You will probably agree that we live in an exchange economy where you exchange large quantities of the specific good or service that you have trained yourself to produce very efficiently for much smaller quantities of a wide range of goods and services which are very efficiently produced by other people. This is all good and fair; you create significant quantities of value and then exchange this value in a free market for the value produced by others.
It is absolutely crucial that this system of value exchange is well understood, primarily to drill home the concept that, in order for a society to prosper, the majority of people have to create more value than they consume (a fundamental principle which the developed world seems to have forgotten). There are many different ways in which we can create value in our modern exchange economy. Let’s take a look at the most important ones.
We’ll start with the things that we really need to survive every single day; the things that, if any of them were to be removed, would cause our society to collapse almost instantaneously. These essential commodities include consumables such as food, water and electricity, services such as health, law and education, and capital such as housing, energy infrastructure and vehicles.
An important further distinction needs to be made between the people adding value in these sectors. Some people, like farmers, teachers and engineers, create value directly, thereby essentially making society richer through their actions. The farmer produces food that wasn’t there before, the teacher greatly increases the value of the human capital in a society, and the engineer creates the physical capital needed to optimally run our society.
On the other hand, people like policemen, firefighters and doctors can be seen as preservers of value instead of creators of value. Their job is to protect the value (physical and human capital) that has already been created. They therefore do not create any value through their actions, but rather prevent or minimise the destruction of the value that has already been created.
This category comprises a very large section of our economy. These are also people who add no direct value to society, but rather direct their efforts to manage and distribute the value already created in order to facilitate more efficient value creation in the future. Examples of people working in this category include retailers, salesmen, advertisers, accountants, managers and politicians. None of these people create any real value such as the food produced by the farmer or the power plant designed by the engineer, but rather serves to support these value creators, allowing them to create value more efficiently.
It is important to note how large a portion of our modern economy is comprised of people working in this sector. As shown below, only the four largest categories in the US labor market (which all fall in this category) account for 43% of the entire workforce. As said before, these people create no direct value, but as long as their actions enhance the creation of further value, they are making a very important contribution to society.
This sector comprises of people like professional musicians, actors and athletes; those who add value by entertaining society. These are the luxury jobs in our society because they do not create any essential value or even assist in the creation of essential value. They are there for one purpose and one purpose only: making society happy. This is a very important job considering that happiness really is our primary goal in life, but it is important to note that no value is directly created by this group either.
Nonetheless, entertainers represent a large section of our society. The USA has about 4 times more people involved in professional sports, moviemaking, television and art than it has in farming, fishing and forestry.
To be continued on the next page…