Imagine having to work 24/7/52 in a year, only to earn what some people make in a week. This is the story of many people all over the world. Imagine for a second that a person earns US$230,700, according to https://howrichami.givingwhatwecan.org/, that person is richer than 99% of the rest of the population in America. On the flip side a person who earns $30,000 per annum is richer than 70.7% of the population. The two main causes of this are inflation and imbalance of wealth. This is the second topic of the series on ‘Hidden Secrets of Money’ and I advise that you view the earlier post on “What is Real Money”. Here again are the topics and concepts to be summarized and for which videos will be linked for further understanding.
- What is Real Money?
- Why is There Inflation and Imbalance of Wealth?
- The Hidden Truth About Money
- How You Can Make Yours
- Fight Inflation Through Multiplication
In the previous post we looked at what is real money. In this post we focus on number 2 of the secrets of money. In subsequent posts, I shall simplify the other points listed above. Let’s go straight into what inflation is.
Inflation is the general increase in prices of goods and services and a fall in the purchasing power of money. According to economic principles there are 2 basic causes of inflation. Other 2 have been added here because they directly relate to the hidden secrets of money.
- Demand and Supply
- Increased Cost of Production
- Increased Money Supply by the Government
- National Debt
Around 680 – 630 BC in Lydia, gold and silver became official for payment for goods and services. From Lydia it was taken to Athens where it became a legal tender and was exported all around the world. It was established in the first post that only gold, silver are real money. So if gold and silver are real money, then why require the need of currency notes as money? In my opinion, paper currency was created as a result of the limitations of gold and silver as money; whether they be positive or negative. Some of those limitations are:
- The inability to increase the spending capacity of the government without raising suspicions
- The inability to easily expand the issuance of money to citizens for their private transactions. For example to companies doing business
- The unavailability of more gold and silver to distribute around for transactions at the instance in which it is required.
Even during the days of gold and silver, the government in Athens created inflation by debasing the value of gold coins by melting 50% gold with 50% copper in order to increase government spending. With currency notes however, whenever a government prints paper money arbitrarily in order to fund a project, there is need for them to retrieve the printed moneys back from the monetary system of a country. This can be done through taxing the people and there by removing such monies from circulation. The question is, who goes back to ascertain from the government whether those moneys have been retrieved or otherwise?
In modern day around 1944, a new monetary system under the Bretton Woods system was established whereby the US dollar was backed by gold at $35 equals 1 ounce of gold and currencies from some other countries in the world were backed by the US dollar. But in August of 1971 the US dollar became a fiat currency and gold was no longer used as a backing. Since that time till today, countries print their money at will.
The stages through which money goes from quality money and then to quantity money and by extension inflation can be explained by the ‘7 Stages of Empire’. I have linked a video at the end of this post. The video is quite involved so it is best for one to view it multiple times and understand the whole idea about inflation.
Accompanying inflation in the society is something we call the ‘imbalance of wealth’. And according to a report by Credit Suisse Research Institute 1% of the world’s population holds 44% of household wealth in the world. Imbalance of wealth can be attributed to the following reasons:
- The valuing of some professions above others
- The power of crowd funding
- The excess availability of cash in the system
We all understand that the salary of a plumber may be much lower than that of a company CEO. But to what multiple should the CEO’s salary exceed the janitor’s? Some companies may maintain multiples of 10 to 20. But when it comes to professions whereby the viewership is very large as in sports or the music industry, the payment to professionals could be enormously incomparable to other fields. Reason being that the audience who pay for entertainment is very large and they do not spend so much per view. Thus revenue is high in such industries.
We shall provide some solution perspectives with respect to imbalance of wealth in the posts on topics 3 and 5. In the meantime, here is the video.