Submitted by Pater Tenebrarum of Acting-Man blog [6],
Charles de Trenck has written a very interesting article on so-called 'Plutonomies' and how they affect the global economy. We offer this article to our readers as a free download in pdf format below.
The term 'Plutonomy' was originally coined by Citigroup analyst Ajay Kapur, who argued that in many countries, an ever larger part of economic activity was due to the the richest segments of society, as wealth disparities have increased a great deal in recent decades.
Countries with especially large Gini coefficients (i.e., an especially large gap between rich and poor) were deemed to represent such 'Plutonomies' by Kapur.
We would briefly comment here that one of the main reasons why the gap between rich and poor has widened so much is the vast amount of monetary inflation that has taken place in recent decades. As we have hopefully convincingly demonstrated in a previous essay on growing wealth and income inequality in the US [7], it is not inequality as such that is the problem.
The problem is that while the rich have gained from monetary inflation, the middle class and the poor have at the same time lost out. Inflationary policy is in effect a reverse distribution of wealth from the poor to the rich. This problem cannot be satisfactorily solved by moving toward more socialism. What is required is a return sound money and the abolition of central banking and fractional reserve banking. The world's banking cartels must be replaced with a free banking system.
There is no contradiction between advocating both free banking and a ban on the lending out of demand deposits. One merely has to consider that the latter practice is essentially fraudulent (even though it is currently legal) and hence violates property rights. Irregular deposit contracts are akin to warehousing contracts. It is not legitimate to use things one stores on the behalf of customers with the promise that they can be withdrawn again at any time for one's own business purposes. Moreover, it is precisely because of this practice that we experience the credit expansions that are at the root of boom-bust cycles. These business cycles are obviously detrimental to society as a whole. Banks would of course be perfectly free to lend out savings deposits, which are mutuum contracts. For more details on this, we refer readers to our previous series of articles on fractional reserve banking (parts one [8], two [9] and three [10]).
Charles takes a slightly different tack in his article, which is subtitled “a plea for social consciousness among certain segments of the ruling class, and understanding some of the effects of off scale Gini coefficients.”
He differentiates between what he calls a 'plutonocrit' – someone who uses the political system to gain economic advantage, i.e., increases his income and wealth by political means, as opposed to the entrepreneur, who increases his income by economic means, i.e., voluntary exchanges in the marketplace.