Riches from Rags or Riches?

Does wealth come from return on capital or from innovation?

Both.

Those who have capital have a leverage able asset with which they can achieve returns beyond those available to un-leverage able labor.

Those who create innovations that create new wealth, usually by creating order of magnitude better things that people want, have a leverage able asset with which they can achieve returns beyond those available to un-leverage able labor.

Un-leverage able labor is the work that the majority of society does.  It is labor where the returns are limited by the hours you can or will contribute and you get paid in a mostly linear fashion, more or less, for your labor.  Leverage able things are limited by other factors than the 168 hours per week we each have in our lives.

Wealth and an increased level of well being and performance for society are created by leveraged outcomes, which achieve exponential instead of linear return on resources.  The best of this comes from innovation, because it often consumes fewer resources, it feels like free lunch.  Another source is capital.  Each of these is leveraged when measured against labor. 

As a society, if we want more - if there are scarce things, such as healthcare, education, childcare and leisure, etc. - that we want more of, we should support those policies which favor leverage.  Bright people working in STEM and management, liberal investing laws that favor creative destruction and don't restrict new market entrants, meaning low regulation and less capture of government by incumbents, along with well protected property rights which allow owners of leveraged resources to keep the fruits of their efforts favor creating more for our society.

Creating more for our society allows us to grow the whole pie, not split it differently.

Accurate Reality:  Exponential returns on resources grow society's pie.  Bright people working in STEM and business management, creative destruction and less capture of government by incumbents along with property rights which allow owners of leveraged resources to keep the fruits of their efforts create more for our society.  Having more makes all levels of society better off, regardless of inequality.