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The Wealth of the People:
Your Neighbor's Wealth
An Inquiry into the Relationship between
Wealth, Freedom, and Life
By
Fernando Urias
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SMASHWORDS EDITION
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PUBLISHED BY:
Fernando Urias on Smashwords
The Wealth of the People:
Your Neighbor's Wealth
An Inquiry into the Relationship between
Wealth, Freedom, and Life
Copyright © 2011 by Fernando Urias
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The Wealth of the People:
Your Neighbor's Wealth
An Inquiry into the Relationship between
Wealth, Freedom, and Life
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Summary
This is the second book of the "Wealth of the People" book series. The series is an
inquiry about the requirements for the production of wealth in a society.
The first book looked at the economics of Robinson Crusoe alone in an island and
concluded that to produce wealth you have to work using your capital structure. The
amount of investment in your capital structure determines the income that you can make
with your work. Your capital structure is composed of tools that make your physical
capital and the knowledge to make them and use them, which is called your human
capital.
The second book looks at the requirements for the wealth production process to
continue when you find a neighbor in the island. An agreement to respect life and
property emerges as a requirement for the wealth production process to continue and
becomes a factor of production. This agreement and other agreements that will be
discussed later can be grouped under the concept of "Social Capital", defined as the
existence of agreements between two or more individuals that are needed for the wealth
production process to continue. Social capital becomes a requisite for the capital structure
to function and in this way becomes a factor of production and a determinant of the
income that you and your neighbor can make.
The rest of the titles of the "Wealth of the People" series are listed at the end of this
book.
Introduction
The second book of the series "The Wealth of the People" is about the relationship
that you need to have with a neighbor in the island if you want to preserve and increase
your income. You have to make an agreement with your neighbor of mutual respect for
life and property. This agreement preserves the status quo so that each of you can
continue working in your respective wealth production activities. Once this agreement is
in place, you will find out that you can increase your income through trade. By trading
products, your advantage in a wealth production process can be passed to your neighbor
in a voluntary agreement that occurs because there is profit for both parties. A simple
example shows that both of you can increase your income through trade. It is an
economic conclusion of the book that it is to the advantage of both parties to respect each
other’s life and property and to engage in free trade.
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The Wealth of the People:
Your Neighbor's Wealth
An Inquiry into the Relationship between
Wealth, Freedom, and Life
* * * * *
Your Neighbor
In book one you were alone in an island working hard to survive and building up
your capital structure and one day you find out that there is another person living in the
island. How would you approach this person? The first question in your mind would be
whether this person will be friendly or hostile. Hostility is a real possibility. Remember
that the first people that Robinson Crusoe encountered in his island were cannibals. You
would want to know if your neighbor is a threat to your life or a potential friend.
Maybe your neighbor is not a cannibal, but he might be tempted to steal your food
and tools. As a result of your work and your investment, you should possess some
perishable products, some durable goods and some tools. Your neighbor might be
tempted to take them all away. Would he be strong enough to try it? Does he have a
superior weapon like Robinson's musket that he might be tempted to steal your
possessions with impunity? Maybe he is part of a tribe that might enslave you?
It could also be that your neighbor discovers that you exist in the island and he
thinks that you are the threat. Maybe he will be afraid of you and maybe you are the one
that is capable of stealing his possessions.
The Cost of Not Knowing Your Neighbor
Since you do not know your neighbor, you would have to incur costs to protect your
life and property. You will have to spend some time in surveillance to make sure that he
is not a threat. You will have to think about investing in a weapon that you might need to
defend yourself. You might have to incur the cost of moving your shelter to a hidden or
more protected area. These costs will reduce your income because instead of producing
other products that you want, some of your time will be spent in surveillance and weapon
construction.
The Poverty Resulting from Violent Behavior
The worst situation that you could have would be to find out that indeed, your
neighbor is part of a cannibal tribe, just like it happened to Robinson Crusoe in his story.
In this situation, your neighbor is definitely a threat to your life. Your wealth production
capacity would be restricted because you would have to produce in hiding being careful
of not being detected. The appreciation for human capital is so low in a cannibal and
some other cultures of violence that a person life is not valued for the productive work
that can be performed in a lifetime. The life of any person becomes expendable. In a
productive society, the wealth production capability of a person is very valuable and it is
a great productive loss upon death in addition to the personal loss to family and friends.
The next worst situation that you could encounter with your neighbor would be that
he wants the temporary income that he can get by stealing your food and tools at the
expense of your life if necessary. This would be a very short sighted view of your
neighbor because the value of the assets is be very low as compared to the value that you
can give as a productive person in free trade throughout a lifetime. Nonetheless, this case
is still very common today since there are still many societies where people are killed for
money, land, and power.
