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The Wealth of the People:
Your Wealth
An Inquiry into the Relationship between
Wealth, Freedom, and Life
By
Fernando Urias
* * * * *
SMASHWORDS EDITION
* * * * *
PUBLISHED BY:
Fernando Urias on Smashwords
The Wealth of the People:
Your Wealth
An Inquiry into the Relationship between
Wealth, Freedom, and Life
Copyright © 2011 by Fernando Urias
The author acknowledges the trademarked status and trademark owners of
various products referenced in this work, which have been used without
permission. The publication/use of these trademarks is not authorized,
associated with, or sponsored by the trademark owners.
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Dedication
This book is dedicated to the billions of people that live in poverty.
I hope that this inquiry may help in the improvement of any country that might
need it.

Acknowledgements
The intellectual debt of this book is great. It goes back many years in my
life. It starts with a paperback copy of Ayn Rand’s “The Fountainhead” that I
found buried in the sand of a beach in Mazatlan, Mexico in the spring break of
one of my college years. I started reading "The Fountainhead" that night and
finished it before the trip was over. Back in college at the University of Texas
in El Paso, I was able to read the rest of her works.
After reading Ayn Rand I was elated by the possibilities of free economies.
I continued to read anything that could find that would throw any light on the
subject. In this pursuit I found Ludwig Von Mises, Friedrich A. Hayek, Murray N.
Rothbard, Milton Friedman, Adam Smith, and many others. This book and the
book series that will follow contains what I was able to understand from all
these readings as the causes of wealth in a society.
I am very thankful for the opportunity to publish a digital book and I look
forward to the possibility of reaching people in their smartphones in places
where printed books might still be relatively difficult to obtain. Thanks to
Smashwords.com and Mark Coker for providing this media.
I am thankful to my parents, Mama Blanca (Blanca Vega de Urias) and Papa
Jojo (Fernando Urias Escobar) that held as their highest priority to give a good
education to their children. This education came at the cost of many other
things.
Disclaimer
This book is designed to provide information and entertainment. It is
published with the understanding that the publisher and author are not
engaged in rendering legal, economic, accounting, political, financial, or any
other type of professional service. If legal or other expert assistance is
required, the services of a competent professional should be sought.
It is not the purpose of this book to reprint all the information that is
otherwise available to authors and publishers but instead to complement,

amplify, and supplement other texts. You are urged to read all the available
material and learn as much as possible about economics and human
organizations and tailor the information to your individual needs.
Every effort has been made to make this book as complete and as accurate
as possible. However, there may be mistakes, both typographical and in
content. Therefore, this text should be used only as a general guide and not as
the ultimate source on economic or social organizations. Furthermore, this
manual contains information on economics and social sciences that is current
only up to the publishing date.
The purpose of this book is to educate and entertain. The author and
publisher shall have neither liability nor responsibility to any person or entity
with respect to any loss or damage caused, or alleged to have been caused,
directly or indirectly, by the information contained in this book.
* * * * *
The Wealth of the People:
Your Wealth
An Inquiry into the Relationship between
Wealth, Freedom, and Life
* * * * *
Summary
The wealth of a nation is its people. If this is true, why are there so many
nations that have so many people that are not wealthy? What is missing?
Ask a citizen of wealthy country to explain why this is so and he might
have some notion that he will express with insecurity. Ask a citizen of a poor
country why his country is not wealthy and he will have plenty of blame to
throw around but chances are that he might not even have a notion. It is a
simple question with a complex answer. If it had an easy answer, everybody
would answer correctly. Why some nations are wealthy and some others are
not? The answer must have elements of economics, philosophy, political
science, history, business, psychology, religion, and other disciplines. This

series of books is an attempt to break this complex answer into simple
elements that might be easily explained. This will attempted by reviewing one
element in each book, starting with simple elements and building up to more
complex conclusions.
This is the first book of the series. It is about the wealth of a single person
in an island. The titles of the rest of the series are listed at the end of this
book.
Introduction
I have been blessed with the experience of living in two countries. One is a
wealthy country and the other is a country in development, which is a nice way
to say that it is not wealthy. The one in development is older telling us right
away that age is not a cause of wealth. I have experienced the contrast of the
living, business, cultural, and political conditions in both countries and this
experience has fueled a desire to try to explain the differences. This bicultural
experience, an interest in economics, and an education in engineering might
allow me to have a unique perspective on the subject.
The first book is about producing wealth in a desert island, just like
Robinson Crusoe in Daniel Defoe's novel. Welcome to the first book.
* * * * *
The Wealth of the People:
Your Wealth
An Inquiry into the Relationship between
Wealth, Freedom, and Life
* * * * *
Alone in an Island
Imagine that you are the sole survivor of a shipwreck in an island. Instead
of having the benefits of the remains of the shipwreck as Robinson Crusoe had,
all you have are the clothes that you are wearing. What would you have to do
to survive?
You would have to fill your basic needs with your bare hands. You would

