What is Economism? Why did I name the subject Economism instead of just plain old economics. Well, with economics, it is very objective and must be studied intensely with data from the past. I do not really have time for that. It is better to let economists deal with that. Other people can simply read and learn what economists have written based on their findings. Originally, the title of this book was Economology, but I figured that it implies a scientific method. The reasoning employed in this book is mostly abstract theory, making it more of an ideology.
I wish to take economics to a tangent. I would say another level, but this is I am proposing is neither greater nor less than the current state of economics. It is rather a different way of viewing the economy. Economism is the analysis of economics through subjective, practical means. It follows the flow of money and reasons why money goes where it does.
The reason why I write this is because I feel that people need to know the truth about why the reasons why the economy exists in its current state. If people learn the true flow of economics, they may make wiser financial decisions. People who read this may also benefit by adjusting their personal economics and become richer, though I cannot guarantee it.
Economism requires thinking outside the box. Sometimes one has to go against popular belief to justify some theories.
One must be both logical and subjective. In other words, nearing opinionated. I do not consider Economism entirely opinionated because nothing is concrete and some theories may change given other circumstances. In other words, this is basically the disclaimer for all readers. Do not take any of this as truth, but rather as reasoning to substantiate events. These theories are more proved in practice than in science. After reading these book, do not take my word for it, see if there are examples in the real world.
Everyone knows of money as a special tangible paper, or coins, or checks, or credit cards. But what gives these things value? The simple answer is fetishism. The renowned psychoanalyst Sigmund Freud described the fetish as giving some object value that has no real value. One would say that money has value. This is because human society places value on money and educated the people about it. However, money has no practical use. People cannot eat money to sustain themselves. It is not very useful for writing on for communication or be used as building supplies for shelter. Money could be traded for practical items that can do those things. The only reason people can do this is because the other people that would sell those items place a value on money, hence the fetish.
Money, or capital, is necessary for a modern society to function. It creates an incentive to produce items and organize society. Money determines the order of society, or hierarchy.
The role of capital in the economy can be compared to the functions necessary to keeping the human body alive. Capital would represent the red blood cells carrying oxygen and nutrients throughout the body. Human labor is the heart that pumps the blood in an automatic fashion. The human desire for money is the brain dictates how various parts of the body work. The institutions that handle the money (banks, credit card companies, government) are the nervous system that connect the brain (desire) with the actual functions of the body.
Capital allows people to live complex lives, dividing labor to the fullest. Capital is probably the greatest reward that an individual can earn in a capitalist society because of its flexibility. Capital is alienated from necessities (food, shelter, etc.) by itself becoming a necessity for survival. Capital is so powerful that it can be used in lieu of tangible practical goods.
Money is the only thing in existence that can be replaced exactly as it was. Five dollars will always mean the same to anyone. The fact that money can be used as a substitute not only to itself but to other items of value really define the prominent role it plays in a free market economy.
Though very complex, the path that money takes can be simplified as follows. It starts in the mint, then ships to the bank, where the customer withdraws from to use to buy something from a merchant, which can then re circulate to a bank or another person, or it may be taken out of circulation and be destroyed. If more money is created then destroyed, then the excess enters the market, as in available circulating capital for others to use.
There are three consequences when money is placed in circulation: stagnation, growth, and inflation. Capital is always flowing and more of it comes all the time. The effects of having more capital in the market vary depending on the economic situation of the time. Stagnation is not favored by investors, but it is more favorable for a stable economy because it indicates that the economy is under control. Stagnation basically occurs when all the money available is being spent on something, making it difficult to make new investments and at the same time income remains the same, hence, no new growth in the economy. But it is stable because the outcome of such an event is predictable and no loss occurs.
Growth is most desired by investors because it indicates the expansion of the economy. Basically, it occurs when both income and expenses occur simultaneously with the growth of the population.
