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The Labor Principle of Wealth Production To produce wealth you have to apply your mind, your body, and your time into actions that will result in the products that you need.. In the proc

The Wealth of the People:

Your Wealth

An Inquiry into the Relationship between

Wealth, Freedom, and Life

ByFernando Urias

* * * * *SMASHWORDS EDITION

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PUBLISHED BY:

Fernando Urias on Smashwords

The Wealth of the People:

Your Wealth

An Inquiry into the Relationship between

Wealth, Freedom, and LifeCopyright © 2011 by Fernando Urias

The author acknowledges the trademarked status and trademark owners of various products referenced in this work, which have been used without permission The publication/use of these trademarks is not authorized, associated with, or sponsored by the trademark owners

Smashwords Edition License Notes

Thank you for downloading this free e-book You are welcome to share it with your friends This book may be reproduced, copied and distributed for non-commercial purposes, provided that it remains in its complete original form If you enjoyed this book, please return to Smashwords.com to discover other works Thank you for your support

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Dedication

This book is dedicated to the billions of people that live in poverty

I hope that this inquiry may help in the improvement of any country that might need it

Acknowledgements

The intellectual debt of this book is great It goes back many years in my life It starts with a paperback copy of Ayn Rand’s “The Fountainhead” that I found buried in the sand of a beach in Mazatlan, Mexico in the spring break of one of my college years I started reading "The Fountainhead" that night and finished it before the trip was over Back in college at the University of Texas

in El Paso, I was able to read the rest of her works

After reading Ayn Rand I was elated by the possibilities of free economies

I continued to read anything that could find that would throw any light on the subject In this pursuit I found Ludwig Von Mises, Friedrich A Hayek, Murray N Rothbard, Milton Friedman, Adam Smith, and many others This book and the book series that will follow contains what I was able to understand from all these readings as the causes of wealth in a society

I am very thankful for the opportunity to publish a digital book and I look forward to the possibility of reaching people in their smartphones in places where printed books might still be relatively difficult to obtain Thanks to Smashwords.com and Mark Coker for providing this media

I am thankful to my parents, Mama Blanca (Blanca Vega de Urias) and Papa Jojo (Fernando Urias Escobar) that held as their highest priority to give a good education to their children This education came at the cost of many other things.

Disclaimer

This book is designed to provide information and entertainment It is

published with the understanding that the publisher and author are not

engaged in rendering legal, economic, accounting, political, financial, or any other type of professional service If legal or other expert assistance is

required, the services of a competent professional should be sought

It is not the purpose of this book to reprint all the information that is otherwise available to authors and publishers but instead to complement, amplify, and supplement other texts You are urged to read all the available material and learn as much as possible about economics and human

organizations and tailor the information to your individual needs

Every effort has been made to make this book as complete and as accurate

as possible However, there may be mistakes, both typographical and in

content Therefore, this text should be used only as a general guide and not as the ultimate source on economic or social organizations Furthermore, this manual contains information on economics and social sciences that is current only up to the publishing date

The purpose of this book is to educate and entertain The author and publisher shall have neither liability nor responsibility to any person or entity with respect to any loss or damage caused, or alleged to have been caused, directly or indirectly, by the information contained in this book

* * * * *

The Wealth of the People:

Your Wealth

An Inquiry into the Relationship between

Wealth, Freedom, and Life

science, history, business, psychology, religion, and other disciplines This series of books is an attempt to break this complex answer into simple

elements that might be easily explained This will attempted by reviewing one element in each book, starting with simple elements and building up to more complex conclusions

This is the first book of the series It is about the wealth of a single person

in an island The titles of the rest of the series are listed at the end of this book

living, business, cultural, and political conditions in both countries and this experience has fueled a desire to try to explain the differences This bicultural experience, an interest in economics, and an education in engineering might allow me to have a unique perspective on the subject.

The first book is about producing wealth in a desert island, just like

Robinson Crusoe in Daniel Defoe's novel Welcome to the first book

* * * * *

The Wealth of the People:

Your Wealth

An Inquiry into the Relationship between

Wealth, Freedom, and Life

* * * * *

Alone in an Island

Imagine that you are the sole survivor of a shipwreck in an island Instead

of having the benefits of the remains of the shipwreck as Robinson Crusoe had, all you have are the clothes that you are wearing What would you have to do

The Definition of Wealth

Upon your arrival in the island you would be poor To be wealthy is to have

plenty of resources to sustain your life You have your mind and your body which are very valuable but they would not be sufficient to make you feel wealthy You would want to have plenty of water, food, clothing, and a good shelter.

