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Characteristics and Classification of Wealth in Economics
Characteristics of Wealth
Anything to be considered wealth should possess the following characteristics:
- It must possess utility: That is, it must have the power to satisfy a want. As Marshall says, ‘they must be desirable’.
- It must be limited in supply. For example, air, sunshine are all essential for life. In fact, man cannot live without them. They possess great utility but they are not considered wealth because they are available in large quantities. Their supply is not limited. In other words, there is no scarcity of those goods. Such goods are known as free goods.
- It should be transferable. That is it must be possible for us to transfer the ownership of such economic goods, which form wealth, from one person to another. For example, take a house. House is wealth. For it has money value. If I pay some money to you and buy it, I can transfer the ownership rights of house in my name.
- It must have money value.
- It may be external. For example, the goodwill of a business is external wealth. Certain firms enjoy a lot of goodwill of the customers. The copyright of a book is another example of the point that wealth is external.
- Thus utility, scarcity and transferability are the important characteristics of wealth. Because an economic good possesses utility and is scarce in relation to demand and is capable of being transferred from one person to another, it has money value and so it is considered as wealth.
Classification of Wealth
Wealth can be classified as personal wealth, social wealth or collective wealth, national wealth, and cosmopolitan wealth.
Personal Wealth (Individual Wealth)
The wealth of a person consists of both material and non-material goods. Thus the wealth of the person includes such material things as land, houses, furniture, machinery and so on. Not only that, if a person has some shares in companies or bonds which require others to pay money to him, they should be included in his personal wealth. On the other hand, if he owes some debt to others, it should be regarded as negative wealth and so subtracted from his gross wealth. Then we get the net wealth of a person.
Suppose a person is running a firm. The goodwill of his firm may be considered as his immaterial wealth. We have to remember one thing, namely that wealth is external. The personal or internal qualities of a person should not be considered as wealth. For example, a play-back singer may have an excellent voice. It is a personal quality and internal to the person. The voice of the singer is not wealth because it is internal. It is not wealth but it may be the source of wealth to the singer. Another example of internal quality is the ability of a surgeon.
Social Wealth (Collective Wealth)
Social wealth consists of all these goods that can be enjoyed by all members of a society. Social wealth includes public roads, public parks, public schools, government hospitals, public libraries, museums and so on. In short, it includes all kinds of public property and ownership. Most of these things are called collective goods, i.e., goods that are not in private ownership.
National wealth includes individual wealth as well as the collective wealth of its members. That is, it includes besides individual wealth all kinds of public property, such as roads and canals, buildings and parks and water works.
Some writers include even free goods in the wealth of a nation. For example, Marshall considered that even the rivers of a country should be taken into account in considering national wealth. The Thames river in England is a free gift of nature. But he says that we must consider the Thames a part of England’s wealth. Some writers, however, do not agree with this view. For instance, according to Seligman, “rivers and climate do not constitute wealth. They enable a country to acquire wealth, just as intelligence or strength enables a man to acquire wealth. They are the source of wealth but they are not wealth”.
Further, in calculating the national wealth of a country, one should deduct the debts, which a nation owed to other countries. Of course, we must add to the national wealth, the money or goods that is due to us from other nations.
The wealth of a nation can be increased by hard work of its people, labor is an important source of wealth. That is why Adam Smith believed that the wealth of a nation can be increased by a proper division of labor. Japan, for instance, is an Asian country. Though most of the countries of Asia are poor today, Japan is wealthy and enjoys a high standard of living comparable to that of a western country because its people work hard. They are industrious and diligent.
Cosmopolitan wealth is the wealth of the world. It belongs to no one nation in particular. A common example of cosmopolitan wealth is the ocean. As Marshall put it, “Just as rivers are important elements of national wealth, the ocean is one of the most valuable properties of the world.” Again, scientific knowledge and mechanical inventions may also be considered as cosmopolitan wealth. For, scientific knowledge wherever discovered, soon becomes the property of the world. So it is better to consider it as cosmopolitan wealth rather than as national wealth. The same thing is true of mechanical inventions, for example, the mechanical inventions that were made in England during the Industrial Revolutions soon became the property of the world.
© 2013 Sundaram Ponnusamy