Wealth versus Quality of Life

Conflating “wealth” with “quality of life”—in criticism of wealth inequality—is a fatal error. It is important to recognize that wealth in the form of capital (savings that are re-invested into factors of production toward increasing capacity for supplying goods and services into the future) speaks to supply-side capacity. The abundance created by this productive capacity is what provides for quality of life. On the demand side, quality of life comes from consumers with incomes that have purchasing power to acquire those goods and services. The greater the abundance of supply, the greater the purchasing power that consumers can wield (as expenses on the income statement or outflows on the cash flow statemen) WITHOUT wealth (assets and equity on the balance sheet) playing any role for consumers. The role of wealth is to associate ownership for management responsibility over factors of production to create and maintain supply. The role of income is to have purchasing power to enable quality of life for consumers. Savings (retained earnings that are re-invested) is how consumers cross over to participate in wealth toward the management of supply.

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