Your Assets

To satisfy your needs, you would have to use your mind and your body Your mind and your body are your assets You would have to use your mind to think where to find water to drink and you would have to use your legs to walk until you find it You would have to think what vegetables to eat and walk to collect them You have to use your assets, which at this point are only your mind and your body, to produce the products that you need

The Natural Resources

To satisfy your needs you would also have to use the natural resources of the island You would have to find fresh water in a creek that you could drink without getting sick You would have to pick vegetables that you could eat You would have to find out how to hunt an animal You will have to figure out how

to start a fire to cook the animal You would have to use earth material, such

as mud, stones, and sticks, to build a shelter

The Production Process

To meet each of your needs you have to go through a production process You have to engage your mind and your body in a process that will give you the products you need Even the simple task of drinking water from a creek is a production process that converts the natural resource “water in the creek” into the product “water in your mouth”

Each production process will consume your time It will require the use of your mind, your body, and your time

Your Labor

Every production process requires the use of your labor Your labor is the exertion of your effort during a period of time When you are involved in a production process, you are working You are executing the actions required to produce the products that will satisfy your needs You might think that the work is pleasant or that it is not but it does not matter because you have to do

Your Costs

There is no money in the island but you will be incurring costs to obtain the products that you want You would measure the cost of getting a product in terms of the time that it takes you to produce it If it takes you thirty minutes

to go to a creek to drink water to satisfy your thirst, you will think that

satisfying your thirst costs thirty minutes If you have to satisfy your thirst four times per day and each time it takes thirty minutes to walk to the creek, then the cost of satisfying your thirst in a day would be two hours

Your Income

Your income is the amount of wealth that you can produce with your work

in a period of time In society, your income is the amount of money that you are paid for the time worked In the island there is no money but you would have an income Your income would be the set of products that you would produce If you spend thirty minutes to go to a creek to drink a pint of water, this pint of water is your income If you go to the creek four times a day and you drink one pint of water each time, your income would be four pints of

water at the cost of two hours of work If you spend one hour collecting one pound of vegetables, this pound of vegetables would be part of your income If you hunt a wild turkey in two hours, the turkey is your income for the hunting work of two hours The sum of all these products is your income for the day In

a day like this, you might earn four pints of water, one pound of vegetables, and one turkey at the cost of five hours of labor

The Labor Principle of Wealth Production

To produce wealth you have to apply your mind, your body, and your time into actions that will result in the products that you need Wealth is the

result of working in a productive activity Your income is the amount of

wealth produced by your work during the time that you work.

The Production of Wealth

The title of this paragraph: "The Production of Wealth" is meant to bring to mind the work that needs to be done to produce wealth It is suited better to understand the essence of wealth than the more common title: "The Creation

of Wealth" The word "creation" gives the idea that wealth is created out of nothing Wealth has to be produced and its production requires the use of human labor If you think of an apple as wealth, you can think of an apple hanging from a tree in the middle of a forest, like the forests that exist in fairy tales, and say that this apple was created The reality is that an apple

available in a supermarket is not created but produced It has to be harvested, packed, refrigerated, transported and it comes from an orchard where apple trees are planted, fertilized, irrigated, pruned, and tended for several years by people that get paid to do so An apple in a supermarket is wealth that has to

be produced

Your Time Budget

To produce the products that you need, you have a finite amount of time The day has twenty four hours and in this time, you have to sleep, eat,

and work Your effective working hours might be fourteen hours or less

Whatever this number is, it is a finite number You are on a time budget

Depending on the conditions of the island, you could spend most of the day to barely complete a meal Without any tools to produce food, you would

be in a state of hunger and poverty

The Value of Your Products

The value of the products that you would choose to produce would come from the satisfaction that they will provide to you The value of the water that you drink comes from the satisfaction of your thirst There is no way to

measure this satisfaction and compare it to the satisfaction of eating an apple All you know is that you are thirsty and hungry and that you need to drink and eat You make the decision to produce these products considering your need, the cost of the products, and your budget

The Time Budget with the Highest Value

You would have to decide which set of products that will fit in your budget will give you the greatest value There is nobody in the island that will lend you anything so you have to stay within your time budget

You will not be able to produce many products that are of high value because you cannot afford them There are many things that you would like to have but you would not have the time to make them

In the island, the set of products that would fit your budget and might have the highest value to you could be four pints of water, one pound of

vegetables, a wild turkey, and other products that would bring you the highest satisfaction possible Maybe you would spend two hours working on your shelter and one hour working on your clothes You will also have meal times and

resting periods In doing all these activities, you would fill up your time with the production of products and the activities that would maximize the value of your time budget

Your Time is Your Money

You probably have heard the saying that time is money In the island, there is no money but your time is literally your money If you want to buy a product, you have to buy it from nature using your time and your work The famous phrase could be restated more correctly as “time and work is money”

In the process of working, you are exchanging your time and your work for the products that you need

Increasing Your Income

Since you would not have any tools, you would spend the whole day to produce a very small amount of the products The amount of products that you can produce with your bare hands is very limited Your income would be low You would be poor You would want to consume more but to consume more you have to produce more How can you do it? How can you increase your income?

