A Reflective Christian

All for God’s Kingdom

Why the rich get richer (part 4)

In my previous post in this series, I described how the rich get richer because they have the ability, resources, and the motivation necessary to create wealth for themselves that those who are not as rich do not have. Now one of these resources is money, which isn’t necessary by itself nor is it sufficient. But it can take an important role in the accumulation of further wealth.

Now when generally people picture wealthy people, we imagine them as having all this wealth readily available to them. We might think them as simply being like the rich man who of Luke 12:16-21 who simply accumulates wealth and stores it away. But for the majority of the wealthy, this is not true. Most of the wealthy do some simply have loads of cash and goods that own by themsleves that are stored away. Much of their wealth is actually tied into businesses, whether it be the majority owner in a company of a realtively wealthy doctor who puts some of their money into the stock market.

This becomes the most effective way to create more money because investing one’s own wealth is more valuable than providing actual good or service. Money has a greater value than a good or service, because it can be turned almost immediately into a good or service which acquires more value because of the situation in which it is actually needed. Money can be exchanged for many things easily and quickly when they are needed, whereas an actual good or service can not. It generally must be sold first, and then the money can then be turned around for something else that is needed. In other words, money’s value is that it can be easily exchanged for what is needed. And it is for this reason that the quickest way to make money is to use money. Plus, it doesn’t have the restriction of energy that labor has in creating a good or providing a service. Money is only limited by itself, wheras actual labor is limited by ones own energy level.

But when this money is invested into a corporation, while it benefits the investor, they are not the only one who benefits from it. The corporation provides jobs to people for their labors and skills, which in turn provides money to the laborers. And as the corporation expands, the invested wealth of the individual expands and so does the amount of jobs that are provided.

So, whereas the rich man of Jesus’ parable is storing away his goods where it does not good, the rich man of American capitalism is not necessary doing the same thing with all that they own. Their wealth, in fact, is providing other people with goods, services, and jobs that they need or want.

And this leads us to one of the two primary reasons why the rich get richer at a faster rate than others do. What they provide is the most easily transferable “good” that can be quickly be transferred to what is needed at the right moment. The component of time makes money more valuable than itself, since its ease and quickness of use gives it a high potential to create wealth. So those who have money to spare can get richer quicker than other people can.

But as I said, money itself requires the knowledge necessary to turn it into more money. It requires knowing when, where, and how much to spend one’s money in order to down the road turn it into more money. Or it requires knowing those who have that capability to make money. Without either sets of knowledge, making money with money is like trying to hit a target blindfolded.

So, within a capitalist system, the rich will get richer, but only if they have the ability and knowledge necessary to turn it into money. And it is often times that knowledge and ability that is what provides them with the money needed to invest in the first place (not many millionaires inherit money that allows them to become rich). Their ability is reward because it provides a service or a good to others. And with the investment of money, it provides benefits for others in creating those services and goods AND jobs for other people.

The rich get richer, but their progress will benefit everyone below them also as time progresses. While the gap between the rich and the poor will grow, the amount of people who can not obtain basic necessities are reduced (the income of the 10th percentile in the US over time did increase, even after taking account inflation).

There are injustices that happen within a capitalist system, but is that because of the system itself or something other than the system. Capitalism is based upon basic economic freedom (although with some accountability such as through making financial records public so people can potentially know who can make money and who can’t), but itself espouses no particular action except that which the individuals who own a corporation and the group whom the corporation serves value. It does allow for corporations to perform injustices, but the majority of injustice is not a direct consequent of corporation action. Much of injustices is the result of a world with resources incapable of being utilized to help everyone and the way of the world that can not be easily affected, if at all, by human intervention (such as death, weather patterns that lead to famines, etc.).

The value of capitalism is that it is the most effective way for growth, which in turn allows for more resources that can capable be utilized for human good and desire. Other systems do not allow for this growth as easily. Other systems are more effective at distributing obtained wealth. But the problem comes down to whether there is enough created wealth (which in the end, is merely a valuation of goods, labor, and knowledge) that can provide for all needs of everyone effectively. The rich may get richer quicker than others do, but is this issue (which I would hesitate to call an injustice by itself) enough to necessitate a change of system? And do the benefits of another economic system that use more control being used in this present time outweigh the benefits of capitalism?

I would say this (and I know I have gotten off my main topic at this point): capitalism, with all its weaknesses, is best fit to provide the human race the knowledge and resources necessary to be able to provide for all the needs of all people. Once those knowledge and resources are actually obtained, then movement to another system would be better for all people (although it can not be forced through revolution like it was in Russia for it to be good). But to move to that point before then is an injustice to everyone now and in the in future as we can not possible provide everyone’s needs at this current point in time, and more regulated economics do not facilitate the growth necessary to obtain the needed knowledge and resources needed to reach that point.

