It's common to treat wealth and income as separate things, with wealth being thought of simply as a one-dimensional sum of total bank balance plus estimated value of capital assets minus debt. This may be fine for simplistic listings of the wealthiest few hundred folk in some population, but I find it rather limited – and limiting. The master of a great corporation, even without owning any of it personally, gains by that mastery much that is otherwise only available to those with wealth; likewise, the holder of any public office or position of authority in a religious or community organisation. When combined with wealth in the more traditional sense, such positions of power typically reinforce the benefits that come from wealth. At the heart of what matters here is that these positions, like wealth, allow a person to control how resources are used, in ways that impact other folk's lives.
Now, the impact on other folk's lives is about how the holder of wealth or
power wields it, which I do consider important to separate from
assessment of how much they have (for all that it matters, especially
to those other folk, but also to how much wealth and power the wielder shall
subsequently have), but the wealth and power blur into one another, so I want to
unify them. At the same time, income is a relevant component of both, whose
impact isn't faithfully captured by just adding all past accumulations of it up.
So I'll use wealth
to mean, more
generally, control of resources, and I'll differentiate it
along a spectrum of time-scales, from short-term (roughly income) to long-term
(roughly the usual total of assets minus liabilities).
Note that the control is as important as the resources; if you have a pension fund, technically you own it, but you may have very little control over it; the tax benefits some states grant to funds set aside for a pension come at the cost of limiting your access to those funds and how you can use them once you do access them. Even without that, for many folk, the pension fund is an opaque corporate financial instrument that they put money into, in the hope of later getting money back, with very limited oversight (much less control) of what happens to that money in between. Such a pension fund is, in important senses, less empowering to its owner than an equivalent amount of money (even minus the tax that would have been paid had it not been a pension) in the bank, or in any other more immediately wieldable form. It is still wealth, and (at least in principle, modulo future market collapses) worth what it says on the tin in the long run, but I'm deliberately looking at understanding wealth in terms that will capture the practical reality that a similar amount of wealth in a more accessible form is in fact worth more to its owner. This is where the various time-scales come in: the mortgage fund is an asset, a part of its holder's long-term wealth, but it contributes less to their wealth in the short to medium term.
More flexible forms of wealth allow their holder to influence the world in the medium term. Even simply by selling assets of one type and buying another, nominally with the same present value, the holder of wealth can influence the world. When businesses need capital to get started, they persuade those who control capital to do this, selling other forms of capital in order to by a stake in the new business; so this is a vital part of how the economy grows. Transfers between different types of asset are also, of course, a way to increase one's total wealth; and when many transfer out of some asset type, its value may collapse, with potentially catastrophic consequences for those left owning or dependent on it. These, then, are medium- and short-term effects of the flexibility of a long-term asset.
The other consequence of focussing on control of resources, rather than just on the resources themselves, is that it captures the wealth-like benefits that flow from holding a position of authority, whether in business, politics, religion or any other form of power structure. Being able to direct or even simply influence the actions of other people makes it easier to turn your intentions into reality. Such positions are most commonly medium-term, in that one holds them for a time and then moves on to other things or retires, although there are sometimes exceptions. Some positions are life appointments, or even hereditary (and having the authority to appoint your successor has just as much rach into the future as heredity, arguably in fact more), making them just as long-term as any capital asset; other positions are overtly for just a short period of time, making them just as short-term as income.
One position that illustrates this is that of fund manager for a pension
business; while the nominal owner
of the pension may have little say in
how it is managed, the business that manages it has employees who do get to
decide the form in which that wealth is held. They, then, exercise the control
that the owner of a more flexible asset would normally exercise; they do,
thereby, have power in consequence of their exercise of that control. Indeed,
the decisions of pension fund managers have a significant impact on the workings
of the economy, predicated as those decisions are on long term growth. That is
important to the rest of us – not only the owner of the pension –
because it can distort (or even crash) the economy on which we all depend.
Written by Eddy.