Wealth Principles: The Principle Of Human Productivity

Posted: Feb 28, 2018 11:05 AM
Wealth Principles: The Principle Of Human Productivity

Don't just stand there, do something.

This phrase has been used by many in history. It has been attributed to Clint Eastwood, Dwight Eisenhower, and a backward version has even been uttered by the White Rabbit in Alice in Wonderland. The author is not nearly as important as the principle behind the sentiment.

From the beginning man was created to be productive. In ancient religious writings, such as the Bible, God gives man the instruction to “be fruitful and multiply,” and “care for the garden.” we are designed and created to be productive people that derive satisfaction and fulfillment in our ability to produce.

Today, a major goal of every business in the world is how to be more productive. Massive amounts of resources are spent on developing ways to cut costs by becoming more efficient and, thereby, more productive.

This is what socialism is missing. Socialism says that everyone will be happy if we just divide everything evenly. Socialism ignores the principle of human productivity by making it possible for people that do very little to have the same means as those producing greater amounts. Socialism effectively removes the incentive to human productivity.

Many welfare systems that have no work requirement also violate the principle of human productivity. If I don't have to work and the government will still provide free housing, health care, cell phones, and food, what is my incentive to work? Poverty is perpetuated by the idea that people shouldn't have to be productive in order to receive goods and services.

We naively assume that every person has the same level of desire to be productive. But history tells us this is not true. Some have a greater desire and push harder to produce more. Others have a lesser desire to produce and are more content with modest means. There's nothing wrong with this as both have a desire to be productive. But it is a warning that any attempt to circumvent the principle of productivity will necessarily remove the incentive to be productive.

Without the principle of productivity and the incentive to be productive, it is not possible to create and sustain wealth. Productivity is the very reason that businesses exist. Economist Jerry Bowyer makes this point in his recent article:

“Businesses gather people together to help them be more productive. That's the point of companies. As Nobelist Ronald Coase argued a century ago in “The Theory of the Firm”, business firms exist because putting people in the same organizations cuts down on the coordination cost which it takes to get them cooperating if they were not working for the same business. They are more productive together.”

It is human productivity that enables countries to create wealth; the same wealth that is the incentive for its people to work and be productive. A quick survey of the global landscape reveals that countries with the highest level of individual productivity are also the countries where people have an incentive to work. In countries where incentive is not great, productivity is lower. Where incentive is low and productivity is hindered, personal wealth is lagging.

The incentive to work and be productive is different for everyone. For some it is a big house and luxury cars. For others its the ability to travel. Still some find incentive in providing a certain lifestyle for their family. Regardless of what the incentive is for working, without incentive you can be sure that human productivity will be low. And if human productivity is low it will be nearly impossible for any country to create and sustain wealth.

Governments would do well to guard the incentive of human productivity. Creating laws that frustrate the incentive of citizens to work and be productive will have disastrous results long-term. High tax rates reduce the ability of people to save or even to spend; this will necessarily reduce financial stability and wealth while increasing indebtedness. Ongoing (and long-term) the result will be people that depend on the government for basic necessities, which will create a problem for the government as social welfare spending increases.

Consider for a moment that Switzerland and Norway are among world nations with the highest average wealth per person. Switzerland and Norway are also two of the richest countries in the world. Norway has the highest average income among all other countries. Switzerland has one of the lowest income tax rates of any country. Neither Switzerland or Norway are among the countries with the highest national debt. And, neither Switzerland nor Norway are among the countries with the highest levels of social welfare spending.

The United States, on the other hand, is not competing quite as well. The U.S. Lags behind Switzerland and Norway in average wealth per person and in national wealth. We barely make the top 10 in highest average income. And the U.S. Has one of the highest national debts and social welfare spending among world countries. 

What is the conclusion?

When people have an incentive to work and be productive, wealth is created. Countries and governments that incentivize people to work and be productive will create citizens that are productive and will, in turn, create wealth.