Our Monetary System Favors The Rich & Hurts The Poor

Tyler Durden's picture

Submitted by Philipp Bagus via The Mises Institute,

Last month, Philipp Bagus and Andreas Marquart released their new book Blind Robbery!: How the Fed, Banks, and Government Steal Our Money, now available from FinanzBuch publishers. (See Karl-Friedrich Israel's full review on mises.org.) We recently spoke with Dr. Bagus about the new book and how certain politically influential groups benefit from our modern monetary system. 

Mises Institute: In your new book, you contend that our economic system increases wealth inequality by favoring the wealthy. Can you briefly summarize what you mean by this?

Philipp Bagus: Always when new money is produced, there is a redistribution in favor of those who receive the new money and spend it at the old, still low prices and to the detriment of those who receive the new money later and see prices rise faster than their income. In our fiat money system new money can and is produced at almost zero cost. Those actors, who are in position to receive the new money first benefit. Among them are the government and the financial system. The new money is usually introduced into the market in form of loans. Those, who receive a higher percentage of these loans profit at the cost of those who do not. The super rich have an advantage in this respect. They have an easier access to the new money produced by the banking system in form of loans, because they can offer collateral. They can offer real estate as a collateral for new loans using these loans to buy even more real estate or stocks pushing up prices. A poor person has more difficulties to get a loan in normal times because he does not own assets. Only in dangerous bubble times will he get easy and cheap access to loans. Thus, someone like George Soros may easily give a call to his banker and get a million dollar loan in an instant to buy more assets. A poor or even middle-class person will not get such a million dollar loan so easily, rather they will observe how asset prices are being pushed up and they keep getting relatively poorer. Thus, our fiat monetary system is one often neglected reason for an increasing wealth inequality.

MI: As we all know, if you’re not already wealthy, it’s difficult to build wealth even if you carefully save a lot of money. What is it about our current economic system that makes this so difficult?

PB: If you save in cash today, your savings will be eroded by price inflation. Asset prices have risen relatively more than income in the past. That means that it becomes ever more difficult to buy a standard house with a standard income. The monetary system drives people to indebt themselves early in life to buy a house. The house will tend to rise in value and the debt will be eroded by price inflation. Saving in cash for 10 or 20 years in order to buy a house is not the smartest way in our monetary system that implies continual and relatively strong increases in the money supply. Things would be very different and in some sense much easier in a pure gold standard.

MI: You have suggested that without the fiat monetary system, it would be more difficult for the wealthy to stay wealthy as they do under the current system. What do you mean by this?

PB: Well, wealthy people have an easier access and a better connection to the banking system, where the new money is produced, simply because they are wealthy and have assets. Similar things apply to companies. Established and big companies that own real estate and other assets will have a relatively easier and cheaper access to new money than small newcomers. If you are wealthy and own parts of an established company with a good connection to financial markets and the banking system, you have an advantage vis-à-vis potential competitors that threaten your position due to the fiat money system. In our system in order to stay rich it has become more important to have a fast and easy access to new money, and it has become less important to be innovative and satisfy consumer wishes in better and cheaper ways. Incumbents are in a sense protected by the fiat monetary system. In a pure gold standard such an artificial protection would disappear.

MI: What would be some practical ways to start un-doing this system we have right now?

PB: This system stays in place because people do not understand its detrimental and fatal consequences such as an unfair redistribution, business cycles, poverty, bigger government, moral decay, and so on. In order to un-do this system we must convince people of all this. The problem here is that our monetary system and monetary theory is quite complex. One would have to explain it in an easy and attractive way so that everyone could understand the problem at hand. That is the reason why Andreas Marquart and I have written our new book that explains the problems of the system in a provocative and easily understandable way. So the most practical step to start un-doing the system would be to spread the message. Once we have succeeded and a critical mass shares our views on the fiat monetary system, it will fall apart on its own and will be taken over simultaneously by private alternatives.

MI: But even in a free market, won’t there be income inequality?

PB: Yes, you are right. We should distinguish between morally justified and unjustified inequality. When someone gets rich because he is productive and satisfies the wishes of people in a cheaper and better way than his competitors, we should applaud him. The resulting income inequality is justified. The problem starts if someone earns an income due to government intervention such as licenses, other regulations, or simply tax transfers. The resulting income inequality is unjustified. Getting richer at the expense of others through the use of the fiat monetary system, which represents a government monopoly and banking privileges, is unjust.

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LawsofPhysics's picture

And so long as the producers on the planet accept FIAT in exchange for the very real products and services that they actuallly have to work to manufacture and deliver, NOTHING changes...

(remember, thanks to ZIRP bankers and financiers can access infinite money, for free and without any real collateral requirement)

same as it ever was...

well, this time the moral hazard is on a slightly larger scale I guess...

hedge accordingly.

jewish_master's picture

working on my indie game development. will accept bitcoin (u can do it in steam). once everyone do this things will be better

mcplums's picture

I agree, this is how to change the system. Just opt out!

MsCreant's picture

There are still people out there that do not know these things. The folks at this website are not those people.