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October 17, 2008 Posted by | Uncategorized | , | Leave a comment

Why the rich get richer (part 3)

Yesterday, I asserted that part of the reason the get richer is because they have the abilities and motivation necessary to be able to succeed at making money as they do. But what specifically are these skills?

What is the primary reason between the difference of pay of a doctor and a nurse? Where are there different skills? Nurses primarily do menial tasks and aid the doctor in treating the patient. They will do things like take blood, perform basic tests, etc. at the doctor’s request. What does the does the doctor do? They primarily analyze the different symptoms of the patient and the test results and make a diagnosis. The primary difference is the fact that physicians requires more knowledge and more detailed technical knowledge in order to be able to perform their job, whereas a nurse needs less diverse and technical knowledge in order to perform their job. Being a doctor is more taxing on the intellect, and some can not do it. To be fair, being a nurse isn’t easy, as it requires a fair amount of education itself, but relative to physicians, it isn’t as much.

The reality is, despite what we sometimes tell our children, is that not everyone is cut out to perform every task, no matter the difficulty level. Being 6 foot tall and weighing 245 pounds, I am not cut out to be a world class sprinter. A person with brain damage is not cut out to be a scholar. A person with a very unsteady hand is not going to become a brain surgeon. There are different tasks that not everyone can employ. In part, the difference between higher pay and lower pay is the replicablity of the tasks needed to be performed for the occupation from person to person. The easier it is to duplicate, the higher the potential supply of workers in that field. The harder it is to duplicate, the lower the potential supply of workers in that field.

I mention potential for many reasons. First off, not everyone is going to work in a specific field, but yet it is possible for them to do so. But if a certain task is easily replicable, then the amount of money needed to obtain workers for said tasks is decreased. For instance, there may not be a lot of people who want to work in a fast food restaurant preparing food, but the fact that there are other people who can perform the task reduces the wage for said worker. So the importance is to realize that its not just how many people want to work in the field, but it is also affected by how many could. Pay is a combination of actual supply and potential supply.

And as one moves into fields that are increasingly difficult, the pay raise is not, abstractly speaking, linear. Take minor league baseball. The AAA requires less ability to be able to perform adequately than in the major leagues.  The minimum salary of a minor league player in AAA is $2150 a month (after the first year). If you spanned that pay over a year (which he doesn’t get, but for comparing money get for a specific unit of time) a AAA would hypothetically get $25,800. Whereas for this 2008 season, the minimum salary with $390,000 a year. That is 15 times the minimum pay of a AAA ball player, and yet it is only one level up. That is not to mention the money the star players will receive.

And many people ask how is that fair? But this gets at the notion of what is fair. If we measure fairness by how much “value” one adds to their employer, then we can not discount this as fair ever. If we consider fairness in terms of how much one adds to society, then one can not look at the system but the society as a whole that considers the value of an individual baseball player more so than an individual teacher. It isn’t the system that is result of the pay, but the society that places a value upon the field of work (notice I didn’t say the individual worker).

This gets us to two other factors that determine pay. The amount of perceived value by society, AND how much an individual can fulfill the demand for that field. A singer can easily touch the hearts of millions just through the distribution of CDs. 50 baseball players (25 for both teams) can gather a whole nation around the TV set in one night. But a teacher can only teach a very limited amount of students before their physical and mental resources are taxed or the quality of teaching does down.

And perceived value is extremely critical, because there many not be as many people who can run the 100 meter dash at a fast speed than can play baseball. American society finds a baseball game more exciting than a 100 meter dash, and a business can gain more money from commercials via a 3 hour game than a 10 second sprint. Whether it be because of personal entertainment or tangible gains, some jobs are given more perceived value than other fields.

What in the end we can say is this. The higher paid people tend to have the following characteristics:

1) In a field where their tasks are not easily duplicated by others. Intellectual tasks tend to be the main component of this.

2) In a field where the value is perceived to be high. This means they are paid more for the effort spent.

3) In a field where they can meet a greater amount of demand. This means they get paid more for what they do since there are more recipients of their work

Now, understand, my point here isn’t to say that the market is a moral system. But neither is it amoral. But point here is that while some of the pay is based upon ability, some of it is based upon the nature of the work itself, and some of it is based upon the value placed upon that work, whether it be a small select group or the whole nation, or even the whole world.

This doesn’t explain every way money is made, such as a burglar or a corrupt CEO, but it describes the bulk of pay. But in the end, what this leads us to learn is that the rich get richer more so because it is the system itself in which the society then places a certain value on certain things, that leads to more pay that doesn’t rise linearly the higher one moves up. But it is important to recognize, it is not the system that leads to higher pay in the end, but it is the percieved value placed upon it by all those who pay for the labor (either directly or indirectly). The system only allows society to pay what they do. The rich get richer in the end then because the rich as a whole provide what society values and can not easily recieve from other places.

October 9, 2008 Posted by | Uncategorized | , | 1 Comment