Inflation occurs when there is too much money in circulation, meaning there is too much money to spend and not enough things to spend it. Incomes do not keep up with the price of goods, leading to higher prices. It is a chicken and egg cycle. Increasing the cost of goods also leads to inflation as consumers would find it more difficult to buy them. With inflation, the purchasing power of the consumer weakens. If the cost of a commodity like oil goes up, the cost of producing an item with oil will rise. The rising cost is passed on and on until it reaches the consumer. So an increase of a cost causes a ripple effect in the economy.
The fourth one, deflation occurs so rarely that there may be no practical use knowing about it. But to summarize it, deflation occurs when a government refuses to print more money and takes current capital out of circulation. This would cause prices to drop because less money is available to spend. Likewise, incomes would also drop. This will never occur because nobody would accept a pay cut (see Chapter 4: Greed).
The health of an economy is like the water flow of a river. When there is a steady stream water (capital) flowing, the river is healthy and clean like a river. If there is too much water flowing, the current becomes overpowering, unpredictable, and dangerous. If there is not enough water flowing, the river becomes stagnant, drying, and prone to disease. Money should always change hands to stimulate the economy. If money is stored or destroyed, then it may not help the economy. This is why most of the money in the world is invested.
Banks are essential for stimulating the economy by controlling its flow. If a person simply stores his or her savings in a shoe box, then it does the economy no good because money must change hands frequently in order to keep the economy healthy. Banks are always allowing capital to move, whether it be in bonds, loans, funds, etc. When banks loan money to others, they stimulate the economy further because the person borrowing the money will spend it and invest it one something, At the same time, the bank will earn interest for that loan.
Banks are a secure way for people to store their money and withdraw it for later use, backed by FDIC. By being a convenient place to store money, banks actually make it easier for people to spend money by debit, credit, and checking. This way, a consumer can spend large sums of money without the risk of carrying cash.
The risks associated with banks is over-lending, people spending more money than they can afford. Banks too, can run out of money, When this happens, then they have to loan from other banks or the government. Doing so pumps more money into the economy than can be sustained. This will eventually result in the market rebalancing itself either through inflation or credit limitations. To prevent abuse of banks, banks are regulated by the government. This increases people's confidence in using them, allowing banks to be successful.
Credit and banking go hand in hand. Financial institutions loan money with the goal of earning a higher return in the form of interest. It is just like any other investment. Borrowers are willing to take these loans to buy things that they would not normally afford. Some of these things could be viewed as investments such as supplies for their own businesses, which would ideally lead to a higher return. However, most people use credit for their own personal use. They use it to buy durable products like televisions and cars. Sometimes credit-wielding consumers take too much advantage of their credit and spend beyond their means. If they are able to pay back the credit over a shorter period like 3 months, then the drawback is minimal. If debts continue to persist over the long run then the impact is more severe.
To compensate for the over-extension of credit, the credit companies impose fees and higher interest payments to deter the borrower from spending more and encouraging them to pay back. If the does pay back then the relations between the lender and borrower are good and the borrower's credit score remains good. If the borrower does not pay within a timely manner, then the lender can take action by freezing their credit and dropping their credit score. When a person's credit is frozen, they cannot borrow any more money form their credit line. When their credit score is bad, then they cannot apply for more lines of credit. A person's credit can be searched for by any individual or institution to determine whether to extend that person's credit. It is a very effective check.
A problem occurs when the debtor declares bankruptcy. At that point, the borrower must relinquish all financial/ real property assets to the creditors. Unfortunately, the creditors only obtains cents to the dollar owed to them. This is better than no money back, however.. As a result, the debtor 's credit history is marked and cannot borrow for a long time. This prevents a nonpaying debtor from spending beyond their means. What occurs as a result of bankruptcy is that capital is lost (it is not totally lost since the money money was spent somehow). It is lost to the lender, or investor. Like any investment, loaning money to individuals is risky.
The reason why credit lines exist is not by magic, as money must always come from somewhere. It is the banks that actually loan money to the credit card companies to then loan to the borrowers. After all, any credit card purchase must and will eventually be turned into real money to add to the store's revenue. So in order for credit to exist, banks must have actual money that can be used. Thus credit card companies and banks must depend on a reliable flow of income into their vaults in order to maintain business. If the flow of money were to decrease to an unsustainable amount (where the money coming in is greater than the money coming out), financial disaster will result. If banks cannot return their customer's deposit money, then panic will ensue. At that point money is simply lost.
