Suppose you are given 1kg gold and 100 people of different
professions and left in an island which does not have anyone living there. The
intent behind such a situation is to create a scenario where we can replicate
what it is like to create and run a financial system of a country.
There are doctors, engineers, barbers, cooks etc etc, all professionals
who would be required to live and sustain. In order to facilitate trade you
print notes equivalent to the amount of gold with you. Reason for that is in case
you need anything from outside world you need to pay it using gold. Now comes
the tricky part. To start commerce you distribute money with all equally (to be
fair and just you give equal to all) and ask them to use it for trade. Overtime
service charges by people will change, some will charge more and some less. For
the services that are costly that person would finally over time accumulate
more money than others. So since the overall money in circulation is fixed the
final outcome of such a set up is that someone will become rich and someone
poor. And you charge a percentage of every transaction, i.e tax. So another
eventuality is that money left for circulation will reduce over time and all will
come back to you.
If we generalize it at a country level (which would be simplifying
it too much but still I am putting it this way since writing so much is boring)
then the way the system is designed there will be economic disparity in the
country and government will get back all the money. What does the government do
with that money – it just consumes it by paying a bunch of people it employs
and spends some on development, which in turn would get it more. In real life
we see countries getting poorer because what they need for growth, incase that
is not available within its own country, it needs to buy so gold goes out. Now
when gold goes out do countries pull back equivalent amount of notes from
circulation? Answer is NO – hence it loses its intrinsic value – leading to inflation.
That is a different story – what I want to focus on is the first part where it
is clear that the way society and economy is designed it is made to create
economic disparity. So why make do so many governments make so much fuss about
removing poverty? And so many economists come up with research papers saying
how poverty can be tackled when it is structured to be that way.
What is needed is a different model to achieve balance of
wealth – may be totally different way of running economies. Is my analysis
right?
