ABSTRACT
Why are some economies poorer than others? To some it may seem to suggest that capital or wealth lay at the root of the problem of poverty. If being poor is defined as being “not wealthy”, poverty and the lack of capital are identical and one cannot “explain” the other. But if the criterion for being poor is the size of the annual flow of income rather than the stock of assets, the identity disappears. If the criterion is generalized, moreover, to include some variables other than income (as was suggested in Chapter 2), the correspondence between the lack of wealth and poverty is further complicated. In societies which have not yet fully entered the era of sustained economic growth, it makes more sense to define poverty as the probability of starvation. The chances of perishing in a famine depend, however, to a great extent on real income and specifically on labor income. Since wealth, by definition, consists of assets that are either instrumental in production, or are consumed directly, wealth is a primary determinant of income. This truism holds regardless of whether one utilizes a neoclassical, Marxian, or any other paradigm. The productivity of labor, both average and marginal, is positively associated with the amount of nonlabor inputs per unit of labor.