The government can make a loan to banks to maintain cash flow, as what the FDIC does. But what results is the weakening value of the currency, which results in inflation (because too much money is in circulation not backed by real assets). This makes it very dangerous to be in such a situation. Either people would not afford to buy things because they do not have money or they cannot buy things because they cost too much.
Greed is basically the desire to obtain more wealth. Out of the 7 deadly sins, greed is the most dangerous. One would think vengeance is more dangerous because it will more likely lead to immediate death. However, greed effects the most people. It does not directly affect the victims, but because people do not see the effects immediately, it is more deadlier, like a hidden predator stalking its prey. The consequences of greed can have catastrophic effects on its victims.
Love conquers all, but greed conquers love. Not to be too philosophical or moral, but greed and love are independent of each other. In a nutshell, love is a feeling that is amendable. Love cannot be a fixed idea because everybody will have their own ideas, so it will change over time even within the same person. Love can compromise with other feelings and ideas and still remain love. A love that is fixed and unmoving is no love at all, but rather an obsession.
Greed, on the other hand, has no end, but is a fixed feeling. It is the desire of wanting more and more without limit.
A common saying is that money is the root of all evil. That is not true at all. How can money be evil? It is simply just paper, credit, or some type of transaction. Money is neutral in everything it is involved with. In other words, money is innocent in all circumstances. As stated before in Ch 1: The Value of Money, money is just a symbol that people associate power to. What is evil is the desire for money, greed. People with a high level of greed will obtain the most money as possible without regard for the consequences.
The goal of a company is to make money for the shareholders. Corporations always seek to make the highest profits possible. They may employ illegal or questionable but not illegal methods to reach that goal. The following are examples of what could happen in the real world.
When earning the most money is the top priority, people will make decisions based on what will save and earn the most money possible without regard to who it will effect. Wealth and power are very much synonymous when it comes to who makes the decisions. In order to obtain more power and wealth, those people will take something away from others. In order to make money, it must come from someone else. If that person is in charge due to his or her status, then they choose who and where the money comes from. These decisions effect many people who do not have any control of them. They may lose their paychecks, lose their health, or lose their safety.
Greed is necessary for a capitalist system because it is what motivates people to do things. The desire for wealth is a precondition for innovation and improvement. Some may argue that some things are done not for money, but for the passion or the desire to help others. There is no dispute for some people's motivations to produce things. However, if they do not produce for money, then they are outside the scope of the capitalist system. On the other had, it is the capitalist system that promotes the distribution of such innovations.
An ideal free market is a type where all sellers compete on an equal level. Prices are very competitive as sellers try to earn the most business from consumers. Goods are abundant, and consumers have many choices and are free to choose the best product. In addition to the sale of goods, money flows freely and transparently. The market is owned by many, but ultimately, the consumer controls the market. Trade between regions is free and without restriction. There are no tariffs or taxes that would discriminate any goods, they would all be treated the same. At the same time, the labor that produces all the goods are on an equitable basis, so no labor is costlier than another, there would also be no minimum and maximum wage either, Industries would be vying for the best workers so wages would be kept at a competitive level. In addition there are no rules and no regulations. The consumer decides who gets to win.
A bad market works like organized crime. A few groups have control nearly all the market. They sell not based on demand, but rather on price. Thus some products remain scarce. If the demand for a product is high enough, the price will skyrocket. The consumer has no choice but to pay the high price. Since some products remain scarce, the quality if the products also diminish, leaving the consumer will little choice but to accept it. Possible competitors are shut out of the market, due to aggressive marketing, local control, and undercutting. The reverse scenario may also be as bad. One seller can overproduce a single product, leading to saturation. This would cause the prices for those goods to drop, even though other sellers cannot afford it. If they do not drop the price, then they will be out of business, if they do, then they lose money.