have to find out how to satisfy your thirst and hunger. You would have to find
or build a shelter to sleep at night free of any wild animals or nasty insects.
Eventually you would have to make clothes to replace the ones you are
wearing.
The Definition of Wealth
Upon your arrival in the island you would be poor. To be wealthy is to have
plenty of resources to sustain your life. You have your mind and your body
which are very valuable but they would not be sufficient to make you feel
wealthy. You would want to have plenty of water, food, clothing, and a good
shelter.
Your Assets
To satisfy your needs, you would have to use your mind and your body.
Your mind and your body are your assets. You would have to use your mind to
think where to find water to drink and you would have to use your legs to walk
until you find it. You would have to think what vegetables to eat and walk to
collect them. You have to use your assets, which at this point are only your
mind and your body, to produce the products that you need.
The Natural Resources
To satisfy your needs you would also have to use the natural resources of
the island. You would have to find fresh water in a creek that you could drink
without getting sick. You would have to pick vegetables that you could eat. You
would have to find out how to hunt an animal. You will have to figure out how
to start a fire to cook the animal. You would have to use earth material, such
as mud, stones, and sticks, to build a shelter.
The Production Process
To meet each of your needs you have to go through a production process.
You have to engage your mind and your body in a process that will give you the
products you need. Even the simple task of drinking water from a creek is a
production process that converts the natural resource “water in the creek” into
the product “water in your mouth”.

Each production process will consume your time. It will require the use of
your mind, your body, and your time.
Your Labor
Every production process requires the use of your labor. Your labor is the
exertion of your effort during a period of time. When you are involved in a
production process, you are working. You are executing the actions required to
produce the products that will satisfy your needs. You might think that the
work is pleasant or that it is not but it does not matter because you have to do
it to survive.
To produce the product “water in your mouth” that will satisfy your thirst,
you would have to find a creek that has drinkable water. You would have walk
to it and when you get there, you would have to kneel to get your face close to
the surface of the water, form a cup with the palm of your hand, and carry the
water to your mouth. Drinking water with the palm of your hand is one of the
methods by which you can transform the “water in the creek” natural resource
into the “water in your mouth” product. There are many other ways to do it.
Your Costs
There is no money in the island but you will be incurring costs to obtain
the products that you want. You would measure the cost of getting a product in
terms of the time that it takes you to produce it. If it takes you thirty minutes
to go to a creek to drink water to satisfy your thirst, you will think that
satisfying your thirst costs thirty minutes. If you have to satisfy your thirst four
times per day and each time it takes thirty minutes to walk to the creek, then
the cost of satisfying your thirst in a day would be two hours.
Your Income
Your income is the amount of wealth that you can produce with your work
in a period of time. In society, your income is the amount of money that you
are paid for the time worked. In the island there is no money but you would
have an income. Your income would be the set of products that you would
produce. If you spend thirty minutes to go to a creek to drink a pint of water,

this pint of water is your income. If you go to the creek four times a day and
you drink one pint of water each time, your income would be four pints of
water at the cost of two hours of work. If you spend one hour collecting one
pound of vegetables, this pound of vegetables would be part of your income. If
you hunt a wild turkey in two hours, the turkey is your income for the hunting
work of two hours. The sum of all these products is your income for the day. In
a day like this, you might earn four pints of water, one pound of vegetables,
and one turkey at the cost of five hours of labor.
The Labor Principle of Wealth Production
To produce wealth you have to apply your mind, your body, and your time
into actions that will result in the products that you need. Wealth is the
result of working in a productive activity. Your income is the amount of
wealth produced by your work during the time that you work.
The Production of Wealth
The title of this paragraph: "The Production of Wealth" is meant to bring to
mind the work that needs to be done to produce wealth. It is suited better to
understand the essence of wealth than the more common title: "The Creation
of Wealth". The word "creation" gives the idea that wealth is created out of
nothing. Wealth has to be produced and its production requires the use of
human labor. If you think of an apple as wealth, you can think of an apple
hanging from a tree in the middle of a forest, like the forests that exist in fairy
tales, and say that this apple was created. The reality is that an apple
available in a supermarket is not created but produced. It has to be harvested,
packed, refrigerated, transported and it comes from an orchard where apple
trees are planted, fertilized, irrigated, pruned, and tended for several years by
people that get paid to do so. An apple in a supermarket is wealth that has to
be produced.
Your Time Budget
To produce the products that you need, you have a finite amount of
time. The day has twenty four hours and in this time, you have to sleep, eat,

