Wealth isn’t what it used to be. In the light of all that we’ve learnt lately of Behavioural Economics, it would seem like a goal towards which we could all do with a nice little ‘nudge’, a term for the kind of ‘soft paternalism’ advocated by Professor Richard Thaler of University of Chicago’s Booth School of Business who won this year’s Nobel prize for Economic Sciences. As a succession of studies has shown, not even on matters of money are we always the rational beings we ought to be. Left to ourselves, we often fall short on our finances, and so we should be thankful if some figure of authority or the other—say, a government—were to tweak our incentives and guide our choices towards what’s best for us. That’s what Nudge Theory says. We might, for example, be aware that self-enrichment is essentially about the ownership or creation of assets, but this calls for a nervy exercise called investment that we’re likely to put off until prodded to make our money work for us rather than simply work for our money.
Some of that inertia, especially in a country that has been largely agrarian for ages, could arguably be traced to how habituated many of us have been to an ill-conceived idea of wealth. To be sure, change is in the air—and has been for a few decades. Wealth as a pass-me-down treasure chest of sorts is slowly being sloughed off in favour of prosperity as an abstract aggregate of ‘value’ generated by those in the business of satisfying other people’s needs in a dynamic economy.
No, wealth is no longer what it used to be. Nor has it been since the moment Adam Smith’s 1776 classic, The Wealth of Nations, delivered its big blow to myopic notions of it. ‘The different progress of opulence in different ages and nations has given occasion to two different systems of political economy with regard to enriching the people. The one may be called the system of commerce, the other that of agriculture,’ he writes in this book. ‘That wealth consists in money, or in gold and silver, is a popular notion which naturally arises from the double function of money, as the instrument of commerce and as the measure of value. In consequence of its being the instrument of commerce, when we have money we can more readily obtain whatever else we have occasion for than by means of any other commodity. The great affair, we always find, is to get money. When that is obtained, there is no difficulty in making any subsequent purchase. In consequence of its being the measure of value, we estimate that of all other commodities by the quantity of money which they will exchange for. We say of a rich man that he is worth a great deal, and of a poor man that he is worth very little money. A frugal man, or a man eager to be rich, is said to love money; and a careless, a generous, or a profuse man, is said to be indifferent about it. To grow rich is to get money; and wealth and money, in short, are, in common language, considered as in every respect synonymous.’
Smith explains the fallacy of mixing up a self-perception of being well-off with what it takes for an entire economy to be. ‘A rich country, in the same manner as a rich man, is supposed to be a country abounding in money; and to heap up gold and silver in any country is supposed to be the readiest way to enrich it.’ Spaniard conquerors, for instance, would judge whether a land was worthy of conquest by how much it had in its possession by way of precious metals; the Tartars, in contrast, were far more inquisitive about the cattle population of their takeover targets. ‘Of the two, the Tartar notion [of wealth], perhaps, was the nearest to the truth,’ observes Smith. Counter-intuitive as it may sound, it exemplifies the crux of his point. Unlike bullion, cattle ranches deliver a consumable good, something of value, and since they yield returns as a matter of routine, they are to be classified as assets. ‘[T]he real wealth or poverty of the country…,’ he writes, ‘would depend altogether upon the abundance or scarcity of… consumable goods.’ He takes up several other examples as well, zooming out for a wide-angle look at what makes for the overall well-being of people, before he gets exasperated by the exercise: ‘It would be too ridiculous to go about seriously to prove that wealth does not consist in money, or in gold and silver; but in what money purchases, and is valuable only for purchasing.’
Wealth is about value, not vaults. It’s the abstract stuff generated by those in the business of satisfying needs in a dynamic economy
Indeed, wealth is about value, not vaults. And this, Smith argues in the rest of his book, is best generated in a market where people are free to serve their self-interest and nothing gets in the way of supply meeting demand. So long as there is competition on both sides and these two forces are kept in balance by prices going up and down openly (to deter or spur one or the other), an unseen mechanism would kick in to maximise overall welfare. Yes, his famous ‘invisible hand’.
This Free Market model is nothing if not elegant, even if it’s just that, a model, an approximation of reality; and it has proven useful as a tool of economic analysis despite its inadequacy under conditions of complexity that aren’t taken into account.
