The paper money system is at the center of the growing income inequality and expanding poverty rates
If one looks at the current paper money system and its
negative social and social-political effects, the question must arise: where
are the protests by the supporters and protectors of social justice? Why don’t
we hear calls to protest from politicians and social commentators, from the
heads of social welfare agencies and leading religious leaders, who all promote
the general welfare as their mission?
Presumably, the answer is that many have only a weak
understanding of the role of money in an economy with a division of labor, and
for that reason, the consequences of today’s paper money system are being
widely overlooked.
The current system of fractional reserve banking and
central banking stands in stark opposition to a market economy monetary regime in
which the market participants could decide themselves, without state pressure
or coercion, what money they want to use, and in which it would not be possible
for anyone to expand the money supply because they simply choose to do so.
The expansion of the money supply, made possible
through central banks and fractional reserve banking, is in reality what allows
inflation, and thus, declining income in real terms. In The Theory of Money and Credit Ludwig von Mises
wrote:
The most important of the causes of a diminution in the value of money of which we have to take account is an increase in the stock of money while the demand for it remains the same, or falls off, or, if it increases, at least increases less than the stock. ... A lower subjective valuation of money is then passed on from person to person because those who come into possession of an additional quantity of money are inclined to consent to pay higher prices than before.[1]
When there are price increases caused by an expansion
of the money supply, the prices of various goods and services do not rise to
the same degree, and do not rise at the same time. Mises explains the effects:
While the process is under way, some people enjoy the benefit of higher prices for the goods or services they sell, while the prices of the things they buy have not yet risen or have not risen to the same extent. On the other hand, there are people who are in the unhappy situation of selling commodities and services whose prices have not yet risen or not in the same degree as the prices of the goods they must buy for their daily consumption.[2]
Indeed, in the case of the price of a worker’s labor
(i.e., his or her wages) increasing at a slower rate than the price of bread or
rent, we see how this shift in the relationship between income and assets can
impoverish many workers and consumers.
An inflationary money supply can cause impoverishment
and income inequality in a variety of ways:
1. The Cantillon Effect
The uneven distribution of price inflation is known as
the Cantillon effect. Those who receive the newly created money first
(primarily the state and the banks, but also some large companies) are the
beneficiaries of easy money. They can make purchases with the new money at
goods prices that are still unchanged. Those who obtain the newly created money
only later, or do not receive any of it, are harmed (wage-earners and salaried
employees, retirees). They can only buy goods at prices which have, in the
meantime, risen.[3]
2. Asset Price Inflation
Investors with greater assets can better spread their
investments and assets and are thus in a position to invest in tangible assets
such as stocks, real estate, and precious metals. When the prices of those
assets rise due to an expansion of the money supply, the holders of those
assets may benefit as their assets gain in value. Those holding assets become
more wealthy while people with fewer assets or no assets either profit little
or cannot profit at all from the price increases.
3. The Credit Market Amplifies
the Effects
The effects of asset price inflation can be amplified
by the credit market. Those who have a higher income can carry higher credit in
contrast to those with lower income, by acquiring real estate, for example, or
other assets. If real estate prices rise due to an expansion of the money
supply, they may profit from those price increases and the gap between rich and
poor grows even faster.[4]
4. Boom and Bust Cycles Create
Unemployment
The direct cause of unemployment is the inflexibility
of the labor market, caused by state interference and labor union pressures. An
indirect cause of unemployment is the expansion of the paper money supply,
which can lead to illusory economic booms that in turn lead to malinvestment.
Especially in inflexible labor markets, when these malinvestments become
evident in a down economy, it ultimately leads to higher and more lasting
unemployment that is often most severely felt among the lowest-income
households.[5]
The State Continues to Expand
Once the gap in income distribution and asset
distribution has been opened, the supporters and protectors of social justice
will more and more speak out, not knowing (or not saying) that it is the state
itself with its monopolistic monetary system that is responsible for the
conditions described.
It’s a perfidious “business model” in which the state
creates social inequality through its monopolistic monetary system, splits
society into poor and rich, and makes people dependent on welfare. It then
intervenes in a regulatory and distributive manner, in order to justify its
existence. The economist Roland Baader observed:
The political caste must prove its right to exist, by
doing something. However, because everything it does, it does much worse, it
has to constantly carry out reforms, i.e., it has to do something, because it
did something already. It would not have to do something, had it not already
done something. If only one knew what one could do to stop it from doing
things.[6]
The state even exploits the uncertainty in the
population about the true reasons for the growing gap in income and asset
distribution. For example, The Fourth Poverty and
Wealth Report of the German Federal Government states
that since 2002, there has been a clear majority among the German people in
favor of carrying out measures to reduce differences in income.
Conclusion
The reigning paper money system is at the center of
the growing income inequality and expanding poverty rates we find in many
countries today. Nevertheless, states continue to grow in power in the name of
taming the market system that has supposedly caused the impoverishment actually
caused by the state and its allies.
If those who claim to speak for social justice do
nothing to protest this, their silence can only have two possible reasons. They
either don’t understand how our monetary system functions, in which case, they
should do their research and learn about it; or they do understand it and are
cynically ignoring a major source of poverty because they may in fact be
benefiting from the paper money system themselves.
Notes
[1] Ludwig von Mises, The Theory of Money and Credit, p. 208.
[2] Ludwig von Mises, Human Action, Scholar’s Edition (Auburn, Ala.: Mises
Institute, 1998), pp. 409-410.
[3] Thorsten Polleit, Cantillons Erkenntnisse, at http://thorstenpolleit.com/FAZ9Mai2011.pdf
[4] Jörg Guido Hülsmann, “Vermögend auf Kredit,” eigentümlich frei (April 2013).
[5] Jésus Huerta de Soto, Geld, Bankkredit und Konjunkturzyklen (Stuttgart:
Lucius & Lucius, 2001), p. 294. English translation, Money, Bank Credit, and Economic Cycles.
[6] Translation mine. Roland Baader, Freiheitsfunken II (Düsseldorf:
Lichtschlag Medien, 2012), p. 62.
No comments:
Post a Comment