Wealth in the Post-Peak World

How will wealth be defined in the post-peak world? How can money retain its value in a perpetually declining economy? What will happen to the ever-expanding wealth gap between rich and poor?

What is wealth? The term wealth derives from the old English word "weal", which means "well-being" or "welfare" and originally was used as an adjective to describe the possession of such qualities. Over time, however, wealth has come to mean an abundance of items of economic value, primarilly money, real estate and personal property. It is interesting that skills are generally not considered among the resources of which one needs an abundance, despite the reality that professional athletes, artists, performers and more use only their skills to create wealth. Perhaps Adam Smith never considered that possibility when, in contrast, he saw "wealth creation as the combination of materials, labour, land, and technology in such a way as to capture a profit (excess above the cost of production)." (http://en.wikipedia.org/wiki/Wealth) Part of the problem, of course, lies in whether we are referring to "personal" wealth or "common" wealth. This, however, gets very muddied when considered in light of the corporation and capitalism as they have evolved.

It is arguable whether the concept of wealth is even limited to humans. There are certain other animal species where members of that species make tools, for example the use of a stick to dig termites out of a mound. They will normally abandon the tool (the stick) when it has served its purpose so one might argue that they attach no value to it, do not recognize it as wealth. If one accepts skills as means of wealth creation, however, then the individuals who know how to create the tools to get at food are, indeed, wealthy in their society, personally if they use the stick only to derive food for themselves or communally if they share that food or the tool with others. Likewise, among our ancient ancestors the man with a piece of flint was a wealthy man. With it he could create fire for warmth and for cooking food, either for himself alone or for the group, even trade his ability to make fire for other valuables possessed by those without flint. In both cases, the stick and the flint, the possessor of it could turn it to an improvement in their personal welfare and/or common welfare.

Are wealthy and rich the same thing? According to Wikipedia, "The opposite of wealth is scarcity, the opposite of richness is poverty." Wealth is, in large respect, the possession of resources capable of producing a surplus, today generally assumed to be a surplus of income or a surplus of goods through which to generate income. One can be rich in terms of resources but be unable to produce a surplus of income from them. I believe, in general, we all think we understand wealth in terms of our present global society. But do we?

All wealth, in fact, is relative. It is, in a general sense, one's possession of surplus-producing resources in comparison to others around you. This was clearly put forth by M. Turgot, Comptroller General of the Finances of France, In 1774-76. In his essay, Reflections on the Formation and Distribution of Wealth, he stated, "If the land was divided among all the inhabitants of a country, so that each of them possessed precisely the quantity necessary for his support, and nothing more; it is evident that all of them being equal, no one would work for another. Neither would any of them possess wherewith[all] to pay another for his labour, for each person having only such a quantity of land as was necessary to produce a subsistence, would consume all he should gather, and would not have any thing to give in exchange for the labour of others." {http://socserv2. mcmaster.ca/~econ/ugcm/3ll3/turgot/reflecti} If everyone in a society had the same resources there would be no basis on which to declare one person wealthy and another not. It is the disparity of resources that defines wealth. It varies considerably, in fact, from society to society and even within different sections or regions within a society. If one owns a million dollar property in Botswana that represents considerably more "real" wealth potential than a million dollar apartment in central New York.

Financial economies are based on a very ephemeral and transient commodity; trust. (See my article, Why there will be a fast crash and not a slow decline at http://www.freecanadaradio.ca/fastcrash.html.) (also available in spanish at http://periferiacrisisenergetica.blogspot.com/2005_05_01_archive.html) Today's economies are built on a foundation of debt because society largely has faith and trusts that the economy is strong. People and organizations willingly take on debt (spend tomorrow's income today) because they have trust that the economy will continue to be strong and that they will be able to earn enough surplus income or profit in that future to both survive and discharge the debt they are taking on today. Whenever economic growth stalls or, worse, reverses, as it did in the great depression of the 1930s, there is a general sorting out as those most heavilly over-committed struggle as the surplus income needed to maintain and discharge the debt disappears. Some will survive by disposing of assets to discharge the debt. Others will have debt in excess of their devaluing assets and be unable to maintain or discharge that debt.