Another less common but still existing relationship is if your neighbor wanted to
enslave you. If your neighbor has superior strength or a superior weapon he could be
tempted to force you to work for him. This would be a relationship with a great drop in
income for both parties, because instead of having two people working hard and building
their individual capital structures, one individual would be working with very low
productivity and motivation under the gun and the other would have very low
productivity holding a gun that does not produce wealth. Slavery is a situation of low
productivity for all parties.
The next bad case and a more common situation could be that your neighbor wants
the benefit of your assets but he does not necessarily want to kill you. He would like to
enjoy the temporary benefits of stealing your food and your tools. He might not have a
great use of your tools because a person of this mentality would probably not know how
to use them or would use them without maintenance until they will break down. In this
unfortunate case, he would take the physical things that you have and leave you with
nothing. Your neighbor would improve his income momentarily with the stolen food and
tools but he will drop to a level of poverty as soon as the food runs out and the tools
break down. Your income would drop immediately after the moment of the crime. You
would have to build your capital structure again and you would probably not do so until
you can ensure that they will not be stolen again. The first tool that you would probably
build after this experience would have to be a weapon that you would use to defend
yourself in case he comes again to repeat his crime. You would have to invest time in the
protection of your wealth production process.
The most common situation of violent behavior or implied violence would be if you
neighbor wants the benefit of the wealth production capacity of your tools but does not
want to enslave you or kill you. If he has a superior weapon, he might decide to come to
you periodically to collect part of the wealth that you are producing, probably in the form
of food or finished goods. He would not be interested in taking your tools because he
would not know how to use them or have no interest in working. Under the threat of
violence, he would let you know that he expects to have a certain amount of food ready
for payment when he comes to collect. The effect of this fee on your wealth producing
ability will be that it will overcrowd your investment budget and eliminate your
willingness to invest. The burden that your neighbor might require under this relationship
might be so great that you will not be able to improve your capital structure.
The Effect of Violence on Investment
A situation of violence or lack of protection of property is critical for the existence
of tools. Since tools are physical items that can be stolen, they are very valuable for the
service they provide, and they are costly because of the time it takes to build them, they
will not be built in a society that does not protect them. A society that does not protect
life and property and the tools of production is condemning itself to poverty.
If your tools were stolen in the island, your income would drop to the level that you
had before you had your tools. You would be thrown into a poverty level where all you
could do is to produce the minimum amount of perishable goods that you could produce
without tools. You would try to produce with the minimal possible investment until you
felt confident that any new tool that you would build would not be taken away from you.
You would not be able to produce the income that you would have been accustomed to
until you can recreate all the physical capital goods that you were using in your
production process.
Violence Makes Weapons a Tool of Production
If you would experience violence in the island, you would have to invest time in a
weapon to defend yourself and your tools before you could go back into a wealth
production activity. Your weapon would be a necessary tool in your wealth production
process. If your weapon is a spear or bow and arrows, it could also serve as a hunting
tool.
Violence Increases Costs
If you are in an environment with violence, you would have to spend considerable
portions of your time in surveillance or in escape, instead of using the time to produce
goods that will satisfy your needs or investing in tools for better methods of production
that will increase your income.
Violence Reduces Human Capital
In the case of violent behavior, even your human capital would be adversely
affected. Although nobody can take away your mind and what you think, the threat of a
violent attack would distract you from productive enterprises and direct your mind to find
ways of self-defense.
The stealing of your goods or tools will make you fear that your neighbor will not
respect your life. A violent experience would instill fear in your find .Your creativity to
invent new and better wealth production processes would not be restored until you would
know that you are no longer under the threat of violence.
Although your neighbor would not be able to take away your human capital, what
you have learned, and you would not start from zero to recover, you would have to invest
the time again to produce the physical tools.
The Violence Principle of Wealth Production
Violence is devastating for the process of wealth production. Violence stops or
slows down the production of wealth. It is not possible or very difficult to produce wealth
under violent conditions. Violence or the threat of violence makes the investment in tools
stop because there is no motivation to invest large amounts of time on tools that will be
taken away by violence.
The Low Cost Solution
If you could find a way to trust your neighbor and make your neighbor trust you, at
least to the point where both of you can be assured that you are both going to respect each
other's life and property, then you could maintain the wealth producing levels that each of
you had achieved with your respective capital structures.
Trust is much easier to achieve if you and your neighbor speak the same language, if
you are from the same culture, or if you profess the same religion but these are not
necessary and neither are they sufficient conditions. The condition that is necessary and
sufficient is for both of you to want to become wealthy and to know that to do this you
have to have a mutual respect for life and property.
If you and your neighbor find a way to trust each other, your wealth producing
capability will not be deteriorate when you share the island. You could live away from
each other and go on with your respective enterprises and live as is if the other did not
exist. You would avoid the cost of surveillance and weaponry.
Ideally, you would look for trust by a coincidence of values. You would want to
know that your neighbor appreciates life and has learned to respect property to the same
level that you would so that you do in order to avoid the costs of surveillance and self-
defense. You might have differences in other values, but if you have coincidence in
respecting each other’s life and property and in wanting to become wealthy, then you can
have a wealth production process that is less costly.
