October 13, 2007

What do we mean by Wealth?

You may have noticed an argument about inheritance tax going on on this blog, there were a couple of comments on a post of mine, and a couple over at Mr Sinclair's. I think some of the regulars might have got involved as well. Anyway Matt has kindly responded to my post over at his place and raised several interesting points. Today though I want to focus on one point that he raises which is about social mobility and really is about what the word 'wealth' means in a capitalist society like the one that we live in. This issue, about what the concept of social mobility means, lies right at the heart of modern politics and it is essential to keep in mind when thinking about economic issues.

There is a problem with the way that our society defines the word wealth. Wealth can be an absolute concept- for example it is clearly sensible to say that someone who has a three course meal every day is more wealthy than someone who can't afford to eat. There is a clear sense in the argument that especially when defining destitution, adequate wealth to survive should be understood as a basket of goods but to define wealth solely in absolute terms misses another important use of the concept. Lets take an example, by the mere fact of owning a computer I am incredibly wealthy, I can project my pontifications to the world. However just because I own a computer doesn't mean that I feel rich, the BBC reported three years ago that in 2002 half of the households in the UK owned computers. Owning a computer makes me absolutely very wealthy (in that I can do communicate across the globe with anyone I choose) but I don't feel that absolute wealth, rather I feel a more modest sense of relative wealth to my own society.

Its worth thinking about wealth in terms of other words that are similar. I'd use the word fast. When I say of someone that they are a fast runner, I am actually using a term that has both absolute and relative components. A fast runner might say run a mile in 4 minutes. Absolutely if he took his entire life to move a mile he would be very slow and very confined in his surroundings. But also if everyone else can run a mile in 2 minutes, then what sense does it make to say that the man who runs it in 4 is fast. In truth the word fast has both an absolute component and a relative component. There is an absolute sense in which a human being is slow- ie taking 73 years to run a mile- but most judgements about how fast a human being can run are relative judgements. Nowadays Roger Bannister's four minute mile would be slow for an athlete- but at the time it was a world record.

Lets come back for a moment to wealth, if wealth has both absolute and relative components, does it matter that we understand both of them. In my view it does. It matters a lot that we understand the importance of absolute wealth. The most equal society on earth is the one in which everyone is starving to death! Everyone would in that society be relatively wealthy, compared to each other they are all equal, but it would be absurd to say that they are wealthy. To structure our entire society around equality, might end up making everyone equal in poverty. However to dismiss relative wealth is equally silly. It is to insist that the kid who can only run a 6 minute mile, as opposed to his mates who run a five minute mile, is fast because he can still run. It doesn't really help him when he is stuck a minute behind! To put that in economic terms, somebody is poor if they can't afford certain things which the rest of us can afford- and Matt in his basket of goods understands that point- poverty is intrinsically relative and so is wealth. And those concepts are more relative the further we get away from the situation of absolute poverty.

Lets come back to the concept of social mobility. Matt says that the idea that social mobility means that some must go up and some must go down is 'pretty silly' and obviously on one level he is right. If I get richer, that doesn't neccessarily mean that you get poorer- in absolute terms what I earn is irrelevant in assessing what you earn. But wait a minute, that is not entirely true if we leave the realm of numbers for a moment. What I earn is then very relevant to what you earn. If my stately home is the only one in the country, then I am the richest person around, but if everyone owns one or if more and more people own one my comparative status diminishes and hence in a sense my wealth diminishes, despite the fact that I may be earning more than I was before. Hence if some people go up the social scale, others come down because they are less well off compared to the rest of society than they were. Hence social mobility has to go both ways. That is true whether people are losing money or whether society is becoming more equal. It is the differentials that matter- the rich are those who are wealthier than the rest of society. Social mobility means people from the bottom join the rich, therefore the rich must get larger as a class which means that the differential between them and the mean person shrinks or rich people must become part of the mass below them- hence social mobility has to go both ways.

Social mobility involves people's wealth diminishing as well as increasing because ultimately social status is a relative concept. Part of social status is wealth and I think we can show that wealth itself is a concept that has two meanings: there is an absolute sense of wealth, but there is also a relative sense of wealth. The problem both on the left and the right of politics often consists in saying that a concept is only this or only that, the problem is that people try and fix language into arbitrary definitions without realising that concepts overlap and often contain different but related meanings. Its a good debating tool- its not good politics. Social mobility does involve people falling as well as rising- and you can't conclude otherwise as soon as you look at the logic involved.


Ashok said...
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