Our current global economy is very heavilly dependent on both continuous growth and an abundance of cheap energy for its survival. Take away either and the economy falters. The reliance upon an abundance of cheap energy has become ever more critical in the process of globalization that has dominated the last half century. Without that the global distribution system begins to fall apart. In times past local societies were largely self-sufficient and self-reliant, satisfying all of their needs from local resources. Only rare third world or primitive societies can claim to be so today. Trade goods found in your local community today originate from every corner of the world. The food on your table generally has traveled an average of a couple thousand miles to get there. The table and other physical goods you possess will, on average, have travelled several times that distance. Without a viable and vigorous global distribution system driven by cheap and abundant energy the paradigm of locating the heavilly subsidized manufacturing of goods in cheap labour markets and distributing those goods globally starts to fall apart. The more developed nations of North America and Europe have outsourced so much of their product manufacturing that very little is, or any longer can be, produced locally. If the global distribution system begins to run into serious problems of fuel cost or availability the supply lines to your local retailer begin to dry up, with no local alternative to fill the gap.

The most insidious aspect of wealth, but the core of its definition, is the very fact that it relies on a disparity between different members of society. And under the current functioning of our society, whether locally or globally, that disparity continues to grow. The gap in wealth and lifestyle of G8 countries and poor, third-world nations continues to grow. But so does the gap between the rich and poor within our own national societies. According to an article entitled Study: Inequality in wealth, at http://www.statcan.ca/Daily/English/061213/d061213c.htm "Between 1999 and 2005, the median net worth of families in the top fifth of the wealth distribution increased by 19%, while the net worth of their counterparts in the bottom fifth remained virtually unchanged. As a result, the top 20% of families held 75% of total household wealth in 2005, compared to 73% in 1999 and 69% in 1984." This trend is also the focus of the article The Great Wealth Transfer By Paul Krugman; November 30, 2006 - Rollingstone.com at http://mostlywater.org/the_great_wealth_transfer in which he states, "how can it be true that most Americans are getting smaller slices? The answer, of course, is that a few people are getting much, much bigger slices. Although wages have stagnated since Bush took office, corporate profits have doubled. The gap between the nation's CEOs and average workers is now ten times greater than it was a generation ago." (also see The wealth gap widens December 24, 2006 - David Crane - The Toronto Star http://www.thestar.com/Business/article/164866) The end result of the distribution of wealth under our current genre of capitalism is lamented in Work and Wealth: A Human Valuation at http://socserv. mcmaster.ca/econ/ugcm/3ll3/hobson/workwealth.html in which it is stated, "An injurious excess of income is possible for an individual, perhaps for a nation, and the national welfare which an increased volume of wealth seems capable of yielding might be more than cancelled by a distribution which bestowed upon a few an increased share of the larger wealth, or by an aggravation of the toil of the producers."

It is that disparity, that gap between wealth and poverty, between rich and poor, that one needs to be very conscious of as we approach peak oil and the energy downslope on the other side of the peak. The wealth of nations and the extraordinary wealth of a very small number of individuals is a clear bi-product of that reliable abundance of cheap energy. But it is also the foundation of the relative wealth of the middle class and even labour class in wealthy industrialized nations compared to the meagre existence and basic struggle for survival of the vast majority in third world nations. And yet, as we proceed along the energy downslope on the other side of peak oil the crucial component of that wealth disparity - cheap abundant energy - will begin to inexorably decline and, eventually, disappear. It will no longer be that old dream of raising the living standards of the poor but will become the harsh reality of the living standards of the wealthy tumbling into the abyss of scarcity and poverty. Gaps will still exist for they are not simply based on economic disparity. They are also based on power and control over the affairs of others. It is likely, in fact, that as the economic advantages of wealth are eroded away there will remain a tenacious clinging to the power and control that such wealth has afforded.

Today's successful economies are based on a simple concept of perpetual growth. That growth will come to a halt as we pass peak oil. The illusion of growth will continue for some time, as it has through a global mania of mergers and aquisitions and currency manipulation over these past several decades, but even that illusion will in time be stripped away as economies the world over begin to shrink and continue to shrink all the way down the energy downslope. It will be necessary, if it is not already, to redefine wealth, to redesign our economies around contracting markets, if those in control of wealth today are to continue to play a key role in the society of tomorrow. I am not optimistic that this will happen. History suggests that we will approach the coming trials as we have always done, with those in power clinging to it for as long as possible, and far too long.