Thursday, July 14, 2011

An Increasingly Common Misunderstanding

More and more often, lately, I hear people discuss wealth and income as if money is a finite resource that one can accumulate and restrict others from accessing.  Michael Moore, who I understand to be ideologically aligned with the left, argued that money is a national resource that should be controlled and distributed fairly.  During a recent Facebook discussion, someone lamented the plight of a country such as ours that allows one individual or group to accumulate great sums of wealth.

Moore’s explicit statement, and the Facebook discussant’s implication, is that wealth is something that can be horded, or accumulated, and once one does so, the effect of that money is removed from the economy, as if it no longer exists.

Why is this wrong?  Money is not some finite resource that must either go to citizen A, or citizen B, and once B possesses the money, A can not gain access to it.  Moore and FBGuy’s interpretation would have it so.  They might have a point, if B took vast sums of dollar bills and set them on fire, or put them under the bed.  But no reasonable person would allow their wealth to deteriorate (b/c of inflation) by holding money in bills under the bed. 

In short, money is constantly being created.  Person A may accumulate wealth, but that wealth is held in assets such as stocks, bonds, treasuries, or it is put in the bank.  Banks then lend out a portion of that money to individuals, person B for instance, who then find a good use for it (earning yet more money from a business, perhaps).  Person B then puts that money into stocks, bonds, treasuries, and a bank.  That bank then….and so on. 

This narrative conflicts with Moore’s and FBGuy’s views.  Money cannot be horded by wealthy individuals (unless they are fools, and typically they aren’t or they wouldn’t be wealthy) because they put their money in the form of assets that maintain value (stocks, bonds, interest bearing assets, interest paying bank accounts).  That money then funds corporations that conduct business (and hence pay employees), finances government spending (which often goes to helping those with low income), and allows banks to lend money to those who would like to purchase a home, car, vacation, or open a new business.

Even if wealthy individuals were as evil as some make them out to be, they would have no choice but to indirectly help those less fortunate than them by investing in assets and bank accounts that maintain the value of their wealth.

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