But people had barely had time enough to wrap their heads around Smith’s redefinition of wealth, when Karl Marx’s 1867 Das Kapital turned up to portray it as something else altogether, as a conjuror’s trick to be exposed, a grand illusion to be seen through. ‘The wealth of societies in which the capitalist mode of production prevails appears as an ‘immense collective of commodities’; the individual commodity appears as its individual form,’ goes this book’s first line, with dark hints of a conspiracy of haves against have-nots: ‘A commodity appears at first sight an extremely obvious, trivial thing. But its analysis brings out that it is a very strange thing, abounding in metaphysical subtleties and theological niceties.’ Huh? If that’s not enough to bewilder, Marx proceeds to liken business to religion. ‘There the products of the human brain appear as autonomous figures endowed with a life of their own, which enter into relations both with each other and with the human race,’ he says, ‘So it is in the world of commodities with the products of men’s hands. I call this the fetishism which attaches itself to the products of labour as soon as they are produced as commodities…’ From this extra-sensory observation, Marx somehow manages to isolate the input of labour in manufactured items as ‘surplus value’—the wealth that workers deserve but is extracted by the wealthy to get wealthier—and then launches into a lurid rant against businessmen as exploitative vampires. Comical as this caricature of wealth is, theories and practices derived from it have held sway in India for long enough to cast suspicions of mala fide intent on all private enterprise.
It’s crucial that the entrepreneurial bug goes viral. So long as the fear of failure daunts fewer and fewer, we have cause for optimism
No, wealth ain’t what it used to be, and sure as hell wasn’t after America won its cold war as a champion of laissez faire ideals against a Soviet Union whose economy collapsed so spectacularly in the late 80s that it was foolhardy not to rethink everything drawn from its command-and-control ideology. India had professed a ‘mixed economy’ since independence, but its Big Bang reforms of 1991 were clearly aimed at granting market forces a far greater role than the State in how resources would henceforth be allocated. This was part of a complex agenda that has been fulfilled only in fits and starts, for it’s never easy for a government to reduce its intervention, scale its fiscal deficit back, open up markets and cede space to private players. While India’s economy has expanded far faster since, how equitably it has happened remains admittedly hazy, even worrisome. Yet, perhaps the most significant aspect of the shift has been the signal it sent out.
An open economy isn’t just a matter of policy, it is also about what it envisions, and India’s adoption of the Free Market model —at least to the extent it has—represents a rescue of Smith’s view of wealth from Marx’s. That the reforms of 1991 engineered an economic revival was no surprise. Nor was the entrepreneurial effervescence they set off. Enterprise in the pursuit of profit, after all, is at the core of wealth generation in this scheme of things.
IF WEALTH IS taken as what could be, rather than what was or is, then it reconfigures an entire set of assumptions of what goes into its creation. Given how the world has been shaping up ever since the Industrial Age began yielding to an Infoyug, it’s clearer than ever that success has innovation as its guiding star. This calls for information and imagination—or some combination thereof—to assume something of an exponential role in boosting the power of labour and capital as classic commercial inputs. On the cultural plane, it would necessitate an open society. At the public policy level, India’s long-term plan needs to focus on healthcare and education so that it’s an endeavour open to all.
For the new paradigm to enrich us in the interim, however, what’s critical now is that the entrepreneurial bug goes viral, attracting ever larger swarms of Indians to the buzz of venturing forth into some market or the other with a business of their own. Among other things, what’s crucial here is how well they’re able to outdo the odds against their triumph. Every year, thousands of startups go bust, many of them much ballyhooed, and they watch their investment go up in smoke. Lots of them get hit hard. But some of them bounce right back, like the tennis ball of a pre-Independence poet’s metaphor. No matter what, they’re ready to start all over.
First principles count. So long as the fear of failure daunts fewer and fewer, we have cause for optimism. What matters far more than we commonly appreciate—and why ‘Comeback Kids’ are such an inspiration—is the resilience of entrepreneurs against adversity, the nerve to glare down anything that’s thrown their way, and the grit to go for a goal that looks laughably out of reach. As many of them testify, the very thrill of it can outweigh the payoff. Adrenaline can be addictive.
Such an attitude might be irrational at times, but then so is much of what we consider heroic. Wealth generation needs its heroes. And heroes need no nudge. Those who do are the rest of us, the ones who neither risk a gig of our own, nor invest much in assets created by others.