The other day I was thinking about the origins of wealth and if there’s a simple formula that describes its essence? A formula that can be expressed in simple mathematical terms? After some thought, I believe I’ve found such a formula and I’ll walk through its basic elements in this article.
Let’s start with work. In order for value to be exchanged or sold, something valuable needs to be created and this requires work. Now, for someone to do good work, they need knowledge. And this knowledge comes from learning from others or through personal experiences. This led me to conclude that the result of applying knowledge through work could be the simplest form of generating wealth, like this:
Wealth = knowledge x work
This means that the more knowledge a person has, the more wealth it can create by applying this knowledge on work. Here are three examples:
- Farmers create wealth through their agricultural knowledge. They plant, reap, and sell produce. Better farming knowledge leads to more efficient production, generating more wealth over time.
- Employees earn income by applying their expertise at work. Their salary grows in two ways: working more hours or gaining more knowledge and expertise. Both paths lead to higher income with time.
- Business owners use their skills to meet market needs. They design products and manage operations. Their wealth grows as they innovate on their products and scale the business, while also learning to cut costs.
What about chance?
Some might say people get wealth by chance, like winning the lottery or because of their family upbringing. While this can certainly be true, it all comes down to taking opportunities, which can be a multiplying factor for wealth. Let’s add it to the formula, like this:
W = (knowledge x work) x opportunities
This means that the opportunities we take have the power to multiply the result of our knowledge and work. Even if someone receives wealth as an inheritance or gift, it will disappear over time if this opportunity is not used to multiply knowledge and work. Here are three examples of wealth generating opportunities:
- A grant to get education or start a new project
- An invitation to co-found or invest in a new venture
- A recommendation to apply for a role in a current or new company
Taking one or more opportunities can multiply wealth as little as a factor of 1.001x, or as large as a factor of 100x. You get the idea – opportunities are truly powerful multipliers. However, they can only amplify the foundation of knowledge and work that you’ve already built.
Hope this simple formula sparks some ideas for you to generate more wealth today.
very nice DV !
thanks Manju, I’ve been thinking of more variables that can impact the formula, for example
– time -> especially for investments in stocks, securities, etc.
– economies of scale -> for example land area, number of workers, technology, etc.
At the end of the day though these variables keep augmenting the core variables of knowledge and work.
Love the article David!
You mentioned in another comment other factors such as time, and economies of scale.
I would propose another component along the lines of intelligence or skill as well.
Hard work is great but personal ability has a great effect on the outcome of your work.
That’s a good point Stephen, and we could say this goes both ways for knowledge and work. Meaning that ability to learn affects knowledge and ability to physically or mentally perform a job affects work. So we can consider these factors to be a coefficient for knowledge and work.
Assuming that a person is 100% able to learn and 100% able to work, the formula stays as originally proposed:
wealth = 100% * knowledge x 100% work x opportunities
However if one of these abilities is less than the average person, then the coefficient brings these 2 variables down, for example:
wealth = (60%*knowledge) x (80%*work) x opportunities