To prevent a bad market from occurring, a neutral organization, namely, the government, must regulate commerce. However, regulation prevents a truly free market. Hence, there must be a balance between monopolization and regulation to achieve the best condition for the economy. The government has the obligation to regulate for the benefit of its population in order for the country to be prosperous. After all, a government needs tax revenue in order to operate. If companies do not pay taxes, then the government will fail to function. At the same time, the government must not restrict too much the flow of commerce. Individual businesses cannot prosper if they are too controlled by an outside influence.
Ideally, a democratic government can regulate best. Since consumers should decide the outcome of the marketplace, they would either vote for the laws that regulate or the people representatives that decide the laws. Many problems may occur when deciding such regulation. The consumer public may not be informed enough to make a decision or are too apathetic to make one. When this occurs, the businesses gain influence in legislation. When this happens, regulation does the opposite of that it is supposed to do. When business regulate themselves, they actually gain an advantage in the market and assert greater control of it, thus taking the power away from the consumers. Businesses may also do this by using money to influence the votes of legislators. When businesses write their own regulations, the consumers and the government lose. Businesses are not neutral to themselves, as they would obviously find ways to benefit themselves when possible. it is simply the nature of survival. The North American Free Trade Agreement (NAFTA) is such an example.
Governments that side with business leaders create a conflict-of-interest. Businesses will only serve their own needs in the effort to make more money. Thus, they will hire lobbyists to exert their influence to ad exclusions and regulations favorable to their company. They will also try to gain advantage over their competitors. Competition (free trade) and labor are usually on the losing side of a lobbyist influenced trade agreement or regulation. The goal of many businesses is to make the most amount of profit through legal means. This means that they will change the laws to make more money.
The market looses freedom when such "bad" regulation occurs. "bad" regulation is done in spite of public interest. it is instead beneficial to companies who try to take advantage of the system. When regulations favor some private corporations over others, it is not free trade, but rather restricted trade. Large so-called free trade agreements like NAFTA and WTO consist of documents hundreds and thousands of pages long outlining its trade policies. Those are not real free trade agreements because a real free trade agreement would have no restrictions at all.
Why, for example, does a private company have the right to sue a government of a poor country for violating a trade agreement? For a public resource like water there should be competition, as it will be beneficial for the consumers. A private company should be allowed to compete freely with a government over a market as long as it is truly free.
Another example of trade that is not free is the U.S. agricultural industry. Here, the government gives subsidies to farmers to plant certain crops. This makes it cheaper to grow crops. However, to keep some prices high, the government pays farmers not to grow certain crops. What happens is that the prices for the subsidized crops drop and the supply becomes artificially higher. This puts other countries without subsidies at a disadvantage because they are forced to sell cops for lower to compete with the subsidized crops. In the U.S. and Europe, the cost of growing a crop is less than growing it in another country due to subsidy. The result is that the poor countries without subsidies have to buy crops from other countries with subsidies because it is cheaper to do so. Unfortunately, buying foreign crops hurts the domestic agriculture. Also, keep in mind of who is paying the subsidies. The consumers actually bear the burden of paying the subsidies, since the money must come from somewhere through taxes from other items. This means that the more crops grown, the more subsidies the taxpayers are paying. The real cost of food is actually higher than what the consumers perceive it to be. The cost is offset by other taxes. This forces artificial boundaries in the market, which in the long run may be unhealthy. it is a regulation that benefits the industry rather than the consumer.
There are great downsides for lack of regulation. Without regulation, a company can exploit a lands resources, pay labor cheap prices, and pollute the land with hazardous waste. The company would not be held accountable, thus imposing a high cost on the people living near the land. An example like this highlights another problem in the free market. That is the "true" cost of a product. To calculate the "true" cost of a product, include the usual items: raw materials, shipping, labor, infrastructure and utilities. Then add the economic impact: the healthcare of the workers (if not covered under wages), the environmental pollution, subsequent cleanup cost and the medical costs for nearby residents affected by it, and the cost of outsourcing jobs and unemployment it caused if it is made far away. The market never takes into account the "true" costs because the companies seldom take responsibility for the collateral damage. The government and its taxpayers bear the burden. This is a result of lack of regulation and oversight by the government. Effective government regulations do raise the cost of a product, but this cost is much closer to the "true" cost of a product.
