Historical article note: This article was originally published on 2019-01-31. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.
If I ask you, 'What is a real asset?' what would your answer be? Gold? A house? Savings? Stocks? Children? Inner peace? A wise mind? A godfather? Health? A family business? Fine wine? Sports cars? Antiques? Diamonds? Yachts? Poetry and distant places? The next question is, 'What is true wealth?' Investing in fake assets makes it impossible to have real wealth, right? Those who answer these two questions incorrectly are destined to miss out on a prosperous life and remain busy and poor their entire lives.
In 1776, Adam Smith published "The Wealth of Nations." That same year, the United States issued the Declaration of Independence, James Watt produced his first steam engine, and it was the 41st year of the Qianlong reign in the Qing dynasty. The full title of "The Wealth of Nations" is "An Inquiry into the Nature and Causes of the Wealth of Nations." This is a monumental work studying individual (national) wealth, not a book about state wealth. If the book had originally been translated as "An Inquiry into the Nature and Causes of Individual Wealth," it is estimated that more Chinese readers might have read it. Over the past 243 years, Americans have been deeply influenced by "The Wealth of Nations," and today the strength of the nation and wealth of its people can be said to be closely related to Adam Smith’s work. A country whose citizens knew what individual wealth was 243 years ago, compared with a country that only cautiously implemented a market economy 40 years ago, has citizens with a much fuzzier sense of wealth, and the accumulation of personal wealth has only gone through one generation. It may be hard to imagine that before "The Wealth of Nations" was published, Europeans and Americans both believed that 'wealth is gold and silver.' In 1949, a gold brick could buy a courtyard house in Beijing; that house now would be worth 100 million yuan, while nowadays a gold brick cannot even buy an outdoor toilet in a courtyard. Today, we all know that gold and silver are not real wealth; over 200 years, the price of gold has only increased by 400%, vastly underperforming inflation. But 243 years ago, people just didn’t understand and thought 'wealth is gold and silver.' Adam Smith’s greatness lies in telling the world: gold and silver are only a measure of wealth, not wealth itself; wealth is the sum of all goods that satisfy human needs; and labor products are the basic form of wealth. If you have never found the key to open the door to wealth and have not read "The Wealth of Nations," you must read it. If the pursuit of wealth is not based on a correct definition of wealth and you have not found real assets, you will never truly possess wealth and can only live your days in poetry and dreams.
I will not tell everyone in this article what true assets are or what true wealth is. I recommend a book to everyone. The author is Ou Chengxiao, and the title of the book is 'How to Obtain True Wealth.' This is a collection of essays discussing how to lose true wealth. The author uses the method of elimination to show readers how to identify true assets and how to accumulate true wealth. Some things that claim to be assets, investment hotspots that promise the chance to get rich overnight once you own them, such as Bitcoin, or any 'new asset' that has not been tested through two economic cycles, may be false assets. Some belong to 'quasi-assets,' meaning they are assets now and have value but will become worthless after a while, such as shops in small towns. Some are indeed assets but not wealth, such as gold. There are also pseudo-assets, which appear impressive but have no real value, such as branded assets. Disney is a brand, and the cartoon characters inside are IP, but IP is highly era-specific. When the new generation does not know who Mickey Mouse is, will the real estate around Disney still have value? Finding true assets and accumulating true wealth is something we need to learn and practice throughout our lives. There is no rush. First, identify false and pseudo-assets in life to avoid using hard-earned money to buy worthless assets.
In order to help everyone better remember the concept that 'wealth is the sum of all goods that can satisfy people's needs,' let me tell a joke to prove that some 'goods' can only satisfy people's needs temporarily, and once they expire, they become trash. There was a thief who refused to reveal the hiding place of his stolen goods even under the threat of death and was heavily sentenced to five years in prison. After finally serving the full five years, he thought to himself that if he sold these stolen goods, it would be enough for a lifetime of eating, drinking, and having fun. So he enlisted a friend to help him retrieve the goods. When the stolen items were finally dug out, his friend nearly fainted with joy: two large boxes full of brand-new Motorola pagers, but all the paging stations had been shut down three years ago. When people say 'wealth doesn’t last beyond three generations,' they usually think it refers to spendthrifts. In fact, some wealth loses value not because of extravagance but because it can no longer satisfy people's needs, leading to depreciation or complete loss of value.
Because true assets and wealth are products of labor, and labor products vary across different eras, true wealth also differs from one era to another; otherwise, the Aisin Gioro family would have always been the richest in China, and Wang Jianlin and Jack Ma would never have had the chance. Real estate, having been tested over thousands of years and multiple economic cycles, is genuine assets and wealth. Although Luoyang was once the capital of thirteen dynasties, its current housing prices cannot compare to Beijing's. Moreover, ‘CCTV confirmed: the vacancy rate of office buildings in Futian is really serious,’ all of this proves that locations have a lifespan; it just changes gradually. As an asset, real estate has consistently outpaced inflation in different countries and far exceeded the growth of other assets. In *The Wealth of Nations*, Adam Smith categorized goods into three types: consumer goods, fixed capital, and circulating capital. Residential housing is classified as consumer goods, meaning it no longer participates in production and can be immediately used for consumption. No one in the world has surpassed Adam Smith’s greatness in economics because 243 years ago, he clearly and precisely defined the nature, characteristics, and uses of private residences: a house for personal living is a consumer good, and a house for rent is a capital/investment good. Extending this, a mortgage for self-occupied housing is a consumer loan, while a loan for investment property is a small business loan. I have transcribed Adam Smith's related remarks on residential housing here for everyone to study and admire: 'If a dwelling-house is maintained as the home of the owner, the house, from the moment it is used as a home, ceases to be a capital; it no longer provides any revenue to its owner. A dwelling-house in which the owner lives does not contribute to the income of the inhabitant; though the house is undoubtedly very useful to the inhabitant, just as clothing and furniture are useful, it only constitutes a part of his expenditure and not a part of his income. If the house is let at rent, since the house itself produces nothing, the tenant must always pay the rent out of some revenue arising from labor, stock, or land. While a house can provide revenue to its owner, thereby acting as capital to him, it does not provide income to the public, does not act as capital for the public, and cannot in any way increase the community's total income. ...Among the commodities retained by individuals or society for immediate consumption, the dwelling-house is consumed most slowly.' This passage has three clear meanings: 1. A house that the owner lives in is the most durable consumer good; 2. If the owner lives in it, the house is a consumer good; if rented out, it is a capital good; 3. Rental property is a capital good only providing income to the landlord and does not count as a capital good for society, nor does it provide social income. The *Rich Dad Poor Dad* series is essentially explaining Adam Smith’s definition: a self-occupied house is not an asset because an asset should provide the owner with income; only rental property is an asset. I greatly admire Robert Kiyosaki for turning Adam Smith’s statement into a bestselling book series.
Times are changing, and some thoughts and concepts change with them. Those that do not change are the truth. In 2016, Teacher Wu Xiaobo conducted a crowdfunding project and reselected and translated "The Wealth of Nations," turning the more than 900-page original into a 225-page simplified version. I recommend everyone read the classic, mainly to clear out the pseudo-economics of Marxism from your mind. The idea of the proletariat uniting to rob the middle class and capitalists is becoming increasingly unfeasible; it is better to return to the real world, strive to become middle class, or ideally, capitalists. Only by making the utmost effort to pursue one's own interests can one bring the greatest wealth to society—this is Adam Smith's economics. Giving up one's own interests for the sake of collective interests is Marxist economics. By learning real economics, one can find true assets and accumulate real wealth. For most people, when they come to Canada, their worldviews need to be reconstructed.