Introduction
The social science of economics is possibly as old as humanity itself. In ancient and mediaeval India, people would transact using various objects such as grains, gold, silver, etc. The Arthashastra which is one of the greatest treatises on politics also details out the steps to run an economically prosperous kingdom. Even Shri Rama can be seen teaching Bharata the same in the Ramayana. Indians were the original traders, trading through some of the greatest sea routes in the world. Marine trade flourished during the times of Raja Raja Chola of the Chola dynasty. The Indian or Hindu scriptures tell us that “Artha” or “rightful garnering of wealth” is one of the four goals of human living.
Hence, we can see that economics has always existed even if the current form of money did not, as it is essential for the survival of society. What then is this art and science all about?
Economics, Wealth and Welfare
Firstly, we must understand that economics is not about money alone. It is a lot more than that. It is a well-developed and dynamic science that focuses on various aspects such as production, sustenance, delivery and use of goods and services, lending and taking, fluidity of funds and so on. Economists are those who study how governments, countries, organisations and people take decisions pertaining to resource consumption.
As human beings, we behave in ways that will allow us to reap the maximum benefits out of any undertaking. Economics also studies this behaviour and its impact on the individual’s life and larger economic well-being. Wealth can be defined in general terms as an abundance of availability of material assets or resources. Wealth can be categorised as :
Personal Wealth - It includes personal assets that an individual earns over his lifetime such as gold, houses, property, lands, stocks and shares, cash in hand or in the bank, etc.
National Wealth - It is defined as the wealth of an entire nation or country including government bonds, public properties, national reserves, etc.
The Concepts of Wealth and Welfare
While welfare is defined as the overall well-being of a society, it exists only when the nation has wealth which is an abundance of monetary assets in various forms. Even though wealth and welfare are different concepts, they go hand in hand as one cannot exist or have meaning without the other. When an individual owns wealth, it brings welfare not only to them but also to the community around them. Similarly, in the absence of wealth, society suffers and welfare decreases. Hence both are of equal importance.
Defining Investment
When a person buys or acquires certain financial assets to generate income for himself or acquire goodwill or do both, it is called investment. Investment always happens with a specific intention - to achieve returns or benefits. It is future-oriented hence it might entail certain risks that people take willingly. Especially when someone invests in stocks or share markets, they know they will reap benefits if the share prices of that company soar high but they also stand to lose if it suddenly declares bankruptcy.
Investment is a game of profit and loss with a lot of risks and speculations involved. However, it is one of the major means of saving up for the future.
Types of Investments
There are two major types of investments:
Growth Investment - Because it is related to market changes, it entails many ups and downs and is more suitable for long-term investors who are aware and ready to take risks -
Shares: Investors get periodic dividends as part of the company’s profit that is regularly paid to shareholders. The value of shares do vary and dividends are also dependent upon the profits a company makes. If you master the art of investing in shares, this can become a major source of garnering assets!
Property: This is a growth investment because pieces of properties show spikes over a period of time. It is risky but if one speculates right, they are in for high returns!
Defensive Investment - It generates regular incomes and is meant for those who wish to remain stable and not risk too much over a long period of time.
Cash - It includes bank deposits, savings accounts etc. Although the returns are regular, they have low potential and there is barely any capital growth. It is something a common man depends on.
Fixed Interests - When governments or companies borrow money from investors and pay them a rate of return, it is called bonds that have the lowest risk. They can be sold off pretty quick.
FAQs on Wealth, Welfare, and Investment Concepts Explained
1. What is the main difference between wealth and welfare in economics?
The main difference is that wealth refers to the stock of assets or valuable resources a person or nation owns at a specific point in time, like money, property, or shares. In contrast, welfare refers to the overall well-being or satisfaction of individuals or society, which includes aspects like health, happiness, and living standards.
2. What is meant by 'investment' in the context of economics?
In economics, an investment is the purchase of goods or assets that are not consumed today but are used in the future to create more wealth. This typically involves adding to the capital stock, such as building a new factory, buying machinery, or even spending on education to improve skills (human capital).
3. What are the key characteristics of wealth according to economists?
For something to be considered wealth in economics, it generally needs to have four key characteristics:
- Utility: It must have the power to satisfy a human want.
- Scarcity: It must be limited in supply relative to demand. Air, for example, has utility but isn't scarce, so it's not considered economic wealth.
- Transferability: It must be possible to transfer its ownership from one person to another.
- Externality: It must be external to the human body. A person's skills are valuable but are considered human capital, not wealth in the traditional sense.
4. Can you provide some common examples of wealth?
Common examples of wealth include tangible assets like land and property, cash in the bank, stocks and bonds, gold, and machinery. It can also include intangible assets like patents and copyrights, which have a market value.
5. How are wealth and welfare connected in an economy?
Wealth and welfare are closely connected but not the same. Generally, an increase in a nation's wealth can lead to higher economic welfare. For example, more wealth can fund better hospitals, schools, and public services, improving people's well-being. However, the connection is not automatic; if wealth is distributed very unequally, overall welfare might not improve much.
6. How does making an investment help in creating more wealth?
Investment creates wealth by increasing an economy's productive capacity. When a company invests in a new machine, it can produce more goods, which generates more income and profit, thus increasing financial wealth. Similarly, when an individual invests in their education, they build human capital, which can lead to a better job and higher earnings over their lifetime.
7. Why is it possible for a country to be very wealthy but still have poor economic welfare for its citizens?
A country can be wealthy but have low welfare for several reasons. The most common reason is extreme income inequality, where a vast majority of the wealth is held by a very small percentage of the population. Other factors include high levels of pollution (negative externalities), lack of public services like healthcare and education, or a government that spends wealth on non-welfare areas, leaving the general public with a low quality of life.
8. How does the economic problem of scarcity relate to the concepts of wealth and welfare?
The concept of scarcity is central to economics and links directly to wealth and welfare. Scarcity means we have limited resources but unlimited wants. Wealth is the accumulation of these scarce, valuable resources. The ultimate goal of an economy is to manage this wealth effectively to improve societal welfare—that is, to use our limited resources in the best possible way to satisfy as many wants as possible for the people.
