This is the second book of the “Wealth of the People” book series. The series is an inquiry about the requirements for the production of wealth in a society.
The first book looked at the economics of Robinson Crusoe alone in an island and concluded that to produce wealth you have to work using your capital structure. The amount of investment in your capital structure determines the income that you can make with your work. Your capital structure is composed of tools that make your physical capital and the knowledge to make them and use them, which is called your human capital.
The second book looks at the requirements for the wealth production process to continue when you find a neighbor in the island. An agreement to respect life and property emerges as a requirement for the wealth production process to continue and becomes a factor of production. This agreement and other agreements that will be discussed later can be grouped under the concept of “Social Capital”, defined as the existence of agreements between two or more individuals that are needed for the wealth production process to continue. Social capital becomes a requisite for the capital structure to function and in this way becomes a factor of production and a determinant of the income that you and your neighbor can make.
The rest of the titles of the “Wealth of the People” series are listed at the end of this book.
The second book of the series “The Wealth of the People” is about the relationship that you need to have with a neighbor in the island if you want to preserve and increase your income. You have to make an agreement with your neighbor of mutual respect for life and property. This agreement preserves the status quo so that each of you can continue working in your respective wealth production activities. Once this agreement is in place, you will find out that you can increase your income through trade. By trading products, your advantage in a wealth production process can be passed to your neighbor in a voluntary agreement that occurs because there is profit for both parties. A simple example shows that both of you can increase your income through trade. It is an economic conclusion of the book that it is to the advantage of both parties to respect each other’s life and property and to engage in free trade.
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The Wealth of the People:
Your Neighbor’s Wealth
An Inquiry into the Relationship between
Wealth, Freedom, and Life
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In book one you were alone in an island working hard to survive and building up your capital structure and one day you find out that there is another person living in the island. How would you approach this person? The first question in your mind would be whether this person will be friendly or hostile. Hostility is a real possibility. Remember that the first people that Robinson Crusoe encountered in his island were cannibals. You would want to know if your neighbor is a threat to your life or a potential friend.
Maybe your neighbor is not a cannibal, but he might be tempted to steal your food and tools. As a result of your work and your investment, you should possess some perishable products, some durable goods and some tools. Your neighbor might be tempted to take them all away. Would he be strong enough to try it? Does he have a superior weapon like Robinson’s musket that he might be tempted to steal your possessions with impunity? Maybe he is part of a tribe that might enslave you?
It could also be that your neighbor discovers that you exist in the island and he thinks that you are the threat. Maybe he will be afraid of you and maybe you are the one that is capable of stealing his possessions. …
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