and work. Your effective working hours might be fourteen hours or less.
Whatever this number is, it is a finite number. You are on a time budget.
Depending on the conditions of the island, you could spend most of the
day to barely complete a meal. Without any tools to produce food, you would
be in a state of hunger and poverty.
The Value of Your Products
The value of the products that you would choose to produce would come
from the satisfaction that they will provide to you. The value of the water that
you drink comes from the satisfaction of your thirst. There is no way to
measure this satisfaction and compare it to the satisfaction of eating an apple.
All you know is that you are thirsty and hungry and that you need to drink and
eat. You make the decision to produce these products considering your need,
the cost of the products, and your budget.
The Time Budget with the Highest Value
You would have to decide which set of products that will fit in your
budget will give you the greatest value. There is nobody in the island that will
lend you anything so you have to stay within your time budget.
You will not be able to produce many products that are of high value
because you cannot afford them. There are many things that you would like to
have but you would not have the time to make them.
In the island, the set of products that would fit your budget and might
have the highest value to you could be four pints of water, one pound of
vegetables, a wild turkey, and other products that would bring you the highest
satisfaction possible. Maybe you would spend two hours working on your shelter
and one hour working on your clothes. You will also have meal times and
resting periods. In doing all these activities, you would fill up your time with
the production of products and the activities that would maximize the value of
your time budget.
Your Time is Your Money
You probably have heard the saying that time is money. In the island,

there is no money but your time is literally your money. If you want to buy a
product, you have to buy it from nature using your time and your work. The
famous phrase could be restated more correctly as “time and work is money”.
In the process of working, you are exchanging your time and your work for the
products that you need.
Increasing Your Income
Since you would not have any tools, you would spend the whole day to
produce a very small amount of the products. The amount of products that you
can produce with your bare hands is very limited. Your income would be low.
You would be poor. You would want to consume more but to consume more you
have to produce more. How can you do it? How can you increase your income?
Working for the Longest Time
One of the ways to increase your income is to work as many hours as you
can. The quantity of products that you will produce will be in proportion to the
hours worked. If you work ten hours instead of eight, you income should be
twenty five percent greater because ten hours are twenty five percent greater
than eight hours. You can maximize your income by maximizing the hours
worked.
Working Fast
Another way to increase your income is by working fast. If you work
slowly, you will produce very few products. To increase your income working
fast, you have to work as fast as possible without causing damage to yourself or
to the material that you are working with. There is no use of spending three
hours collecting vegetables at a very fast pace if you hurt your back and you
have to stop for a week to heal or if the vegetables that you pick spoil easily
because they were damaged during the picking process. To maximize your
production output across many days, you have to work with quality, as fast as
possible, and at a pace that you can sustain for long periods of time. A good
approach is to work with high quality and carefully initially to do a product
well and increase the speed once you know how to do it right.

The income for working fast will be in proportion to the speed of the
work. If you are able to pick up the pace and work thirty percent faster, your
income will be thirty percent greater.
Performing a task several times makes you faster. You are always in a
learning curve. The greatest improvement is experienced from doing a task the
first time to the second time. This is one of the reasons that you should always
have a bias for action. If a task needs to get done, get it done it even if you are
not very good at it. Do it carefully the first time and as you repeat the task,
you will become better and faster. You can become fast and good at any task if
you do it many times.
Working Smarter
To increase your income more than in proportion to the longest working
time and the fastest speed that you can sustain, you have to work smarter. You
have to use your mind to think of new production processes that will increase
your income many times over. These new production processes will require the
use of tools.
If you think about the process of drinking water from the creek, it might
occur to you that instead of walking to the creek four times a day whenever
you are thirsty, you could make a pouch to carry the water that you will need
for the whole day. If every trip to the creek would cost thirty minutes and you
would make four trips per day, the total cost to satisfy your thirst in a day
would be two hours. With a water pouch you could reduce your trips to one per
day and reduce the cost of satisfying your thirst from two hours to thirty
minutes. You could save one and one half hours every day.
The Investment Decision
Laboring is putting your effort and time in an existing process to obtain a
product that you need. When you spend time thinking about improving the
process, about designing a better method of production, and about making the
tools for this better method, you are investing. If you think about a pouch to
carry water, you are investing your thoughts and your time in a new process