Working for the Longest Time

One of the ways to increase your income is to work as many hours as you can The quantity of products that you will produce will be in proportion to the hours worked If you work ten hours instead of eight, you income should be twenty five percent greater because ten hours are twenty five percent greater than eight hours You can maximize your income by maximizing the hours worked

Working Fast

Another way to increase your income is by working fast If you work slowly, you will produce very few products To increase your income working fast, you have to work as fast as possible without causing damage to yourself or

to the material that you are working with There is no use of spending three hours collecting vegetables at a very fast pace if you hurt your back and you have to stop for a week to heal or if the vegetables that you pick spoil easily because they were damaged during the picking process To maximize your

production output across many days, you have to work with quality, as fast as possible, and at a pace that you can sustain for long periods of time A good approach is to work with high quality and carefully initially to do a product well and increase the speed once you know how to do it right.

The income for working fast will be in proportion to the speed of the work If you are able to pick up the pace and work thirty percent faster, your income will be thirty percent greater

Performing a task several times makes you faster You are always in a learning curve The greatest improvement is experienced from doing a task the first time to the second time This is one of the reasons that you should always have a bias for action If a task needs to get done, get it done it even if you are not very good at it Do it carefully the first time and as you repeat the task, you will become better and faster You can become fast and good at any task if you do it many times

Working Smarter

To increase your income more than in proportion to the longest working time and the fastest speed that you can sustain, you have to work smarter You have to use your mind to think of new production processes that will increase your income many times over These new production processes will require the use of tools

If you think about the process of drinking water from the creek, it might occur to you that instead of walking to the creek four times a day whenever you are thirsty, you could make a pouch to carry the water that you will need for the whole day If every trip to the creek would cost thirty minutes and you would make four trips per day, the total cost to satisfy your thirst in a day would be two hours With a water pouch you could reduce your trips to one per day and reduce the cost of satisfying your thirst from two hours to thirty

minutes You could save one and one half hours every day

The Investment Decision

Laboring is putting your effort and time in an existing process to obtain a product that you need When you spend time thinking about improving the process, about designing a better method of production, and about making the tools for this better method, you are investing If you think about a pouch to carry water, you are investing your thoughts and your time in a new process that will be more productive When you decide to build the pouch, you will have decided to invest your time in building a tool that is needed for the new process When you are making the pouch, you are investing your time in making

a tool that will make your process more productive

To make a wise investment decision, you need to know how long it will take to build it, how long it will last, and how much time it will save If the water pouch takes thirty hours to build and lasts for only ten days, then the daily cost would be three hours This is a greater cost than the one and one half hours that it would save At this cost and durability, the pouch is not a good investment Drinking water using the pouch would be more expensive than walking to the creek four times per day But if the water pouch was easier

to make and it would last longer, then it might be a good investment If

building the pouch would take ten hours and it would last for twenty days, the daily cost would be thirty minutes per day This is less than the one hour and a half that it could save The total daily cost of drinking water would be less than with the current process The total cost would be one hour consisting of thirty minutes for one daily trip to the creek and thirty minutes for the daily

replacement cost of the pouch The net savings would be one hour since the original cost was two hours These are pretty good savings just for the

construction of a simple water pouch You would be adding one hour to each day of the rest of your life

Your Investment Budget

Once you know that the pouch is a good investment, you would have to decide how much time to allocate daily to the manufacturing of the pouch You could spend ten hours in a single day building it but you would go hungry and

thirsty An alternative would be to allocate a smaller portion of your time budget The time that you would allocate is your investment budget If you invest half an hour every day, you can have the water pouch in twenty days If you invest one hour every day, you can have it in ten days This investment time would have to come from restricting your production and consumption of other products.

