Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English weal, which is from an Indo-European word stem. An individual, community, region or country that possesses an abundance of such possessions or resources is known as wealthy.
The concept of wealth, or its increase, is of significance in all areas of economics, and clearly so for growth economics and development economics. Yet the meaning of wealth is context-dependent and there is no universally agreed upon definition. At the most general level, economists may define wealth as "anything of value" which captures both the subjective nature of the idea and the idea that it is not a fixed or static concept. Various definitions and concepts of wealth have been asserted by various individuals and in different contexts. Defining wealth can be a normative process with various ethical implications, since often wealth maximization is seen as a goal or is thought to be a normative principle of its own.
Although precise data are not available, the total household wealth in the world has been estimated at $125 trillion (USD 125 x1012) in year 2000.
About 90% of global wealth is distributed in North America, Europe, and "rich Asia-Pacific" countries (not including India), and 1% of adults are estimated to hold 40% of world wealth, a number which falls to 32% when adjusted forpurchasing power parity.
Definition
Adam Smith, in his seminal work The Wealth of Nations, described wealth as "the annual produce of the land and labour of the society". This "produce" is, at its simplest, that which satisfies human needs and wants of utility. In popular usage, wealth can be described as an abundance of items of economic value, or the state of controlling or possessing such items, usually in the form of money, real estate and personal property. An individual who is considered wealthy, affluent, or rich is someone who has accumulated substantial wealth relative to others in their society or reference group. In economics, net wealth refers to the value of assets owned minus the value of liabilities owed at a point in time. Wealth can be categorized into three principal categories: personal property, including homes or automobiles; monetary savings, such as the accumulation of past income; and the capital wealth of income producing assets, including real estate, stocks, bonds, and businesses. All these delineations make wealth an especially important part of social stratification. Wealth provides a type of social safety net of protection against an unforeseen decline in one’s living standard in the event of job loss or other emergency and can be transformed into home ownership, business ownership, or even a college education.
'Wealth' refers to some accumulation of resources (net asset value), whether abundant or not. 'Richness' refers to an abundance of such resources (income or flow). A wealthy individual, community, or nation thus has more accumulated resources (capital) than a poor one. The opposite of wealth is destitution. The opposite of richness is poverty.
The term implies a social contract on establishing and maintaining ownership in relation to such items which can be invoked with little or no effort and expense on the part of the owner. The concept of wealth is relative and not only varies between societies, but varies between different sections or regions in the same society. A personal net worth of US $10,000 in most parts of the United States would certainly not place a person among the wealthiest citizens of that locale. However, such an amount would constitute an extraordinary amount of wealth in impoverished developing countries.
Concepts of wealth also vary across time. Modern labor-saving inventions and the development of the sciences have enabled the poorest sectors of today's society to enjoy a standard of living equivalent if not superior to the wealthy of the not-too-distant past. This comparative wealth across time is also applicable to the future; given this trend((cn)) of human advancement, it is likely that the standard of living that the wealthiest enjoy today will be considered impoverished by future generations.
Industrialization emphasized the role of technology. Many jobs were automated. Machines replaced some workers while other workers became more specialized. Labour specialization became critical to economic success. However, physical capital, as it came to be known, consisting of both the natural capital and the infrastructural capital, became the focus of the analysis of wealth.
Adam Smith 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). The theories of David Ricardo, John Locke, John Stuart Mill, in the 18th century and 19th century built on these views of wealth that we now call classical economics.
Marxian economics distinguishes in the Grundrisse between material wealth and human wealth, defining human wealth as "wealth in human relations"; land and labour were the source of all material wealth.
Buckminster Fuller defines wealth in the following manner: “Wealth is our organized capability to cope effectively with the environment in sustaining our healthy regeneration and decreasing both the physical and metaphysical restrictions of the forward days of our lives.”
Economic analysis
In economics, wealth in a commonly applied accounting sense is the net worth of a person, household, or nation, that is, the value of all assets owned net of all liabilities owed at a point in time. For national wealth as measured in the national accounts, the net liabilities are those owed to the rest of the world. The term may also be used more broadly as referring to the productive capacity of a society or as a contrast to poverty. Analytical emphasis may be on its determinants or distribution.
Economic terminology distinguishes between two types of variables: stock and flow. Wealth, as measurable at a date in time, is a stock, like the value of an orchard on December 31 minus debt owed on the orchard. For a given amount of wealth, say at the beginning of the year, income from that wealth, as measurable over say a year is a flow. What marks the income as a flow is its measurement per unit of time, like the value of apples yielded from the orchard per year.
In macroeconomic theory the 'wealth effect' may refer to the increase in aggregate consumption from an increase in national wealth. One measure of it is the wealth elasticity of demand. It is the percentage change in the amount demanded o fconsumption for each one-percent change in wealth.
Wealth may be measure in nominal or real values, that is in money value as of a given date or adjusted to net out price changes. The assets include those that are tangible (land and capital) and financial (money, bonds, etc.). Measurable wealth typically excludes intangible or nonmarketable assets such as human capital and social capital. In economics, 'wealth' corresponds to the accounting term 'net worth'. But analysis may adapt typical accounting conventions for economic purposes in social accounting (such as in national accounts). An example of the latter is generational accounting of social security systems to include the present value projected future outlays considered as liabilities. Macroeconomic questions include whether the issuance of government bonds affects investment and consumption through the wealth effect.
Environmental assets are not usually counted in measuring wealth, in part due to the difficulty of valuation for a non-market good. Environmental or green accounting is a method of social accounting for formulating and deriving such measures on the argument that an educated valuation is superior to a value of zero (as the implied valuation of environmental assets).