Today the U.S. and the world are suffering grievously from a cart-before-the-horse mentality when it comes to how central banks approach money. Reflecting obsolete thinking that grew out of a misdiagnosis of what caused the Great Depression, these institutions and their political masters believe that money controls the economy. Manipulate interest rates–the price lenders charge borrowers–and, voilà!, you can steer the economy like a driver does a car. Regarding this, Keynes and his followers had it exactly backward. Money reflects the real economy, which is the production of products and services. It no more directs what we buy and sell than scales control a person’s weight. Money is not wealth; it measures value the way watches measure time. Money is a claim on services and products, just as a ticket can be a claim on attendance at a concert or for a coat checked at a restaurant.
We often hear the absurdity that goes something like this, “The 1% owns 95% of the wealth.” But when you take a proper understanding of money into account, you’ll find that we have amazing wealth equality.
The essential consumption goods we couldn’t even imagine a hundred years ago are almost universally available in the United States today. The marketplace, aided by many creative, pioneering entrepreneurs and every person who strives to put in a good day’s work, is generating consumption equality.
Just about every product or service that makes our lives better requires a mass market or it’s not economic to bother offering. Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve.
Industrialist Charles Koch calls this simply “Good Profit.” Thank the “1%” for our incredible standard of living! Thank capitalism for allowing economic inequality to flourish. And reject the inequality alarmists. These economic egalitarians are no friend of “the 99%.”
Again, all it takes to know this truth is introspection—and observation. Which are the biggest retailers? Not Jaguar. It’s the Wal-marts and the Home Depots that cater to average folks.
Studebaker’s premises don’t add up. Then where does that leave his macro observations?
To be continued.
Related Reading:
Production versus Consumption—George Reisman
Copernican Revolution Coming to Economics—Steve Forbes
My Objective Standard review of The Forgotten Depression—1921: The Crash That Cured Itself, by James Grant
Equal Is Unfair: America's Misguided Fight Against Income Inequality—Yaron Brook and Don Watkins
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