that will be more productive. When you decide to build the pouch, you will
have decided to invest your time in building a tool that is needed for the new
process. When you are making the pouch, you are investing your time in making
a tool that will make your process more productive.
To make a wise investment decision, you need to know how long it will
take to build it, how long it will last, and how much time it will save. If the
water pouch takes thirty hours to build and lasts for only ten days, then the
daily cost would be three hours. This is a greater cost than the one and one
half hours that it would save. At this cost and durability, the pouch is not a
good investment. Drinking water using the pouch would be more expensive
than walking to the creek four times per day. But if the water pouch was easier
to make and it would last longer, then it might be a good investment. If
building the pouch would take ten hours and it would last for twenty days, the
daily cost would be thirty minutes per day. This is less than the one hour and a
half that it could save. The total daily cost of drinking water would be less than
with the current process. The total cost would be one hour consisting of thirty
minutes for one daily trip to the creek and thirty minutes for the daily
replacement cost of the pouch. The net savings would be one hour since the
original cost was two hours. These are pretty good savings just for the
construction of a simple water pouch. You would be adding one hour to each
day of the rest of your life.
Your Investment Budget
Once you know that the pouch is a good investment, you would have to
decide how much time to allocate daily to the manufacturing of the pouch. You
could spend ten hours in a single day building it but you would go hungry and
thirsty. An alternative would be to allocate a smaller portion of your time
budget. The time that you would allocate is your investment budget. If you
invest half an hour every day, you can have the water pouch in twenty days. If
you invest one hour every day, you can have it in ten days. This investment
time would have to come from restricting your production and consumption of

other products.
The percentage of your time budget that can go into your investment
budget can vary from zero to one hundred percent. At zero percent investment
you would be producing and consuming products with your existing production
process without ever improving the processes. Your income will never increase.
At one hundred percent of investing you would be thinking about new processes
all the time and you would never produce or consume. You would be thirsty
and hungry. The right proportion of production time, consumption time, and
investment time is somewhere in the middle. You want to be producing the
products that you need and investing significant amounts of time to improve
your production processes to keep your income and your wealth always
increasing.
The Investment Principle of Wealth Production
To increase your wealth production capability, you have to develop
ideas and build tools that will increase the productivity of your time. The use
of these ideas and tools will increase the output of your production process
and increase your income, which is your capability of producing wealth in a
period of time.
The Increase in Your Physical Assets
The water pouch would be an addition to your physical assets. When you
arrived at the island you had your mind, your body, and your clothes. Now you
have you mind, your body, your clothes, and the water pouch. The water pouch
increases your income as many other tools will. To increase your wealth, you
have to increase your capacity to produce. You have to increase the physical
assets that will assist you to produce income. The pouch is a physical asset that
makes the production of the product “water in your mouth” more efficient.
Your Physical Capital
The physical assets that increase your income and make your life easier
are called together physical capital. The word capital came into use in the
eighteen century to denote economic resources. It was used to refer to a stock

of money, a stock of goods, and later it was used more broadly. It also has
been used to mean a stock of tools for production. The buildings, tractors,
machines, and other tools are all part of the physical capital of a business
enterprise. The pouch would be your first tool in a long list of physical assets
that can increase your income. Under this definition, all the tools that you
build to improve your production processes will be part of your physical
capital.
To increase your income, you have to develop and build many tools. You
would not be able to farm a small piece of land with your bare hands but you
could do it with a pick axe and a shovel. With a diesel tractor, you could farm
several acres.
The Increase in Your Mind Assets
By building the first pouch, you would learn how to do one. Learning
increases the capability of your mind. You would be increasing your mind
assets. An increase in knowledge that can help you in the production of wealth
is an increase in the power of your mind.
There are mind assets that their use in the production process is not
obviously apparent, for example, the knowledge of where things are. Locating
the creek the first time might have taken several hours but once you know
where it is, you do not have to spend time repeating the search. The value of
the knowledge of the location of the creek is worth several hours to you. Your
ability to think, talk, and read are all part of your mind assets.
Your Human Capital
The idea of making a pouch, the knowledge of its manufacture, the
willingness to invest the necessary time, and the method of using it are all
necessary elements of the water pouch production process. These attributes of
the mind are means of production. For this reason, they are called human
capital.
All the tools that are part of your physical capital have elements of
human capital in them. A new process starts with an idea, it needs a tool that

