The Essence of Wealth Creation

Many people speak of wealth creation as though it’s just about accumulating assets and money. Find a way to get the money coming in, then invest it to grow your net worth; that’s the most common conception. But there is a difference between creation and transference, and “getting” money can be mistakenly called “making money,” which is often not the same process at all.

For example, suppose you make a bet with a friend on a football game and you win. No new value is created, except the minor pleasure of gambling perhaps. The money is simply moved from the your friend’s wallet to yours. On a larger scale, we can say the same when credit default swaps are used by financial institutions not as insurance, but merely as a form of gambling. Large banks and funds became gamblers in the years leading up to the real estate slump that started in 2006, using these derivatives in that way. Some were no longer creating any real value, instead just moving wealth around by way of speculative bets.

Wealth Creation is What?

If it isn’t just getting rich, then, what is wealth creation? For an easy example, let’s get back to the small scale; you buy a couch and there is real value created and traded. A company creates a comfortable piece of furniture that people want to use, and buying materials ranging from wood to cloth and nails in the process. Such things are real created values. You, meanwhile, have to create and trade something of value to get the money needed to buy the couch or other furniture. That would be your labor and skills if you’re an employee, or your product or service if you own a business. Wealth creation takes place every step of the way.

Basic speculation can create value in the right circumstances. Those who trade futures contracts, for example, create a way for farmers to guarantee a price for their crops months in advance. That way they don’t go bankrupt if the market price is down when it’s time to harvest. Meanwhile, a tortilla chip maker can know ahead of time what his corn will cost, and so plan effectively for his future production. It is the speculators who take on the risk, creating a valuable system that allows more consistent production and planning.

The crucial test is that any honest wealth creation serves the needs of people in some way. Swindle a man out of money and you can profit in a financial sense, but nothing new is created. You have to make something of value to create wealth, and trade it to create financial riches. It isn’t difficult to understand the idea, but it is often forgotten or ignored.

When many people think of how to make money they think of a job or business, but do so in a mechanical way, meaning they think of the steps to go through to gain money. Get a job, do as you’re told and collect a paycheck, or start a business, follow what others have done and make a profit if all goes well. Nothing is wrong with this approach in itself, but it is very uncreative and limited. After all, someone else has to provide the job to be done or the business model to be imitated.

What’s the alternative to this? Start by looking at what value you actually can create and provide to others. At the simplest level, forget about the paycheck for a moment and ask if you are providing much value to your employer. Ask what you could do to create even more value. If in business, consider what customers want and need and if there are better ways to provide those products or services. Explore the possibilities of other needs people may have.

The essence of wealth creation starts with original thought. You can of course also copy what others have done and in doing so provide real value to people. Either way, providing something of real value to people is a much more satisfying way to make money than to simply look for the quickest way to move dollars into your pockets. Naturally you want to “get paid,” and there are always ways to do that, but wealth creation comes first if you want to do that in an honest and healthy way.

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