Admittedly, it is difficult to inform consumers of the true cost of any product. The price tag they see on a product is the price they think that they pay for and usually they ask no questions. Ignorance and avoidance plays a large part in profit. As long as a producer does not have to pay the full costs of creating a product, they can keep the remaining money.
Labor is half of what is required for an economy to survive. The other half is consumption. Labor is the #1 driver of the free market. Labor is not tangible, and thus not taken seriously by producers, sellers, and consumers. Labor does have limited mobility, but it is the most important. For without labor, nothing can be done at all. If the smartest people in the room though of everything, they cannot accomplish anything without having people to do the work. The importance of labor lies in the fact that a large percentage of the cost of making a product is labor. To do anything requires people, for only people can do things for money and will accept money for services. Even if a machine is doing the work, it took human labor to create the machine in the first place.
As the old adage goes, money does not grow on trees. Neither do products make themselves. The labor cycle is more like a wave than a circle because it is periodic. This is how it goes: a person becomes a laborer by doing work to make products and services that other people consume and pay for them. In return, the laborer earns money for his or herself to spend. The laborer is also a consumer who buys goods and services for his or her own survival and entertainment. When the consumer needs more money, they have to perform more labor to earn more money, and the cycle repeats going back and forth from producing to consuming. The earning should keep in pace with the cost of goods. If earnings and goods remain at constant level where the earning are slightly more than the cost of goods, then the economy would remain stable with a potential for growth. This is critical ratio, as any major shift on either side would cause a recession.
Labor must always deal with management, and vice versa. Management is a different form of labor, but still counts as a labor, so someone has to come up with ways to organize workers and make broader decisions that effect the company as a whole. Manual labor just focuses on day-to-day operations and are usually limited in scope and ability. Since the early days of industrialization, there has always been conflicts between management and labor. The goal of management has always been to increase productivity, achieve the highest profit margin possible, and minimize expenses. The goal of labor has been to earn the highest wages possible in the best working conditions and benefits. Both are legitimate concerns and both sides have are in the best of interests to compromise.
Production cannot increase without the cooperation of labor. A workforce in good morale will always perform better overall than an stressed overworked under-staffed group. Work conditions must be at an optimum level in order to achieve the best productivity from workers, conditions must be comfortable and wages must should give the worker the best sense of value to the job they are doing. Management should see value instill value in their workforce to motivate them to work more efficiently. It is not working harder or more often that increases productivity, but working efficiently.
In an ideal world, no person would be unemployed, In a free market unemployment is a necessity. The main reason is that the markets are competitive. Products sell successfully at competitive prices, and so does labor. Having individuals compete for a few jobs keeps their wages low. If there were too many jobs available and few people to fill them, employers would raise wages to attract the best and brightest to work for them. However, for low-skilled jobs and some semi-skilled ones, businesses and governments must keep a work pool of unemployed individuals so they can afford to hire new workers when needed. This also encourages existing workers to become more productive, as they may be replaced easily.
Labor unions exist for job security, as members of a union can protest and strike as a group to negotiate with management. When unions can achieve better terms with management, then both side win. However, unions themselves contain union leaders who function as management. A problem may occur when a union boss acts more like a manager than a worker. Sometimes unions do not focus on the best interests of their workers. An example of this will be when a union boss decides to take support a political cause. Politics would take resources away from the paychecks of workers and into such causes which may mostly benefit the union boss.
Despite unions, unemployment still remains (this follows the theory of economic self-interest). The United States of America has never had 100% employment. If employment was mandated by law, then such system would exist like the communist government of Russia and Eastern Europe after World War 2. These economies were not the most productive because there was little incentive to improve the marketplace because a free market did not exist. Citizens could only have one type of product and the producers were guaranteed a buyer no matter how bad the product was. There was no incentive to innovate new products because there was no reason to do it when the existing products were guaranteed to be made and bought like clockwork. Workers under a 100% employment system likewise have no incentive to be more productive than any other person because they were guaranteed a job and a wage no matter what they did. Under this system. a person did not have to do work to be paid since they can rely on others to do that job. There was no incentive to pay other people more money because everyone was treated equally despite their output.