One-Eyed-Thong's picture
One-Eyed-Thong (not verified) MsCreant Jul 25, 2016 4:35 PM

yet, they can name all the kardashian sisters

One-Eyed-Thong's picture
One-Eyed-Thong (not verified) Jul 25, 2016 4:34 PM

... and in other news:  Shit stinks

indio007's picture

The monetary system is not complex. Far from it. People are just to lazy too learn anything.

Most people don't even know how a check legally works.



frontsquats15883550's picture

I suggest everyone watch Mike Maloney's "Hidden secrets of money" video



Brazen Heist's picture

There will always be (much) more money owed as debt as money that currently exists to pay it off.

At some point the collateralisation and all the re re re's of re-hypothecation won't hold the bad any longer. Watch Japan, it'll be the first big one to go. Hence why its being used as a test lab for helicopter money by the Fed. They need to buy time until the day of reckoning.

hooligan2009's picture

so let's see - there is a system of government anchored on trade deals that favor emerging markets, political correctness and central bank funding of fiscal deficits. it has resulted in a class divide amongst the bottom 90% by wealth of the population and the snobbery of the top 10% who look down on people who can't play by the rules of those in the top decile, by wealth.

the beneficiaries of this are the shareholders and employers in the top decile who have successfully forced governments to run fiscal deficits to prop up their companies, with central banks that prop up the top decile.

it is true that you can't go back in time to whatever might have been a golden age - but it is also true that the system of government can use Japan as a model of the future - that future is zombie corporations and banks, zero productivity growth for the bottom nine deciles, increasing government debt but lots of political correctness while this is being done.

in other words, politcally correct social/liberal democracy bankrupts nations by negotiating the migration of capital towards trading profits and the cheapest labor,

social/liberal democracy, trade deals and central banking are a failed system and need to put out of their misery.

lastly, we are also at war with militant islam (our own fault) who we have invited into our homes in the name of charity and political correctness. islam is exclusive and will never integrate with the west

Angry White Guy's picture

Simple supply and demand is all it takes.  The lemmings however have no desire to learn, so they PAY.  Sadly so do all of us who know better.

The crash can't come fast enough.

War Machine's picture

Someone alert Paul Krugman... He really wants to help the working class and the little guy.

He always says so.

N0TaREALmerican's picture
N0TaREALmerican (not verified) Jul 25, 2016 4:49 PM

Another hippy trying to bring class-warfare into Merican politics.   Well, that won't work in Merica, because we've got the least class-based society on the planet. 

Everybody can have parents that send their kids to Europe for a summer college semester so that they mix with other member of the top 10%.

wwxx's picture

I remember when the TBTF bailout hit in 2008, and it wasn't known at the time, but the Fed was funneling money thru the discount window, in the millions per day, per customer fashion...yanno the JPMorgans, Citi, BOC, and some international friends also. It was eventually revealed after the fact over here & elsewhere: https://www.propublica.org/special/search-the-feds-documents-detailing-l...

It was all set-up, absolutely intentional, and that includes the double whammy...inflation rises + interest rate declines that you see to this very day, add a little IMF salt & pepper & you have the 'new normal scrabbled eggs'. A staple menu product on every bankers agenda since then. Not enough money for coffee with those scrabbled eggs?....well somebody has to wash the dishes.


Yes_Questions's picture




Ninjashrimp's picture

Nope, not true!  All lies and propaganda from the poor that want more and more.  

N0TME's picture
Our Monetary System Favors The Rich & Hurts The Poor --- Well no fucking shit sherlock OR Captain Fucking Obvious
JailBanksters's picture

And people are only just finding this out !

Who would have thought that if you can print your own money to go buy stuff that it would only benefit the banks. And if your a good mate of the Bank (like a Jewish Business Owner) you can also borrow cheap money.



Actually, our monetery system is defunct, and the New World Disorder has taken the form of a Hegelian Death Spiral where every bank, and corporate entity, in the entire World will all implode into bankruptcy all at the same time. And there is no possible, or probable way to avoid it because the entire Global Banking system is one giant Ponzi scheme that has been imploding since March 10th 2008 at 11:00am Bear Stearns time New York shitty. This is why Alan Greenspan is long bullion, and short Central Bank fiat.

Ninjashrimp's picture

To all you gold bugs that think going back to the gold standard is the answer, watch https://youtu.be/oohXjJdxxSk

The problem is not what your money is made of.  It is who controls it's creation. In this case,  private individuals that profit from the interest owed when money is loaned into existence. 

The government has the power to create debt free money but the people that benefit from the current system will fight any change

Mediocritas's picture

So tax the shit out of Economic Rents (https://en.wikipedia.org/wiki/Economic_rent) and reduce taxes on the means of production accordingly.

Where there is a conflict, such as in the case of land which can be used to produce (farming, mining, etc), or simply as a way to extract Economic Rents (land-banking to artificially restrict supply for capital gains, etc), then err on the side of safety and lay down taxes as high as necessary to eliminate the Rent-Seeking behavior without overly punishing the productive behavior.

We currently have a system that is the exact opposite of this. We tax the life out of productive individuals and businesses and subsidize a Rent-Seeker's Paradise.

The most wealthy are not getting richer on the back of productive enterprises. Rather they are parasites, getting rich on the back of economic rents, cemented into place by regulatory capture. The biggest offenders are the banks.

CatsPaw's picture

Stop! Make the common sense STOP!