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In a modern society, we should all ask ourselves the question: “What makes a nation wealthy ?” It is tempting to say, “Wealth comes from the government”. Yes; governments do have huge sums of money which they spend on running their countries. However, that money is not produced by the government. It is collected from the tax-paying citizens of each country who are the real generators of wealth.

Adam Smith (1723-1790) was a Scottish philosopher and economist. Smith has been celebrated as the founder of free market economics. Before Adam Smith wrote his book describing “ - - -The Wealth of Nations, a nation’s economic health was measured mainly by the size of its gold reserves.

WealthImage (4K)

John Maynard Keynes (1883 – 1946) was an advocate of deficit spending. This means that a country could borrow money to help stimulate an economy in recession.

For any country, such as South Africa, wealth is measured by the production of goods and services. Governments by themselves do not, in general, produce anything of value. Their job is to create an environment in which businesses and individual entrepreneurs can generate goods and services. This environment must include: Physical defence and Protection of Property, The Rule of Law, and Infrastructure, e.g. roads etc.

When people get together to form companies, they generally pool their resources in the form of money, machinery, vehicles etc. These pooled resources are called the capital of the new companies. Without this practice, known as capitalism, production of goods and services would be difficult, and the country would probably remain poor.

We now have to ask, “Where does money come in to the picture ?” A short answer is that money has evolved from the original systems of barter, or exchange of goods, commodities and services such as cattle, crops, labour etc. A need arose for an easier medium of exchange, such as shells, beads or precious metals such as gold. In more recent times, bills of exchange and banknotes were decreed by governments to be legal tender, i.e. they had to be accepted as payment. Finally, banks were enabled to create money by granting credit in the form of loans and house bonds.

How do we measure the size of an economy?
In the modern world, the way we usually measure the size of an economy is by its Gross Domestic Product (GDP). GDP is the value of all the goods and services produced within our borders in one year. This value is equal to the economic wealth of the country. This includes all the goods like: loaves of bread, mielies, cars and gold, as well as all the services like taxi rides, telephone units, haircuts, hotel rooms or tickets to football matches. We add the prices of all these things together to get GDP.

The value of South Africa’s GDP in 2012 was US$384.3 billion (thousand million), which translates into R3.9 trillion (thousand thousand million) approximately.


1. How does the government pay the salaries of all its employees (“civil servants”) ?

2. Who wrote a book praising the idea of free markets ?

3. Who proposed that countries should spend their way out of recessions by borrowing money ?

4. What is the source of a country’s wealth ?

5. What are the main responsibilities of governments ?

6. What is meant by “capitalism” ?

7. What is meant by “medium of exchange” ?

8. What is meant by the term “legal tender” ?

9. What term is used to measure the size of a country’s economy ?

10. The size of South Africa’s economy in 2012 was:

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