Advanced countries provide unemployment benefits for those who recently lost their jobs. This may benefit the economy because the person is able to spend the money into the economy. However, because the person is not productive, that person is depending on the labor of others for a living. Unemployment benefits are only a quick-fix. Like all quick-fixes, they do not benefit over a long term and become harmful if the person is dependant on them. The real fix is to train a person to find a more suitable job.
Employment in a free market economy is never meant to be permanent. Selecting a job should always be laborer's. In this type of system people would always have the opportunity to advance, and as they do they change positions or jobs. Opportunities are given to everyone on an equal basis based on merit and experience, rather than external qualities. The strength of working is a essentially about freedom of choice.
Why do we have rich and poor people? What creates this disparity? As stated in Chapter 2: The Flow of Money, capital is constantly moving to various owners. Well, actually, money has no master, but rather, money is the master. In Chapter 3: Greed, it explains the driving force to allocate as much capital as possible. The result is that some people allocate more money than others. In order for this to happen people have to be willing to pay the other person for their goods or services. This system is entirely moral because it is consensual from both sides of the transaction, as long as no fraud or other questionable practice was done. Contrary to popular belief, the rich do not rob from the poor. Wealth and poverty is a consequence of the capitalist system. this result is caused by many environmental factors, mostly beyond the control of any individual.
The upper class are better at accumulating wealth because money attracts more money. They have more control over the economy because of the amount they can spend. For example, buying a more expensive product has a higher economic impact that buying a lower cost product simply because more capital flows in the economy. The greater the flow of money, the more healthy the economy is. Simply spending more money improves the health of the economy, unless it causes or is caused by inflation, which in that case, would hurt the economy. Regarding the inflation issue, the more wealthy have the advantage and are protected against inflation due to their savings. On the other hand, the lower class are hurt severely by inflation because they have less savings, their incomes cannot keep up with rising prices. The lower class have less control over the economy than the wealthier. That does not mean that the lower class are insignificant. Since there is much more lower class people than upper class people, their numbers combined does have a greater economic impact. This is not a contradiction, for even though the lower classes' combined spending power does make a difference, they make their own individual choices and have no collective will to move markets the way a few wealthy individuals can to buy something like an entire billion-dollar corporation.
The lower class works for the upper class. The upper class can own a business and hire employees. In order to do so, the owner must be able to profit from the employees' labor, otherwise there would be no incentive to hire the person. The profit is made then the worker produces more value in products per hour than the wage he or she is being paid. For example, a worker can produce items that generate a $15 profit per hour, but only earns $10 per hour. the company makes a $5 net gain per hour. In addition, the owner can raise the prices of the products that the company creates while paying the workers the same amount of money. The owner becomes more wealthy while the worker has the same income, increasing the income disparity. The worker has little control over this and sometimes resorts to unionization to protect the worker (see Chapter 6: Labor).
The rich cater to the rich. Since money attracts more money, the concentration of wealth is always towards the few at the very top. The upper class pay the highest prices for goods and services provided by other businesses of the same class (like limos and private jets). At the same time, they pay the lower class lower wages respectively, keeping them at that level. The rich own the businesses that the lower class is dependant on, so by default, money from the lower class automatically flows to the upper class. Concurrently, the lower class are earning their income from the businesses owned by the upper class.
When the rich donate money to charity, they never give it directly to the poor people who need it most. Instead, they give it to organizations they can trust to manage the money. Simply giving the money to poor people will not solve the problem of poverty. This is because the individuals are less privileged for a reason. The lack of money is not a precondition to poverty but rather a consequence of the environment. It is the surrounding climate that leads to many people to being impoverished.