The Agreement to Respect Life and Property
To continue your wealth production activities, you need to approach your
neighbor and reach an agreement of respect of life and property. You want your neighbor
to respect your life and property and you would offer in return to respect his. This
agreement would allow both of you to continue your lives in the island producing wealth
according to each other's capital structure. The agreement would be based on the
advantage that this agreement brings to both parties. The agreement to coexist in peace is
better for both of you than the violent alternatives. The agreement is advantageous to
both because both want to preserve your lives and engage in wealth producing activities.
The agreement to respect life and property has to include the respect of property.
An agreement to respect life without the respect for property would result in a fight that
could risk your lives and would cause the same surveillance and weaponry costs in the
wealth production process as if there was no agreement.
The Respect of Life and Property Principle of Wealth Production
To preserve and continue to increase your wealth production capability in the
presence of a neighbor, you have to make an agreement of mutual respect for life and
property.
The Foundation for Law
If you make an agreement for respect of life and property, you would have the
basis of the first law between you and your neighbor. Laws are enforceable agreements
between people that live together on the expected behavior in society. Laws are
enforceable by the state but since there is no state and no police between you and your
neighbor, the agreement is not yet a law but a voluntary agreement base on the common
advantage and common trust. There is no state to guarantee that it will be carried on. You
and your neighbor are the guarantee. The main ingredient of the agreement is that the
agreement is advantageous to both of you.
The agreement to respect life and property, based on the knowledge that it is
advantageous for both parties is the foundation of the law that can be written when a state
is in operation. The lack of an agreement due to the lack of knowledge of the citizens of a
country would make the law very difficult to enforce. Education and knowledge is the
basis for the law and the state can be tasked by its citizens to handle violations of the
agreement as exceptional conditions.
Social Capital
[...]... behave correctly The book explores the historical formation of the state and the implications for the production of wealth The Wealth of Social Capital The sixth book is the core of the series Social Capital is defined as the ability of a society to learn and agree on the rules that are necessary for the production of wealth This is the key for the wealth of the people in society This is the ingredient... change your eating habits Fernando Urias uriasf@aol.com The Wealth of the People” Book Series The task of explaining the causes of the wealth of the people in a society is a long and complex subject for a single e-book To facilitate the explanation and the delivery of the material, an e-book will be published in each logic set of topics The following are the planned titles of the book series: Your Wealth. .. property The wealth of social capital starts with the preservation of the wealth created by the physical tools In the first book it was concluded that the best way to accumulate wealth is by having tools that are part of the wealth production process The first wealth contributing factor of social capital is that it allows the possibility of this occurring Without social capital, the wealth of the tools... is the beginning of the establishment of social capital in a society The Property of the Natural Resources When you were the only person in the island, you could have thought that the whole island belonged to you With the discovery of your neighbor, you would need another agreement regarding the property of the natural resources, including the land, the water in the creeks, and other resources in the. .. will be hurting yourself because you will lose your customers If you service your customers without taking care of yourself, then you are losing the purpose of your being You need to service your customer the best way you can without damaging yourself This means that by being part of the equation of your survival, your customers are almost part of your family The Combined Capital Structure The combined... Instead of diluting your investment budget in the production processes of several products, you can concentrate your investment in the production of one product while your neighbor can concentrate his investment budget in the production of another product improving the efficiencies of both wealth production processes The Wealth of Social Capital The wealth brought by the improvement of the physical tools... This book explains the wealth production results when there is a market that brings the competitive advantage of every individual to the table The Wealth of the Business Enterprise The fourth book is about the function of the business enterprise to produce wealth for its customers, its owners, and its employees The Wealth of the State The fifth book discusses what happens when we remove the assumption... trade The cost of the trade is distinguishable from the cost of production In modern economies, one of the major components of the cost of trade will be the transportation cost The trade between two people requires the time and the place where they will meet and this means that there is a cost associated to get to the place and the time to evaluate the transaction and make the purchasing decision The. .. with the trade of one turkey For your neighbor, his meal cost can decrease from three hours to two hours thanks to your offer of the sale of one turkey for one pound of vegetables This means that there is synergy in the trade transaction Synergy means that the total is more than the sum of its parts You and your neighbor are more valuable together than the sum of both of you working independently in your. .. Your Wealth The first book looks at the time savings gained by a single person increasing his physical and mind assets in an island The Wealth of Your Neighbor The second book is about the agreements that two people have to make to be in a path of increasing their respective wealth The Wealth of the Market The third book explains the opportunities offered by a free market to produce wealth for the people . make.
The rest of the titles of the " ;Wealth of the People" series are listed at the end of this
book.
Introduction
The second book of the series. the production of another
product improving the efficiencies of both wealth production processes.
The Wealth of Social Capital
The wealth brought by the
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