Economics / History / Living

“Economics of wealth” – Story of an elusive equilibrium

Human history is rife with stories of economic manipulation. Wars have been fought over it, religious passions have been exploited by it, and societies have used it as means of controlling the populace. Currency it seems has always reined supreme, more than ideals and certainly more than moralities. So it is no surprise that the likes of occupy movement have cropped up once again in the wake of global recession of 2009. This article explores the phenomenon of distribution of wealth and raises some questions in the process.

The age-old institution of serfdom continues to this day and makes slaves of free men

The story of economic manipulation goes as far back as the earliest civilizations. Cheap labor had long been used as a means of generating wealth while disregarding human rights. Slavery was widespread and allowed slave owners to extract cheap labor for their farms, mines and homes. A more indirect form of slavery existed in the form of serfdom where economic manipulation forced peasants to plough lands they didn’t own. This practice continues to this day in many parts of the world. Weaker nations and their resources have also been exploited, as in the colonial practices of the 1800′s. In recent times the outward manifestations of these manipulative tendencies have mellowed but the basic impulse still remains. Given opportunity, it readily crops up and we witness the power of money over human dignity and morality.

Societies now-a-days are more aware of their problems than ever before and yet such issues still remain. Observing the current state of our societies, some basic questions repeatedly come to mind:

1. For a person to become richer, must another become poorer?

If there is a finite amount of money in a system and someone gets a salary raise, where does that difference come from? Speaking hypothetically, if there are $100 in the system and your salary increases from $10 to $12, where are those $2 going to come from? If the total amount of money in the system ($100) cannot grow, then it must come from someone else’s pocket. Whether that is a pocket of the government or your peers, does it imply that they must incur a pay cut? If pay cuts are not an option and the solution is to print more money, then the resulting inflation renders your peers poorer. The same loaf of bread that was costing $1 will now sell for $1.1, effectively making it harder for those on the old salary.

Wealth

If money is finite, do rich inevitably create the poor?

Does the above premise apply in the case of countries as well? If the wealth of the world is constant and some countries become richer, does that mean others become poorer? Does being rich mean that you are in a better position to manipulate your circumstances and thus you have a monopoly on wealth? This leads us to the next question.

2. Is there an economic system that guarantees equilibrium/stability?

Let’s consider the case of the animal kingdom. Lions in the Serengeti feed on the wildebeest. If a lion can hunt with success, it can feed itself well and become stronger. This increase in strength allows it to hunt with greater success and score more kills. But there is a limit to how much he can benefit from this natural system. At some point he has such surplus of food that he becomes fat and loses agility. The equilibrium shifts in the other direction; the lion becomes weaker and once again has to strive for survival. This keeps a healthy balance between the lion population and that of the wildebeest. If lack of agility had not come with success in the Serengeti, the lions would have wiped out the wildebeest and in the process destroyed their prospects for survival.

Lion and the Wildebeest

Systems in Equilibrium: Lessons learned from the animal kingdom

Historically our economic systems have failed at creating such equilibrium. The rich become richer because of the advantages they gain from having more money. The poor as a result get poorer and are more disadvantaged than before. This has happened too often in history – from times unrest in the Roman Empire to the crises of the present day. A severe imbalance in the distribution of wealth has invariably led to extended periods of turmoil or system breakdown in the form of revolutions.

There are those who advocate an absolutely equal distribution of wealth, similar to what is outlined by the communist doctrine. But if history proves one thing, it is that humans are in a constant need of the proverbial carrot. Monetary benefits are at the root of motivating people to work.  This is something which has been captured in the capitalist system albeit at the peril of inequality in wealth. Extreme inequalities have often lead to violent revolutions.  These revolutions act more like reset buttons for failed systems, rather than actual harbingers of change. They remove the symptomatic effects of economic oppression without fixing the underlying causes that give rise to inequality.

Balance

The balancing act between motivating people and curbing greed

Scandinavian countries have done well to curb inequality in wealth. Higher tax rates on the rich ensure that some equilibrium exists between the rich and the poor. Policies striking a balance between motivating individuals to work and keeping inequality in check are more likely to succeed in the long-term.

Related Reading:
[The Lessons of History, Will and Ariel Durant]

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