Net Wealth

In 1860 John Ruskin coined the term ‘illth’ in his book, Unto This Last. Illth is the dark underside of Wealth. Ruskin, like others before him, realised that wealth comes at a cost. For instance, wealth in modern economies is accompanied by the illth of pollution, climate change, social injustice and lifestyle diseases. These illth costs are not generally paid by the wealthy. The problem is that the people who get the wealth often don’t get the illth, so there is also moral injustice built into the system.

The benefits of wealth should be netted out with the cost of illth.

Goods and ‘bads’

Gross Domestic Product (GDP) is an extremely blunt measure of economic activity. GDP does not discriminate between the production of goods and ‘bads’, costs and benefits, or between wealth and illth. Everything is added in GDP and nothing is subtracted. That is the meaning of ‘gross’. The alternative economist Herman Daly says that “[t]he reason that bads and illth, inevitable joint products with goods and wealth, are not counted, even when no longer negligible in the full world, is that obviously no one wants to buy them, so there is no market for them, and hence no price by which to value them”.

However, ‘bads’ exist and people spend money trying to cure, fix or mitigate them. For example, pollution has no value, no-one buys it and so it is not counted in GDP. However, pollution clean-up is an ‘economic activity’ that is accounted for as a good in GDP. So we are adding economic activity that could have been avoided and we don’t subtract the ‘bads’ that made the activity necessary in the first place. It reminds me of the sarcastic cartoon where a filthy capitalist says “Pollution is great, it creates lots of clean-up jobs!”

A truer picture of our economic wealth would be to subtract all of the costs related to illth from ‘gross’ wealth. That way we would have measures of Net Domestic Product and Net Wealth.

Net well-being

“There is no wealth but life…That country is the richest which nourishes the greatest numbers of noble and happy human beings…”
– John Ruskin

Wealth and well-being are not the same thing. The moral goal for any society should be the highest possible level of universal well-being, and not wealth. Well-being is not easy to define, and the circumstances of well-being would be different for different people. However, in all cases, well-being is naturally ‘netted out’, meaning that all the positive and negative things that affect well-being are factored in. No-one would say “I have a really nice house and lots of money in the bank so I am well. I am not going to count the fact that I am dying of cancer and am completely miserable.” In a case like this wealth doesn’t help well-being.

It is only when the rich are sick that they fully feel the impotence of wealth. 
– C. C. Colton

Wealth over a certain level creates illth

The wealth people need to meet their material needs is quite low, lower than the average income (GDP/capita) in affluent countries. This begs the obvious questions, why do we need more economic growth and therefore more wealth? The answer is we don’t need more wealth on average, we actually need less. The problem is that the system can’t help itself; wealth begets wealth and so growth is built into the system as is the unequal distribution of that wealth.

So, a sufficient level of wealth for everyone is good. Any wealth over and above that is really illth, for the simple reason that it uses resources (natural resources as well as peoples’ time and energy) that don’t need to be used. In other words the resources are wasted, and any form of waste is illth.

Gross wealth always has some sort of dark side (illth) which is a cost that can’t be considered wealth. This is why we need to measure net wealth instead.

Net wealth is like true cost

In this previous article we talked about true costs, which is similar to the concept of net wealth. A true cost is when a business incorporates all costs into the price of its goods and services, including external costs such as pollution, waste and emissions. However, these illths are generally not included in the costs that a price is based on. Yet they are still paid by society in a variety of ways.

Another illth which is externalised is the loss of natural capital. In a business, capital assets depreciate in value over time. This depreciation is accounted for as a cost. However natural capital is treated as income, it is added to the bottom line, when it should be subtracted. If you use capital as income you will bankrupt yourself in a hurry. Since humanity is using more resources than are replenished, we are bankrupting ourselves by using up Earth’s natural capital now. There is an Indian proverb that says “Only when the last tree has died, the last river been poisoned and the last fish been caught will we realize we cannot eat money.”

There is no wealth but life

Wealth, over and above that sufficient for well-being, is a waste. As John Ruskin said, our real wealth is our life, and life is too short to waste.

“We all only have one life and one planet, we should look after them both.”
– Michael Lockhart

More quotes about wealth

“Wealth is the ability to fully experience life.”
– Henry David Thoreau

“It is not the man who has too little, but the man who craves more, that is poor.”
– Seneca

“Too many people spend money they earned… to buy things they don’t want… to impress people that they don’t like.” 
– Will Rogers

Without the rich heart, wealth is an ugly beggar. 
– Ralph Waldo Emerson

The greater our wealth, the greater our dangers. 
– Aristotle

The wealthiest man is he who is contented with least. 
– Socrates

“The real measure of our wealth is how much we’d be worth if we lost all our money.”
– John Henry Jowett

That man is richest whose pleasures are cheapest. 
– Henry David Thoreau