needs to be designed and manufactured, and it will have a have a method of
use once it is in production. The new process is a combination of physical and
human capital.
Any idea that you have on how to make a product that you need is part
of your human capital. Any knowledge that you have that facilitates your
production processes it part of your human capital.
Your stock of human capital is quite considerable. It includes your ability
to think, talk, read, and write. The human capital that you are born with and
that you acquire through education has been building up in the human race for
thousands of years.
Your labor also has an element of human capital because you have to
know how to run the production process. You have to know how to produce
with tools and this knowledge is also part of your human capital.
The Maintenance of Your Physical Capital
The water pouch frees one and a half hour of your time but it only lasts
twenty days. To keep on drinking water using the water pouch you would have
to invest thirty minutes every day making a new pouch that will replace the old
pouch when it breaks down. This means that the water pouch really saved only
one hour daily and not one and a half hours. If you do not invest this time for
maintenance, you would fall back to a drinking time of two hours per day.
Your Investment Maintenance Budget
If you decided to invest only half an hour per day because it was all you
could afford, this half hour would be consumed just in the maintenance of the
pouch and you would not be able to improve your income any further. To
improve your income, you have to increase your investment to a higher
quantity than that required for maintenance.
From the time saved in the improved production process, you have one
extra hour. If you decide to spend the extra hour in production and
consumption only, you will not increase your income any further. If you want to
continue to increase your income, you need to invest a good portion of the

hour gained.
The Maintenance of the Human Capital
Physical assets decay with use and time. It is less obvious that is also
necessary to maintain your mind assets. The knowledge of the location of the
creek will be there as long as you can remember it, so it would seem that it
does not require maintenance. But the knowledge of a process can be forgotten
if not practiced and therefore it does require a maintenance that occurs while
practicing the process.
Another requirement for the maintenance of the mind assets is to give
the body the proper nutrition and not to poison it with drugs or alcohol. If you
do not follow this required maintenance for your mind, you will lose the ability
to remember, to think better methods of production, and its ability to produce
wealth.
In society, knowledge becomes obsolete when better processes are
devised by other people. Maintenance of the mind assets is understood as the
knowledge necessary to compete in the market. This is not true maintenance
but keeping up with competition. It is an upgrade of the knowledge necessary
to stay in business.

The Investment Maintenance Principle of Wealth Production
To maintain your level of wealth production capability, you have to
continue to invest in the maintenance of the tools and the knowledge of the
current production process. The maintenance of this investment preserves the
level of income achieved with the investment. If this is not done, the income
will drop to the levels before the original investment.
Your Capital Structure
Once you have several processes that require a constant investment for
their maintenance, you will have a way of producing that consists of several
tools and methods. These tools and methods are your capital structure. The
tools that you have, the processes that you know, and the investments that you

have made form a set of capital assets that constitute your capital structure.
Even the geographical location of your shelter is part of your capital structure
and affects your income. If you are far from a fresh water creek, you will have
to spend more time every day to get water for your needs, lowering your
income.
Your labor and your capital structure determine the amount of income
that you can make. Your capital structure determines how much wealth you
can produce with your labor. At the same time, the assets of your capital
structure are part of your wealth since they are of great value to you. The
value of a physical capital asset can be calculated from the benefit it provides
in the production process.
An Increase in Your Capital Structure
To increase your income you have to increase your capital structure. You
have to invest in more productive tools and methods of production. The
production process of drinking water was reduced from two hours to one hour
with the addition of a water pouch. It can be reduced to a few seconds in a
society where the capital structure makes it affordable to have metal or plastic
piping reach a faucet in a kitchen. In the island you would not be able to melt
metal or produce plastic. Even if you could emulate water piping with bamboo,
you probably would not make the investment because the project would take
too many hours to make it worthwhile. To increase your income, it is not
sufficient to invest but it is also required that the investment be the right one.
Your investments need to be investments in the production processes that you
are using and they need to result in an overall reduction of the time spent in
your production processes.
To increase your capital structure and your income, you have to invest
more than the maintenance requirements of your capital structure so that the
net result is an increase in your capital assets. If you enjoy the benefits of the
water pouch but you only invest the half hour daily to replace it, you would be
investing but you would not be increasing your income any further. If you do

