality land and labor are the raw materials of maximum economic productivity, and that both somewhat depend upon the "luck of the draw." Climate, natural flora and fauna, water, and minerals are real environmental assets. Good physical condition, moderate age, and a positive mental attitude toward work are also the "luck of the draw" in the case of our shipwrecked passengers: (This is also true when a new government comes to power in a nation.)

With favorable land and labor, we begin to produce capital ... houses, fishing gear, canoes, bows and arrows, cooking and eating utensils, etc. Notice that land and labor are the raw materials for the production of capital, and subsequently, goods and services. What goods will be produced? The goods most desired. Only if a good or service is desired, will it have value. It is questionable, particularly initially, on the island, if gold will be viewed as being very valuable. Fish, fruits, a horse, a milk cow, shelter, boats, and bows and arrows will probably be in the greatest demand initially. These items have value. Only after our new culture is established will we then view gold as having value. Then, and only then, will gold serve, as it has always served, as a medium of exchange, which holds its value as a store of wealth and is easily divisible, recognized, and nondestructible. Gold only becomes valuable after the basic biological needs of our group are met.

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