The government in many respects perpetuates poverty. Even in a democracy, votes are biased towards the more wealthier. The rich actually control the government in every case in the world. Sometimes people become rich from having power in the government, other times it is the other way around. Money has the largest influence over policy. Financial interests mostly win over public interest. Sometimes this is not obvious. The trick is the have the majority people (which are the lower class) support the government on the promise of helping them. However, once the government is supported and takes action, rarely do they fulfil their promises. The government is full of waste and bureaucracy and this makes it difficult for the money to go to the programs that the people need the most. There is also a tendency to help the well-connected. Once in power, those who are in charge tend to look after their own interest (more on that on another chapter). Those who are well connected to those in power (more wealthier people) reap the greatest benefits. This comes at the expense of the lower class. The lower class pay the highest percentage of their incomes to taxes. Those who decide the distribution of the taxes collected usually channel it upward to things like no-bid government contracts or political favors. Though this book is not about the subject of politics, one must bear in mind the definition of politics: deciding who gets control of limited resources. Money and power are dependant upon each other, as one cannot thrive without the other.
Extreme wealth must coexist with extreme poverty. They are two sides of the same coin.To better explain this consider how much money a rich person must have to be considered rich. The answer does not have a definite number. One hundred years ago, having $1000 was considered very wealthy, now that money can barely pay the rent in most places. This is because the definition of wealth continuously changes with the change in culture and the rate of inflation. Wealth is relative. In order for someone to be rich, they have to have a lot more money than an average person. That is obvious. Consider this: what would happen if everyone was given a million dollars? Everyone would be a millionaire and be rich, right? If everyone was a millionaire, how much would a dollar be worth? There is always the incentive, greed, to make more and more money (see Ch. 4: Greed). Prices would rise everywhere because everyone would have too much money to spend and inflation would be rampant. People with a million dollars would be considered poor and those with a lot more would be rich. It is not the quantity that defines wealth, but rather the value of the wealth relative to others.
Are the rich responsible for causing poverty? Yes if they exploit the poor for their own economic gain such as low cost working conditions, poor wages, forcing an unfair financial burden upon them. They would not cause poverty if they donated money to charities that benefit the poor through education and essential services. The rich would also not be a cause if they gave their workers good conditions and livable wages. However, one fact remains clear: there can be no rich without the poor, and vice versa. Money must flow in an inequitable manner in a free market society. Those who are successful are those who can channel more money onto themselves over others. Since there is a limited supply of money, it must be completely distributed in some way.
Yet it is not entirely the responsibility of the wealthy to create the poor. The less wealthy tend to have similar aspirations as the wealthy in the free market society. The less wealthy would like to see themselves in the place among the more wealthy in the future, so they find the current wealthy group more acceptable. One can argue that the lower class have no choice but to live in poverty. The conditions of the lower class are a result of the environment. Some people struggle just to put food on the table. However, everyone has wants. Some wants go beyond sustenance. There will never be an end to the desire for more. There can never be an end to greed. So as long as this continues, the lower class will always want more in addition to the upper class. This perpetuates the problem. After all, the free market is a mobile society. Once someone from the lower class is able to accumulate enough wealth, they will move higher in the economic ladder. But doing so will create a wealth gap that will result in poverty for others.
The middle class is a separate group of people that are a combination of rich and poor but not in either definite class. The middle class is both educated and skilled. Most people in a capitalist system are in this class. Thus they make up the largest labor pool and thus the backbone of the economy (see Ch 6: Labor). Because of the large proportion, they are the most competitive in the market in terms of both labor and consumption. They pay the highest percentage of their income to taxes. In addition, the middle class interact with both the poor and the rich more frequently than the poor interacting with the rich (which is very rare). This group acts as a bridge and buffer between the two extremes. When a lower class person climbs up the economic ladder, he or she enters the middle class. When an upper class person drops from that ladder, he or she enters the middle class. A person in the middle class can go either way. It is in the middle class where the disparity becomes less apparent. The middle class is what prevents the very poor from overthrowing the very rich.
The only way to eliminate poverty is to eliminate the rich. If everyone made a similar amount of money, then nobody would be poor because the gap among the people would not be significant. If nobody is rich, then nobody is poor. However, this is an impossible scenario. The human society exists on the basis of the hierarchy of wealth and power, which as stated before, are intricately linked,