not invest the minimum half an hour to replace the water pouch you would be
disinvesting and in twenty days, when the water pouch breaks down, your
income would fall to the level before the existence of the pouch.
In society where money is available, you may think that an accumulation
of wealth is an accumulation of money. Most people would not think that
accumulating tools is the way that wealth should be accumulated. If you think
of a shovel that you need in the island, you would only need two. When one
breaks down, you would work on its replacement. You would not invest your
time accumulating many shovels. But to be wealthy in the island you need to
accumulate your wealth in many tools that are all different and each tool
makes your work easier and increases your income in a different way. This is
one of the keys to achieve wealth in the island and in society. Wealthy nations
have a large capital structure that is the accumulation of many physical tools
supported by their associated human capital of the people that know how to
use them and makes it possible to sustain their high income.
A capital structure can deteriorate rapidly if it is not maintained. A
reduction in the capital structure for lack of maintenance means that you
would drop to lower levels of income. If you do not maintain your capital
structure, the time to produce products will increase.
With the understanding of that physical and human capital are part of
your capital structure, the investment principle of wealth production can be
restated as follows:
The Capital Structure Principle of Wealth Production
To increase your wealth and your income, you have to invest in the
physical and mental assets of your capital structure in a quantity that would
be in excess of its maintenance requirements so that you have net increases in
its size and function.
The Wealth of Your Capital Structure
With tools, you can produce a higher quantity of products in the same
working time. This means that tools increase your income. Tools are wealth-

producing devices and at the same time and for the same reason, they are part
of your wealth.
The value of a physical capital asset is derived from the time that it
saves in the production process. The water pouch that lasts for twenty days
will allow you to do twenty daily trips of thirty minutes for a total of ten hours
of work instead of eighty trips at the cost of forty hours. The pouch is worth
thirty hours of wealth.
Tools are wealth stored in the form of production capability.
The Freedom Given by Your Capital Structure
With a tool, you become freer. The pouch frees you from having to
spend two hours drinking water. With the pouch, you can walk farther
distances exploring the island. You can carry water for the whole day. You
would be freer because your investment would enable you to do more things.
There is a direct relationship between wealth producing capability and
freedom. If you have wealth in the form of capital assets, you are freer
because you can produce at a higher income using the same labor.
Upon arriving in the island, you would have been in a state of natural
freedom. There would be nobody to tell you what to do. You could do anything
you want with the limited capabilities and resources that you would have. If
you do not have any tools, your results would be quite limited. You would not
have a knife, an axe, a gun, a heater, a lamp, a bike, a horse, a car, an
airplane, or any of the hundreds of things that make your life easier. You would
be naturally free but your natural freedom is quite small. It is with tools and
capital investment that you can raise to higher levels of freedom. A state of
natural freedom is a state of poverty.
When you increase your physical and human capital structure, you
increase your freedom in three ways. First, you will be able to do something
that might have been impossible to do before. For example, with an axe you
can cut down a tree that would have been very difficult to bring down with
your bare hands. Second, in the time that you are working, you are doing more

