Humankind & Resource Distribution—III: Wealth, circulation and human freedom

Can a person possess enormous wealth and still be economically unfree? Can a society report rising national income while millions of its citizens remain dependent upon the discretion of employers, creditors, landlords and officials? These questions become unavoidable once wealth is understood not simply as property accumulated by individuals but as the product of human cooperation and the institutions that make such cooperation possible.

The first two parts examined scarcity and the social creation of wealth. The next question concerns circulation. Wealth is not socially valuable merely because it exists in someone’s accounts. Its wider significance depends upon whether it finances production, sustains livelihoods, expands knowledge, strengthens public services and creates opportunities for others. A reservoir that never releases water may represent possession; it cannot, by itself, irrigate a field.

Circulation must not be confused with indiscriminate spending. Savings, investment and reserves are essential to a functioning economy. A factory cannot be built without accumulated resources; a family needs protection against illness and unemployment; a state must prepare for emergencies. The distinction is between accumulation that preserves and enlarges productive capacity and concentration that acquires the power to exclude others from resources and opportunities.

This is also a distinction between ownership and freedom. Formal ownership confers rights over assets, but effective freedom requires the capability to make meaningful choices. A small farmer may own land yet remain captive to a single purchaser, an expensive lender or an unreliable irrigation system. A graduate may hold qualifications yet have no realistic employment opportunity. A worker may be legally free to resign but unable to survive a week without wages.

Amartya Sen’s conception of development as an expansion of substantive freedoms helps clarify the problem.[1] Income matters because of what it enables people to do and become. Its significance cannot be measured independently of health, education, public provision, social arrangements and the actual alternatives available to individuals.

Two people with identical incomes may possess very different freedoms when one has secure healthcare, accessible transport and a dependable legal system while the other must purchase every necessity privately.

Freedom cannot be reduced to the absence of government interference. Nor can it be supplied by government decree alone. It depends upon institutions that protect rights, prevent arbitrary domination and allow people to develop and exercise their capabilities. Economic policy should be judged not only by the volume of transactions it facilitates but by whether those transactions enlarge or diminish such freedom.

The history of economic thought contains a persistent concern with this relationship. Adam Smith regarded commercial society as capable of expanding prosperity through specialisation and exchange, but he also warned about the power of merchants and manufacturers to pursue interests contrary to those of the public.[2]

Karl Polanyi later examined the social disruptions arising when labour, land and money were treated as though they were ordinary commodities, detached from the institutions sustaining human life.[3] Neither perspective requires the rejection of exchange. Both direct attention towards the rules within which exchange occurs.

The rules matter because wealth circulates through relationships of unequal power. Workers bargain with employers, small producers with dominant buyers, borrowers with lenders and citizens with the state. Where competition is weak and legal remedies inaccessible, apparently voluntary transactions can reproduce dependence. A household that repeatedly borrows to meet basic consumption is not necessarily participating in an expanding circle of prosperity; it may be surrendering an increasing share of future income.

Debt illustrates the difference particularly clearly. Credit can finance a productive enterprise, enable education or smooth income during temporary hardship. It can also become a mechanism for transferring resources from vulnerable borrowers to powerful creditors when terms are opaque, costs excessive or bargaining power grossly unequal. The relevant question is not whether money is lent but whether the arrangement generates sustainable value and distributes risks fairly.

The same test applies to public borrowing. Debt used transparently to build reliable infrastructure, improve public health or increase productivity may benefit future generations. Borrowing used to preserve privileges, finance recurrent waste or postpone unavoidable reform passes liabilities to people who had little voice in the original decisions. Circulation then becomes extraction across generations.

Thomas Piketty’s historical work on capital and inequality demonstrates why the distribution of ownership deserves attention alongside the distribution of current income.[4] Income can be earned through labour; assets can generate further income, provide collateral, purchase influence and be transferred through inheritance. Unequal initial ownership can consequently reproduce unequal opportunities even when individual markets appear open to everyone.

This does not make every large fortune illegitimate. Entrepreneurs may build enterprises that employ thousands, introduce useful technologies and create valuable products. The public question is whether the resulting economic power remains accountable to competition, taxation, labour rights and the law.

A productive enterprise should be able to prosper without acquiring the capacity to write its own regulatory exemptions or suppress potential competitors. A further complication is that much of the wealth enabling private success is publicly and socially produced.

Roads, courts, research universities, disease control, technical standards, educated workers and secure communications are not created by any one balance sheet. Elinor Ostrom’s research into the governance of shared resources challenged the assumption that collective assets must invariably be either privatised or administered from the centre.[5] Communities can, under appropriate conditions, develop effective rules for managing resources together.

The implication is not that every asset should be held collectively. It is that ownership arrangements must be evaluated by results: whether they encourage stewardship, accountability, investment and fair access. Some purposes are served by competitive enterprises, others by cooperatives, local institutions or universal public services. Institutional diversity is a strength when public objectives remain clear.

The contrast between circulation and capture is particularly visible in taxation. Revenue collected from a broad population and returned through functioning schools, hospitals, sanitation, justice and infrastructure enlarges the effective resources available to households. Taxes imposed without transparency or redistributed through preferential subsidies, exemptions and patronage may instead reinforce dependence. The size of the state is not an adequate measure of its contribution to freedom; the quality and fairness of its institutions are decisive.

Pakistan’s predicament gives this argument immediate relevance. Land, enterprise, professional talent and natural resources coexist with unequal access to quality education, reliable utilities, affordable credit and effective legal protection. The resulting constraints are not experienced equally. A well-connected business can navigate delays, secure financing and obtain administrative attention that a small producer may never receive. Such differences determine whose initiative becomes productive wealth and whose effort is exhausted in survival.

An equitable economic order must therefore do more than transfer income after inequalities have arisen. It must broaden access to productive assets, skills, markets and public goods at the outset.

Fair competition, secure property and tenancy rights, effective local government, reliable public education and an impartial justice system are not peripheral welfare measures. They shape the distribution of economic freedom itself.

There is an additional dimension to circulation that conventional accounting struggles to capture. Knowledge shared by a teacher, a scientific discovery made available to others, a public institution protected against corruption, or a courageous defence of equal rights may continue producing benefits long after its originator is gone. Such contributions create social capabilities that cannot be adequately represented by the wealth recorded in an estate.

This is not an argument against material prosperity. It is an argument for measuring prosperity against its human purpose. The most consequential wealth may be the wealth that outlives possession: the institutions, opportunities, skills and freedoms passed to those who come afterwards.

The next instalment will examine labour as the foundation of productive wealth, and ask why those whose work sustains society so often receive the smallest share of the security it creates. For now, the distinction is fundamental: possession describes who controls resources; circulation reveals what those resources accomplish.

A society becomes freer when wealth ceases to be an instrument of dependence and becomes a continuing source of human possibility.

Endnotes

[1] Amartya Sen, Development as Freedom, Oxford University Press, 1999. Nobel Prize biographical and research account:

[2] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776, Book I, chapter XI (conclusion), and Book IV, chapter II. Full text:

[3] Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time, 1944, especially chapters 6 and 11. Bibliographical record:

[4] Thomas Piketty, Capital in the Twenty-First Century, Harvard University Press, 2014; see also World Inequality Lab, World Inequality Report 2022: report and supporting data.

[5] Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, 1990; Nobel Prize account.

[To be continued]

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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.