This post is directed towards how building value in good faith is essential towards building a strong economy.
Question:
Why do we observe a fast growth in the infrastructure of nations that emphasize on honest fair play based trade compared to infrastructure of countries where people are out cheating each other ?
Round one.
Adam spends a million dollars and has Buck build him a house.
Buck spends a million dollars and has Creole build him an App.
Creole spends a million dollars and has Didier build him a Car.
Didier spends a million dollars and has Esteban sow a season’s crop of corn.
Esteban spends a million dollars and has Adam write him a novel.
In the first round of spending, each person in the group has spent a cumulative of a million dollars each and has acquired an asset, good or service in exchange for the million dollars.
At the end of the cycle, we observe that each person has just spent a million dollars each. The amount of money changing hands is a million, the same amount of money every person in the group started with.
Round Two.
In round two,
Adam owns a house
Buck owns an app
Creole owns a Car
Didier owns a season’s crop of corn
Esteban owns a novel
Each are free to invest in a venture of their own choosing albeit how they traded in the first round gives them some unfair
advantages compared to the rest.
Increasing the value of assets:
Adam might decide to build a second floor on top of his already existing house to rent out to other people.
Buck might decide to monetize his app and earn money through subscriptions or advertisements.
Creole might decide to modify his car to add some fancy lightings and increase the speed to increase the valuation of the car to sell it for a profit eventually.
Didier might decide to sell a portion of his corn of crop at the farmer’s market or to Ralph’s for a profit.
Esteban can publish the novel and gain royalty per book bought through the publishing house.
Critical Analysis:
Consider the case of Adam that now owns a house.
Adam in the course of the second round might decide to build a second floor to increase the amount of rent that he can collect monthly. Henceforth, He might decide to build a third floor eventually to increase his earning potential in the third round.
Consider a scenario where instead of building a house with solid foundation, Adam was built a house with cheap and brittle foundation.
The house comes tumbling down.
In round two, Adam has to invest again in building his house from scratch and this time, he wouldn’t hire Buck for Buck did a shoddy job the previous time.
Buck has lost a potential contract (Opportunity cost).
Buck has sabotaged his own position in the successive round by cheating Adam.
Say, Adam’s house was built upon a solid foundation in round one.
Adam would hire Buck again in round two, for he did a splendid job the first time. This time, Buck would lay plans and construct the first floor. Furthermore, in round three and the following rounds, Buck increases his earning potential as does Adam.
This is a scenario where Adam’s properties are taken into perspective.
Conclusion:
If each and everyone among the five were held accountable to providing genuine value and not cheating the other person, the group as a whole would have increased their earning potential despite starting off with a million dollars each.
People often complain about the inequality of wealth between the rich and the poor. They seldom notice that the wealthy bring about and rotate value amongst which, capturing some would be expressed as monetary rewards.
By providing and rotating value to/within the society, we ensure that our economy grows.
Every Time we fail to acknowledge the value brought about by an asset, we hurt the economy.
By consistently generating and rotating value, we are able to build stronger, reliable and peaceful economies.
Originally Written here