than before. You are more capable. You are freer because you are more
powerful. For example, with a shovel, you can dig more holes for cultivation
that with a stick. Third, since you are more productive with the use of the tool,
you have more time available in your hands. You are freer because you can
engage in other activities that you could not do before. Tools will free your
time to do other things.
The Life Given by Your Capital Structure
A tool increases the time that you have available. It frees time that you
can use to do something else. The length of your life is determined by many
factors, such as your health, but the ability to do more things in less time is
equivalent to increasing your life. With the extra time, you can experience
more things in the same life. Crossing the Atlantic Ocean a couple of hundred
years ago would take several months. Today it can be done in a few hours.
If you had to work fourteen hours a day to survive and by investing in
several tools you find a method to get the same product in seven hours, this is
the equivalent doubling the rest of your life. An increase in the availability of
your time is equivalent to an increase in your life.
Robinson Crusoe's Capital Structure
Instead of imagining the possibilities that you would have to increase
your capital structure in the island, it will be easier to review Robinson Crusoe's
capital structure. Daniel Defoe starts the narration by stating that Robinson
Crusoe was born in 1632 and hence, the story has many examples of the
advantages that a seventeenth century person has over the cannibals that
inhabit the area. Robinson has a more advanced human capital structure in his
mind that would be of some use in the island and its usefulness is augmented
with the physical capital that he will later find in the remains of the shipwreck.
Robinson has the bad luck of going through a shipwreck but then he has
the good luck of surviving it. He also has the good luck that he has more than
his clothes. He was carrying a knife with him and later he finds substantial
remains from the shipwreck. How long would it take you in the island to make

a rock sharp enough to cut as well as a knife? Finding or making a sharp rock
would probably be the best that you could aspire because you would not be
able to melt or forge the metal necessary for a knife. You would be in the
Stone Age. This illustrates that having human capital is not sufficient to do
many of the things that you know to be possible. You can know of the existence
of a knife but you would not be able to produce one.
Robinson finds the remains of the shipwreck which allows him to transfer
a great deal of physical capital from the seventeenth century to his capital
structure in the island. On the other hand, if the cannibals had have found the
powder and the muskets, they would have not known what to do with them.
Physical and human capital goes hand in hand to constitute a capital structure.
When Robinson finds the remains of the shipwreck, his highest priority,
because is the fastest way that he can increase his income and his wealth, is to
build a raft to carry all the useful things that he can carry. He is able to extract
food, a carpenters chest with all the tools, wood, iron, guns, ammunition,
powder, swords, a grindstone, liquor, corn, rice, and many other things that
were available in the seventeenth century. Many of the items that he obtains
he would have not been able to produce in a very long time if at all. These
items immediately increase his income and his wealth and he is able to produce
much faster and with much greater capability than with his bare hands. The
finding of the shipwreck objects is an illustration that in comparing two places
with different capital structures, it is to the advantage of the lower capital
structure to bring as much as possible from the higher capital structure.
The items that he found are enough to take care of his immediate food
needs and he decides to spend considerable time in building his shelter. The
shelter is a large expenditure but it is not necessarily a tool. It is called a
capital good because it lasts many years. It is part of his income because he
wants the shelter services but it is not a tool because it does not help him to
increase his income. But if the shelter allows him to work in the shade or when
it is raining, then it becomes a capital tool in addition to being a consumption

capital good. The shelter is where he lives and sleeps but it does not increase
his income other than the enjoyment and benefit of having a shelter. Robinson
has to spend considerable time in building his shelter even when uses cables
and wood that he found in the ship. For your shelter, you would not be able to
cut trees without an axe and you might have to find an alternative way to build
a shelter using bundles of palm leaves. You might have to use tied up bundles
of palm leaves to form the walls and the roof of a shelter as some of the huts
that are still being used in Africa and South America.
After having his immediate needs cared for, Robinson biggest worry is
not to lose his possessions, particularly the powder. He goes to great length to
split the powder so he will not lose it all in case of rain or lightning.
The first use of his powder was to kill a fowl that he found unfit to eat.
Soon afterwards, he spots goats in a hill. Later he shoots some other birds, like
ducks, that he is able to eat. He also finds a turtles and turtle eggs.
When he goes hunting for goats, he shows two examples of his human
capital. The first one is the knowledge associated with the use of the musket.
He knows what a musket is, how to load it, and how to aim with it. The second
type of human capital that he shows is the one associated with the hunting
process. He finds out that he is not able to hunt goats from the bottom of the
hills but he learns to hunt from the top of the hill and looking down at them.
The goats have very good vision looking downhill and they run away before he
could be at a shooting distance.
When he wants to expand his house, he wished he had a pickaxe, a
shovel, and a wheelbarrow. He is able to use an iron crow from the ship as a
pickaxe but has to go through several hours of investment to produce a shovel
made out of hard wood. He is never able ever to make a wheelbarrow so he has
to carry earth by dragging it in a flat panel.
Another interesting combination of human capital and a physical object
that he experiences by chance and he initially thinks that it was a miracle is
the finding of barley plants growing next to his house. He later remembers that

