The Creation of Wealth: Using Enterprise and Increasing Returns to Scale

You need both Enterprise and Increasing Returns to Scale to create wealth. "Enterprise" is setting up the firm. "Increasing Returns to Scale" is a process of operating the firm. Enterprise alone won't make it, as you also need something to sell, produced at a steadily falling cost. In other words, your firm needs to become large enough to operate under "increasing returns to scale" to make substantial profits. If your firm is too small, you don't create new wealth. Also, once you achieve increasing returns to scale, sales prices and marketing are a secondary consideration. Many thousands of books have been written about how to get rich. They say basically the same thing. Save, and then invest wisely. In property, shares, etc. Some authors add additional precepts. "Use other peoples' money". It all sounds very clever. Yes, if a person saves and invests wisely, and if they borrow wisely, they can become moderately well off. But investing in shares means that you only get a small fraction of the profits. The rest gets swept elsewhere to the managers and the inside crowd. Unless you run a successful investment fund. And then again, that is running your own business. This book is about creating new wealth, not obtaining wealth. Yes, Atilla the Hun obtained great wealth. You can obtain wealth by robbery, extortion, theft, violence, piracy, speculation, gambling. But experience shows that the chance of successfully achieving this, despite fictional accounts, is small. So how do the rich become rich, and the poor remain poor? I mean rich as Rockefeller, or Bill Gates? Exploitation? Hard work? Luck? Being in the right place at the right time? Is there some secret that allows you, without capital, excessive effort, or luck, become very rich? Yes, there is. And this secret is described by the dual concepts - "Enterprise", combined with "Increasing Returns to Scale". If you combine Enterprise, which is starting and owning a firm, that firm must produce goods or services for sale under Increasing Returns to Scale. And together with the necessary hard work, leadership, and good management - yes, the usual stuff, you will become, depending on the size of the market, rich. If it is a large market, you could become very rich. If it is a global market with a major demand for your product, very, very, rich.

TIM WALSHAW is an economist who has written several books on business concepts such as double entry bookkeeping and how to invest wisely using the concept of increasing returns to scale.