Ch. 7: Wealth and Poverty

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 his 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. 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,