he threw some waste material from a sack from the ship. A few barley seeds
were among the waste and managed to grow. The barley is another grain that
added to the corn and rice that he had found previously adds to his capital
structure and brings him it up in time to the discovery of agriculture. It takes
him four years to grow enough grain until he can afford to eat some. He shows
a great example of withholding consumption to have the ability to grow grain
later. He could have consumed the small amount of grain that he had and
never had the ability to grow larger amounts in later years. Going back to your
capital structure, how many years would it take you to develop grains from
wild plants in the island to reach the nutritional value of the corn, barley, or
rice that you know today? Even by having these seeds, it takes Robinson several
tries to find out when it is the right time to sow them and he is smart not to
sow them all at once and risk losing them all. When he finally gets a good
harvest, he realizes that he has to tend it and watch it constantly so that the
abundant fowl in the island does not eat it all away. He hangs scarecrows and
finally he manages to harvest at least two bushels each of corn, rice, and
barley.
With grain in hand, he realizes that he does not have the means or
knowledge to grind the grains into flour and bake it into bread. It takes him a
long time to make a mortar and a pestle from hard wood to grind the grains
because he never finds suitable stones.
Robinson does not mention how he drank water from the fresh water
creek the first day he arrived. He might have done it with the palm of his hand
or he might have used a faster method such us kissing the surface of the water
and sucking up as much water as you want. After he finds the shipwreck
remains, he probably had jars from the ship. Later he reports having great
difficulty to produce earthen vases to hold the grain. They would fall apart
when the clay would dry until he found out how to cook them in the fire to
make them harder. After all this trial and error, it takes him two months to
build two large earthen jars that he had to protect with hay in a basket.

He was never able to develop wax candles. Eventually he is able to make
a candle that is not very good with fat from animals. This allows him the
flexibility to use some of the hours at night.
He suffers from the lack of human capital when he gets sick and has no
medicine. Medicine is a great deal of knowledge that is part of human capital
and is associated with knowing how to administer medicine. Medicine
production involves complex processes and sophisticated physical tools.
One of the improvements that he builds at a very high cost is a table and
a chair. A table is a capital good that can be used for consumption, like eating
meals, or it can also be used as a capital tool if it used for work.
After several years in the island, he becomes much wealthier and freer
because he is able to domesticate goats, grow corn, and build more tools that
help him to live better. His wealth and freedom increase substantially because
he works hard in the production processes and the investments required to
improve them. He takes advantage of his advanced western knowledge,
maintains the tools that he found in the remains of the shipwreck, and invests
significant time in new physical tools that improve his life.
Your Wealth
To increase your wealth and your income producing capability there are
two principles to follow: The Work Principle of Wealth Production and the
Capital Structure Principle of Wealth Production. The Work Principle of Wealth
Production states that you have you work to produce wealth. Wealth is the
availability of products to meet your needs and these products have to be
produced by working. The Capital Structure Principle of Wealth Production
states that you have to think about the production processes, discover better
methods, and make the tools necessary to support these methods. These
investments in the production processes make you more productive, require
less of your time, and make you wealthier. The Capital Structure Principle
applies to the two aspects of your capital structure, the physical tools that you
need in the production process and the human capital required to design them,

make them, use them, and maintain them.
Your wealth starts with your mind, your body, and your time. Your body
is a source of wealth because it can produce wealth with its labor. Your mind is
a greater source of wealth because it can find better ways to do things. Your
time is constantly being consumed whether you decide to work or not.
The first requirement to build up your wealth is in your mind. It is your
motivation to work, to invest, and to limit your consumption. Your motivation
to improve your economic situation is part of your human capital. Do you have
the will to work and think hard or do you prefer to indulge in the pleasure of
consumption? The desire to become wealthy is the first step to produce wealth.
The next steps are to work hard and to think of smart ways to increase your
wealth.
In the island, you cannot accumulate a great deal of wealth in perishable
goods because they would spoil. You can accumulate some wealth in non-
perishable products to have available for a rainy day, such as nuts, corn seeds,
and dry meat but there is also so much of it that you can have before it also
starts to spoil. You can accumulate some of your wealth by putting your time in
durable goods, such as your shelter. Durable goods last for a long time and they
take many hours to be built but the best way to accumulate wealth is to invest
in your production capability. If you can accumulate wealth by increasing your
producing assets, you will have the value of the capital assets plus the
increased income of the higher capital structure.