Is your investment working for you? What Ratan Tata's legacy can teach you about wealth creation When we say someone has created wealth, we mean they have brought something into existence that enhances our ability to live, work or enjoy life
Dhirendra Kumar
CEO, Value Research
What is economy? What is wealth? What is it that is gained or lost when people say ‘someone created wealth’ or that ‘the economy is growing’? To understand this, let’s consider a couple of jokes. Two economists are walking in a forest when they come across a heap of dung. The first economist says to the other, “I’ll pay you $100 to eat this.” The second economist takes the $100 and eats it. They continue walking till they come across a second heap. The second economist turns to the first one and says, “I’ll pay you $100 to eat this.” The first economist takes $100 and eats it. A little later, the first economist becomes thoughtful and says, “I gave you $100 to eat dung, then you gave me back the same $100 to eat it. I can’t help but feel that we both just ate dung for nothing.” “That’s not true,” responds the second economist, “We increased the GDP by $200.”
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} Someone had responded to this joke on social media: “Two economists were shipwrecked on a deserted island. Over the next 20 years, they made $124 million, selling their hats to each other.” Someone else had commented, “So that’s why they call it gross domestic product”, but we’ll let that pass.
On a different note, El Salvador President Nayib Bukele has been conducting a massive crackdown on crime in his country, which has long struggled with widespread gang violence and criminal activity. This aggressive approach to law enforcement has led to a significant reduction in crime rate, but it has also sparked discussions about its potential economic impact. Some people have suggested that reducing crime could potentially shrink the economy as criminal activities are considered to contribute to economic activity. However, this idea fundamentally misunderstands what an economy is.
An economy is essentially a collection of valuable goods and services. Money is merely a tool for measuring and distributing these resources. Non-productive activities don’t contribute to this collection; they typically just redistribute or destroy the existing resources. The belief that non-productive activities grow the economy through spending is known as the Broken Window Fallacy. This fallacy assumes that replacing destroyed property stimulates economic growth, but it ignores the opportunity cost of not using these resources for new production. The economy grows through increased supply of goods and services, not through artificial demand created by meaningless or destructive activities.
I’m not considering whether such things would be measured in GDP or not. I suspect they wouldn’t be, but there’s an underlying reality that is separate from measurement. Wealth is like that. Ratan Tata passed away recently and all of us read and watched a lot of things about him. For a man who was so rich, it’s remarkable how little of the public conversation about him was about wealth and money. What is wealth, really? What do we mean when we say the economy is growing? These questions go beyond mere numbers and statistics, touching upon the fundamental nature of value and human progress.
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When we say someone has created wealth, we mean they have brought something into existence that enhances our ability to live, work or enjoy life. The jokes about economists highlight a crucial point: not all economic activity is equally valuable. Two people exchanging money for meaningless or destructive acts doesn’t create real wealth, even if it technically increases the GDP. Similarly, Ratan Tata’s wealth wasn’t just about the money he accumulated, but about the industries he built, the jobs he created, and the innovations he fostered.
This has more than a little relevance to investing. These are not end-goal activities, but means to an end. The true measure of an economy, and of wealth creation, lies in its ability to improve the quality of life. When we invest, we’re not just chasing numbers on a screen, but participating in the creation and distribution of real value in society. It’s not about chasing numbers on a screen. The numbers can go up and down and be entertaining for a while. But that’s all they are.
The Author is CEO, VALUE RESEARCH
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;} (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
This story originally appeared on: India Times - Author:Faqs of Insurances
