Your Wealth Makes Me Wealthy

One of the concepts in economics that people seem to have difficulty grasping at an intuitive level is how other people’s income affects one’s own income. Many people instinctively ascribe to the “lump theory” of money, in which one may imagine all wealth to consist of a set amount of money, like a dragon’s hoard. If you capture more of it, that means that someone, somehow, has ended up with less.

In certain circumstances, this theory might describe things pretty well, but in most times and places wealth grows and shrinks with productivity. Basically, if I am able to produce more goods and services of value to othe people in the same amount of time, then my income grows.

Not only does this benefit me, it also benefits the other people near me with whom I do business — even if their productivity has not actually increased.

So for example. It’s not unusual at this time of year to have some guy come knocking on our door and offer to mow the lawn for $20-30. I always say no, partly because I take a non-monetary pride in being the sort of guy who mows his own lawn, but mostly because I don’t want to pay $20-30 for something which I could easily do in 45 minutes of spare time in the evening.

Imagine, however, that I drastically increase my income, by producing goods or services that people value a great deal more than my current efforts. Now I make three times as I did before. The idea of paying $30 not to have to spend an evening mowing my lawn might sound great. Indeed, I might be willing to pay $50. So the lawn mowers would probably end up making more money, even if before going and investing their hard earned money in a 30-inch-swath self-propelled lawn mower and increasing their own productivity.

This is why one of the constants of a growing economy is that all commodities other than human labor decrease in price, while labor increases in price.

5 Responses to Your Wealth Makes Me Wealthy

  1. Phillip says:

    I agree. A man who won’t mow his own lawn isn’t much of a man. Even when I had 1 acre to mow, I did it on my own. With a regular, not a riding mower mind you. Couldn’t afford one.

  2. Donald R. McClarey says:

    I mow my lawn at home and absolutely hate doing it, although one of my sons mows half of it for me. I have my office lawn mowed and would never think of doing it myself. I would pay to have it done at home, except that I am cheaper than I am lazy (at least when it comes to yard work.)!

  3. Blackadder says:

    Excellent point. A related point is that rising wages in one field will make that field relatively more attractive, which means that wages in other fields will have to go up in order for employers to be able to retain workers.

  4. Mike Petrik says:

    My lawn mowing days are over, I hope forever, but I did it for many years and took pride in it, as did my son after me.

    My son, Michael, is matriculating at the University of Illinois this fall to pursue his MBA. Since graduating from DePaul in 2004 (Economics) he has worked for a credit union downtown while living in greater Lincoln Park. He secured that job, which has served him very well, by starting there doing part-time clerical work during the summers he was at DePaul. The part-time work opportunity came by way of a recommendation and tip from the CFO of an Atlanta credit union for whom Michael performed part-time mail room work while in high school. That summer job was the product of the CFO being a neighbor who so admired the outstanding job Michael did on our front lawn (the CFO is an avid golfer and can appreciate such things), that he offered Michael the job under the theory that “any kid who takes that kind of pride in mowing and caring for his family’s lawn is someone I want working for me.” Now that kid is off to Champaign. Taking pride in one’s work does not always pay off, even though we all agree it should I suppose; but sometimes it does.

  5. Gabriel Austin says:

    Chesterton had some reflections on wealth [Illus London News U.S. 12 July 1924]:
    “It is a curious paradox that competition had really the same ethics as communism… The individualist of this school did not, indeed, think of it as other people’s money. Neither did he think of it as his own money. He thought of it simply as money, as a mass of worldly wealth vaguely wandering about, a floating treasure that was in its nature unattached… It was property without a proprietor…
    This sort of individualism had no sense of property…

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