The percentage of your time budget that can go into your investment budget can vary from zero to one hundred percent At zero percent investment you would be producing and consuming products with your existing production process without ever improving the processes Your income will never increase

At one hundred percent of investing you would be thinking about new processes all the time and you would never produce or consume You would be thirsty and hungry The right proportion of production time, consumption time, and investment time is somewhere in the middle You want to be producing the products that you need and investing significant amounts of time to improve your production processes to keep your income and your wealth always

increasing

The Investment Principle of Wealth Production

To increase your wealth production capability, you have to develop ideas and build tools that will increase the productivity of your time The use

of these ideas and tools will increase the output of your production process and increase your income, which is your capability of producing wealth in a period of time.

The Increase in Your Physical Assets

The water pouch would be an addition to your physical assets When you arrived at the island you had your mind, your body, and your clothes Now you have you mind, your body, your clothes, and the water pouch The water pouch increases your income as many other tools will To increase your wealth, you have to increase your capacity to produce You have to increase the physical

assets that will assist you to produce income The pouch is a physical asset that makes the production of the product “water in your mouth” more efficient.

Your Physical Capital

The physical assets that increase your income and make your life easier are called together physical capital The word capital came into use in the eighteen century to denote economic resources It was used to refer to a stock

of money, a stock of goods, and later it was used more broadly It also has been used to mean a stock of tools for production The buildings, tractors, machines, and other tools are all part of the physical capital of a business enterprise The pouch would be your first tool in a long list of physical assets that can increase your income Under this definition, all the tools that you build to improve your production processes will be part of your physical

capital

To increase your income, you have to develop and build many tools You would not be able to farm a small piece of land with your bare hands but you could do it with a pick axe and a shovel With a diesel tractor, you could farm several acres

The Increase in Your Mind Assets

By building the first pouch, you would learn how to do one Learning increases the capability of your mind You would be increasing your mind

assets An increase in knowledge that can help you in the production of wealth

is an increase in the power of your mind

There are mind assets that their use in the production process is not obviously apparent, for example, the knowledge of where things are Locating the creek the first time might have taken several hours but once you know where it is, you do not have to spend time repeating the search The value of the knowledge of the location of the creek is worth several hours to you Your ability to think, talk, and read are all part of your mind assets

Your Human Capital

The idea of making a pouch, the knowledge of its manufacture, the willingness to invest the necessary time, and the method of using it are all necessary elements of the water pouch production process These attributes of the mind are means of production For this reason, they are called human capital

All the tools that are part of your physical capital have elements of human capital in them A new process starts with an idea, it needs a tool that needs to be designed and manufactured, and it will have a have a method of use once it is in production The new process is a combination of physical and human capital

Any idea that you have on how to make a product that you need is part

of your human capital Any knowledge that you have that facilitates your

production processes it part of your human capital

Your stock of human capital is quite considerable It includes your ability

to think, talk, read, and write The human capital that you are born with and that you acquire through education has been building up in the human race for thousands of years

Your labor also has an element of human capital because you have to know how to run the production process You have to know how to produce with tools and this knowledge is also part of your human capital

The Maintenance of Your Physical Capital

The water pouch frees one and a half hour of your time but it only lasts twenty days To keep on drinking water using the water pouch you would have

to invest thirty minutes every day making a new pouch that will replace the old pouch when it breaks down This means that the water pouch really saved only one hour daily and not one and a half hours If you do not invest this time for maintenance, you would fall back to a drinking time of two hours per day

Your Investment Maintenance Budget

If you decided to invest only half an hour per day because it was all you could afford, this half hour would be consumed just in the maintenance of the pouch and you would not be able to improve your income any further To

improve your income, you have to increase your investment to a higher

quantity than that required for maintenance

From the time saved in the improved production process, you have one extra hour If you decide to spend the extra hour in production and

consumption only, you will not increase your income any further If you want to continue to increase your income, you need to invest a good portion of the hour gained

The Maintenance of the Human Capital

Physical assets decay with use and time It is less obvious that is also necessary to maintain your mind assets The knowledge of the location of the creek will be there as long as you can remember it, so it would seem that it does not require maintenance But the knowledge of a process can be forgotten

if not practiced and therefore it does require a maintenance that occurs while practicing the process

Another requirement for the maintenance of the mind assets is to give the body the proper nutrition and not to poison it with drugs or alcohol If you

do not follow this required maintenance for your mind, you will lose the ability

to remember, to think better methods of production, and its ability to produce wealth

In society, knowledge becomes obsolete when better processes are

devised by other people Maintenance of the mind assets is understood as the knowledge necessary to compete in the market This is not true maintenance but keeping up with competition It is an upgrade of the knowledge necessary

to stay in business

The Investment Maintenance Principle of Wealth Production

To maintain your level of wealth production capability, you have to