If the rich get richer and the poor get poorer why doesn’t the poor ever go completely broke? Don’t the wealthy depend on the poor to have disposable income to buy their products and services and thereby increase their wealth?
There are two basic types of wealth. One is monetary and the other is proprietary. Monetary wealth is accomplished thru the accumulation of currency (such as the dollar, yen, gold or whatever). The second form of wealth is garnered thru ownership. This ownership can be of a company, resources, real estate, etc.
The answer to the first question is that yes, as long as profit is the goal the wealthy need consumers to buy their products in order to create more capital.
In an expansion phase fueled by technological and agricultural growth, medical advance, invention and development of basic infrastructure the standard of living of all increases. Though the richer are getting richer the health and lifestyle of the poor is improving. The entire society is flourishing and all partake in some modest share in the boon times.
Despite this growth the fact remains that only a small percentage are profiting and the rest are just cogs in production. The role of the laborer is to produce and to consume. Yet, as the society goes from a true growth phase and matures into a high maintenance system, the role as consumer begins to grow as the role as producer diminishes.
It is no blind coincidence that the bulk of people in the US are referred to as consumers and no longer identified as citizens. The function of most of Americans is to consume. It is to buy and borrow and generally provide the profiteers with increased opportunities to increase the disparity of wealth.
In every transaction involving profit there is a winner and a loser. There is the one who profits and the one of which profit is made. While the relative wealth of the profiter is increased the relative wealth of the consumer is decreased.
Now logically it would seem obvious that eventually over time the consumer would run out of money. Yet, this is where banking enters the picture. The poor don’t run out of money to use because more and more money is printed and placed into the economy. The consumer/worker continues to make more money while the wealthy continue to harvest the lions share of the money in circulation.
At every moment in time my relative wealth can be determined by the portion of the total wealth of the nation I possess. Rather than trying to understand this by putting forward the numbers of our current nation with 300,000,000 people and trillions of dollars. lets break it down to a nation of 100 people.
If the nation of 100 people had $10,000 in total then if the wealth was distributed equally each person would have $100. A persons relative wealth could be easily be ascertained by totaling his assets and seeing if he is worth more or less than a $100. Yet, if over the next year and additional $10,000 were added to the money supply, thereby doubling the money in circulation. Each individual’s wealth should also have increased. If I went from having a $100 to $150 dollars I would have more money, but my relative wealth would have plummeted.
Even though my total assets grew by $50 and 50%, my relative wealth would have gone from even to down 25% from the average. In this scenario I would have more money to consume, while my share of the total wealth would fall.
Now, some will complain that the above process is called inflation, and that my extra dollars would be met with higher prices for all goods and, therefore, my purchase power would have decreased. And to that I would say yes that is true. The purchase power of the dollar is less than 1% of what it used to be, but so far it has not caused the consumer to run out of money to consume, or restrict the billionaires from increasing their share of the total pot.
By printing more and more money a government is able to have it’s workers have more money to throw back into the economy (consume) while having them believe that they are wealthier when in fact their relative wealth is plummeting.
A perfect example of how depreciating wealth is often misconstrued by the consumer is a rise in their relative wealth is the purchase of a home via a mortgage. The deceptions start at the very beginning when the purchaser of the home is called a home owner. In truth, the bank is the owner and they are letting you live there as long as you pay off the mortgage.
The typical standard American home owner started off by putting a small portion down maybe 5 to 10% while taking out a 30 year mortgage. Interest rates have varied thru the years, but on a 30 year mortgage a person will end up giving the bank three to four times what the purchase price of the house. In other words if I purchased a home for $300,000 and take all 30 years to pay off the loan I will have paid over $900,000 to 1.2 million to pay off my mortgage.
The value of the home will have gained considerably over the 30 years. Yet, often the resale value of the home will not have gone up the three to four fold to make back what you put into it. Let alone if you think of all the money throughout the 30 years you put into it for maintenance and up keep. Yet, despite these facts most people view their home as an investment which increases their relative wealth.
The above example does not include the decrease in the relative value of the dollar caused by all the additional trillions of dollars that were printed and added to the economy. When you factor that in, it becomes almost impossible to realize a profit when you sell a home you finally own after paying off a 30 year mortgage.
The discussion of our profit based capitalistic economy has not been very flattering or optimistic. In my next post I will state what I think should happen, and in the following one I will state what I think will happen if we let our current system play itself out.
Guido