Another misconception held by many in both “rich” and “poor” countries is that the “rich” should go on making and using ever more goods and services, thereby “creating wealth” that can somehow find its way to the “poor” nations, making them “richer”.
The true picture is quite different.
Some nations, the so-called rich, actually have much higher throughput than others. We can call these nations the more perfluent. The word “rich” denotes possession of wealth while “affluent” denotes wealth flowing to. Perfluent denotes wealth flowing through, which is the point here.
If these more perfluent economies keep boosting their throughput, using wealth not only from within their own borders but from all over the world, then the throughput available to less perfluent nations is subject to restriction and reduction. Not only do these nations become no more perfluent as a result of the increasing perfluence of the others, they become less so.
In terms of actual wealth, many less perfluent nations, because of great resources contained within their borders, are wealthier than many of the more perfluent ones.
Transfer of wealth between rich and poor nations, called for by the less perfluent, is already taking place with great vigour, but in the opposite direction to that intended by the advocates of the transfer.
The resources wealth of the less perfluent nations is being transferred to feed the greater throughput stream of the more perfluent. Too much wealth is going to the latter in exchange for too little throughput.
An analogy may be drawn between the world today and, for example, Britain in the eighteenth century.
At that place and time, a fraction of the population commanded most of the throughput. They claimed a right to do so by birth and station, a right that was taken for granted by them and conceded by most of the rest of the people.
If members of the perfluent class had a change in circumstances that caused them to make do with one servant, a small mansion, and only their legs to get about with, they thought of themselves as suffering hardship, even though their situation was vastly better than members of the majority could hope to achieve.
More recently, a person in the more perfluent (“developed”) nations is categorised by their government as living below the poverty line if they earn less than a certain amount per annum, even though this might enable them to enjoy a level of consumption of goods and services far above what the majority of the world’s people can hope to aspire to. Far from being impoverished or deprived, the “poverty-line” dwellers in the most perfluent nations are members of the world’s aristocracy, the privileged class.
If disparities in material living standard among the world’s people can be reduced, this must be done by transferring throughput while slowing the transfer of actual wealth.
Rises in material living standards in more perfluent nations are in competition with such rises in the less perfluent, in the sense that both involve accelerated depletion of the world’s limited store of wealth. It is true that throughput in some places stimulates throughput in others, through the mechanism of trade and investment. Thus rises in throughput in more perfluent places would, in a hypothetical unlimited world, always be able to raise throughput in others, however far behind. This is one assumption on which economic policies the world over are currently based. It is assumed that people in more perfluent areas should go on consuming more and more and thus eventually drag even the least perfluent of the world’s people up to their level.
However, we do not live in an unlimited world but in a real, limited one, and material living standards must stabilise and, under present conditions, fall in more perfluent regions in order to give less perfluent countries a better chance of improving living standards. There’s no other way.
- Rapidly increasing consumption of oil over decades in the more perfluent world led to depletion of this non-renewable resource, thence to increases in oil prices that meant that less perfluent people had less access to oil. Not only does this directly reduce the availability of fuel, but in some places valuable agricultural land and vast areas of forest have been taken over for growing crops specifically for the purpose of providing alcohol fuel and ‘bio-diesel’ oil for motor vehicles.
- Overfishing to feed over-consumption in the more perfluent countries depletes the ocean’s fish resource, whose renewal rate depends, inter alia, on the size of stocks and makes this food scarcer and more expensive for others.
Other examples could be found.
People in less perfluent countries work harder in exchange for less spending power, that is command of goods and services, than those in more perfluent places. This is not due to any intrinsic inferiority of some people to others, bit rather to historical legacies and artificial circumstances that are probably unjust and certainly changeable.
Money flowing from one nation to another can transfer throughput under these conditions:
- If more money is demanded in exchange for the same unit of wealth. This happened with oil from 1973 onwards. It must happen with all other forms of wealth. Money represents throughput here, but of course the amount of throughput a unit of money represents falls over time. It is necessary for the money price rises to stay ahead of the rate of decrease in money value.
- If the money is a straight-out gift, or a loan that becomes a gift through default. Many countries in recent years have come dangerously close to defaulting on huge loans from international banks. The loans were initially arranged as a result of mistaken thinking by the borrowing governments.
Posts in this Series
- Review of 1988 edition of Economics for a Round Earth
- Ends and Means
- Evolution Not Revolution
- Notes on Evolution Not Revolution
- Concepts and Terms – What is ‘wealth’?
- The Throughput Chain
- The Derivatives of Wealth
- Global Inequalities in Wealth
- Economic Growth Redefined
- Misconceptions in Practice
- Borrowing to Invest to Get Rich
- Environment versus Economic Progress
- Digression: Pollution Red Herrings
- Digression: Depletion and Inflation
- Value Inflation – the Trigger, not the Bullet
- Living Standard and Quality of Life
- Digression: Resource Consumption, Jobs, and Hands Off
- When the Boom comes
- The Effect of People’s Expectations
- Hard Work – Virtue or Vice?
- Who needs the Snail Darter?
- More Dollars for Conservation?
- Non-renewable Resources – Leave Them in the Ground?
- Digression: Fast Breeder Nuclear Fission Reactors
- Minerals in National Parks – Leave Them in the Ground?
- Population and Wealth
- Left, Right and The Environment
- Digression: “So Long As We Profit, Costs Elsewhere Aren’t Our Problem”?
- Limits to Growth?
- Solar Energy – a Special Case
- The Solar-Powered Car
- Money Supply, Throughput and Inflation
- Real and Money Wages: Living Standards
- Digression: Caution about “Increases” and “Decreases”
- The Idea of Proportionate Flows Applied to Wages: the Great Depression
- Deficit Financing
- The Optimum Proportionate Flow Condition
- Digression: Thrift versus Spendthrift
- Digression: the Private Motor Car – a Basic Necessity?
- The Idea of Proportionate Flows Applied to Wages – the Stagflation of the 1970’s and 80’s
- Excessive Wages Can Cost Jobs
- Fight Unemployment or Inflation First?
- Digression: Work and Jobs
- Other “Job Creation” Schemes
- Visual and Noise Pollution
- Digression: Renewal and Recycling of Resources; Wages and Jobs
- Ratio Distortion and Consumption
- Aggregate Demand – Components and Internal Ratio
- The Slave Economy
- Employment and the Steady State
- Consumer-Led Recovery
- Interest Rates and Ratio Distortion
- Demographic Trends and Living Standards
- Digression: Bad Economics Good for Conservation?
- Coping with Aging Populations
- Stabilising the Human Population
- Costs – What Really Costs Us and What Doesn’t?
- Digression: Other Comments on Statements in UN Report
- Discussion of Costs Resumed
- Budget Balancing Methods – Cost or Gain?
- Digression: Government Expenditure – Government Employees
- Expenditure on Weapons