Experience not only teaches you to communicate ideas appropriately, but allows those who spread them to pick new ones and select the ones that best fit message communication.
As far as economic science is concerned, the best place to build one’s own experience is among the economic actors. The current article was born after listening to a casual conversation on the street.
In fact, the nature of the heard conversation is quite common: money and banks, specifically how these last tend to “steal” money from ordinary people.
After all, these are but simple reasoning well-settled at the base of our society.
Among ordinary people, few will not feel a bit crazy about the banking system.
Why so?
Because they perceive something wrong.
And what, precisely?
They do not know. To this question most of the time fantasy flights make really controversial contortions.
How so?
Because there is no basis for structuring logical reasoning in accordance with reality. Most people tend to fill this gap with simple cussing, but such way precludes their understanding of following the path that would lead him to discover alternatives to the perceived unfavorable condition.
Basic question to start with is just one: what is the money?
The most traded goods within an economic environment.
Choice by whom?
It is chosen by the actions of the economic actors that, by freely trading, bring out that commodity that can be defined as money.
More than being a mere necessity, such procedures are a progress that society makes, thanks to which the specialization of work within a company increases and improves two of the parameters deemed in highest regard: time and efficiency.
It is no coincidence, in fact, that monetary economy has appeared later than barter, just as much as it is not even a case that indirect exchange needed more sophistication to evolve and spill out a definite “money”.
The latter is not a thing that has a disruption from the choices of individuals at all. It can not be approved by decree. Only economic actors based on their priorities and set of values can infuse worth into those goods deemed most appropriate to retain through work.
No longer having to live up by the day and with a commodity that keeps the value on there could have been an expansion of their temporal and productive horizons, engaging in more distant projects over time not only giving more satisfaction from the point of view of real wealth but also of wellness.
Step by step, not only has the economic conditions changed, but also the mentality underwent a drastic switch, Entrepreneurship is flourishing as well as the monetary economy, being indisputably tied.
Therefore money is the thread that binds the productive tissue together.
What happens when a central entity has the right to decree which goods should be declared as money?
The temporal horizon shrinks and society suffers from regression — or at least stagnation due to the myopia of a small plethora of individuals.
One of the most recent cases of this myopia is in Venezuela, where the Caracas government has virtually ripped off the production tissue by ruthlessly reinventing the country’s monetary printing in order to hide the economic mistakes that have been settled to date. Bolivar hyperinflation is a reality and economic actors are using alternatives to reaffirm their role in the economic environment.
Cryptocurrency is the tool which central banks and the fractional reserve trading system are being overwhelmed by.
The rhetoric of economic stability is falling apart due to stinging from the reality of things: it is impossible to operate a careful economic calculation in an environment permeated by central interventions that obscure it.
Due to the creation of central banks there has been nothing short of bringing economic instability through a continuous path to debt … not to mention wars-mongering.
Thanks to the monopoly on money, a small group of individuals can exercise social control over the rest of the population, leading to a huge amount of resources being redistributed to those at the cap of this top-down structure.
The redistributive effect called “Cantillon Effect” was initially described by the Franco-Irish economist Richard Cantillon during the price inflation triggered by John Law’s fiat monetary system. Simply, Cantillon said that those who were among the earliest recipients of newly created money saw their income increased, while the latter saw a decrease in the purchasing power of their money as price inflation eroded money itself.
Ludwig von Mises was the first economist to concot and apply the Cantillon Effect with the theory of marginal utility.
In the wake of an increase in the stock of money, the first receivers see their cash balances increasing and in response they lower their demand for money by increasing that for goods and services.
The prices of the latter rise and, at the same time, the monetary balances of those who sell them. As monetary expansion reaches the various sectors of the economy, price inflation increases its scope.
Nowadays, the central banking sector has a virtually direct transmission channel within the financial system in terms of monetary policy.
Commercial banks and other financial institutions not only play the role of prime receivers but are able to pyramid new funds on various loans granted to customers.
Through the fractional reserve, they can enjoy, therefore, a double privilege that no one else can enjoy in society. Looting the real savings deposit becomes a legitimate activity protected by the central banking system sign.
The first chart is eloquent: the difference in income between the so-called 1% and the rest of the population has increased.
This is because wealthier market players tend to maintain their wealth within equity and bond markets, unlike the rest of the population who prefer tangible assets (eg. liquidity, property, etc.).
Consequently, as a result of recent unconventional monetary policies, they benefited more, while the so-called 99% paid the bill.
The commercial banking system, due to economic downturns in previous economic cycles, has not started to expand its credit to the wider economy by segregating the liquidity created by the central banks working in financial circuit.
The second chart is significant: equity stock costs as much as bonds considered “safe”.
The monetary boon has so much lowered the yields of the various financial instruments that investors have invested over all to get rid of their bets.
Moreover, these assets can be placed as a collateral for other loans and that turns out to be a tangle of passages where you no longer understand what is owned by whom.
The budgets rise and the artificiality of the current economic environment allows a redistribution of wealth to the top.
However, most economists ignore the effect of price inflation.
Because they are not owned by most people, they are not counted in the IPC calculations and therefore the link between price inflation and the increase in money supply is disconnected.
None of the mainstream economists talk about it.
Milton Friedman, for example, did not speak about it in his books. This oversight pushes to underestimate or, worse, ignore the effects of inflation on economic inequality.
It is no coincidence that, for instance, during the Great Depression of the 1930s consumer prices were relatively stable, while those assets were skyrocketing (as documented by Murray Rothbard in America’s Great Depression).
The justification of “having to do something about it” has sparked the worst horrors in the wider economy, leading to growing inequality. Not only that, but actually de facto prevented an effective recovery.
Finding a peculiar way to discover where the problem lies at the base of our stagnant economic situation is the first step for understanding what is wrong inside it and how to better heal it without blaming revenants or magical fetishes, instead by having a clear viewpoint on the source of distortion.
Having clarified this we can ask: if money was forced by a tyranny on the the majority of people, what was the one method agreed upon by the choices of economic actors and how to safely return to it?
Gold and precious metals have played the role of genuine and sound money before the advent of central banks.
Being difficult to manipulate, they were slowly overwhelmed by the collective imagination and replaced with a surrogate (paper money).
Moreover, gold is still a valued asset from central and commercial banks, although the opposite is publicly said.
In other words, money is the real social contract torn from the State and replaced by a fanciful version embedded into useless constitutions.
This has not happened without any consequences.
The disconnection between real economy and planned economy is showing fractures upon fractures and the increasingly loose and aggressive monetary policies have planted the seeds of the next crisis.
Click the following link to read Part 2: https://medium.com/@melis.io/the-great-disconnection-part-2-1e3030062144
