This article by Tim Harford in the Financial Times tells us that the gap between rich and poor has grown significantly over the last few decades, and suggests that the trend is self-perpetuating: the bigger the gap the easier it is for the rich few to become richer and fewer. Tim reckons that the free market is to blame for the phenomenon, which perplexes him because he wants to believe that free markets are a good thing.
The first thing to understand is that there’s no such thing as a free market. All markets have rules that encourage certain types of behaviour and favour particular groups of people. What the rules say and how they are enforced is what matters.
As for inequality of wealth, frankly, who cares? If some people are fabulously wealthy in comparison to the rest of us, so what? The distribution of wealth will always be unequal and worrying about it is a waste of energy. We should be concentrating instead on the distribution of prosperity.
For me, prosperity is an absence of economic oppression. If you live in fear of not being able to eat well, or keep a comfortable roof over your head, or participate fully in the social life of your community, then you are economically oppressed. If you can get the things that you need to live in comfort and security this week without fear of not being able to get them next week, then you are prosperous.
An economic system is faulty unless it can provide a basic level of prosperity to every single human soul that lives within it, from cradle to grave. A system that perpetuates fear of want is cruel and unnecessary. We’re perfectly capable of changing it.
The food, shelter, energy, clothing and communications that we need in order to be comfortable and secure don’t appear by magic. They come from the labour and ingenuity of men and women without whose efforts our lives would be hard, brutal and short. We cannot prosper unless we give these productive people opportunities to be productive and reward them for their efforts.
Money is the tool that we use to facilitate production and distribution of the things that we need and desire. In our system, if everyone has enough money to play their part in a sustainable cycle of production and consumption then we have universal prosperity.
The problem with our “free market” rules isn’t that they allow unequal distribution of wealth, it’s that they’re skewed in favour of the very rich and perpetuate fear of want among everyone else. The main flaw with our rules is that they allow and encourage the misuse money.
Our first mistake is to give private, profit-seeking companies (banks) the right to create our money as debt. This means that we are constantly under the cosh, as producers and consumers, of having to pay interest on our medium of exchange (see Positive Money for details).
Our second mistake is to believe that money equals wealth. We’ve never really appreciated money’s practical value as a tool for commerce, preferring to think of it as a commodity with an inherent value, like grain or metal. This means that everyone is constantly trying to hoard money, making it unavailable for commerce, which means the only way to keep the productive economy working is for the banks to create more money as debt (see Our Money for details).
Wherever there is debt the fear of want is lurking nearby. Economic oppression is built into our system. Debt is not a choice. For our economy to work at all most of us have to be perpetually in debt. The beneficiaries of the system are the few who accumulate large hoards of money and collect the interest on the debts of the many.
This ludicrous system will continue until the pile of debt collapses under its own weight (which will be catastrophic, and might not be far away), or we can change the rules of our “free market” so that money is favoured as a tool for commerce rather than a proxy for wealth.
If we remove the burden of debt from our medium of exchange, and ensure that our money is kept available for commerce, we will then have the opportunity to amend the rules for our “free market” so that our productive people can thrive while providing a basic prosperity for all. And if some of you become fabulously wealthy along the way, good luck to you.