le Scribbles

Why Giving Money to the Poor won’t make them Rich

People tend to have this idea that if you hand out money to the poor, they will become rich. This is so wrong on so many levels. Of course there are many factors like economic reality of how money and value work and all at play, because money isn’t really “riches”, but just a document that facilitates bartering goods and services based on something of real value, like Gold. There is a more simple way to explain why giving money to the poor will not make them rich.

Imagine that all people in India were given 10 Lakh (a million) Rupees. What will people do, especially those who previously didn’t have any money? They will spend it. They will spend it to buy things. The middle class will splurge on cars and stuff while the poor will try to buy stuff they always wanted, and everyone will try to pay off what they had borrowed. Forget the fact that the large inpouring of money will raise inflation etc., let us not consider that. What will eventually happen is that all that money will again flow back into the hands of the rich. After say 6 months, we will be back to the situation where we began. The rich are rich because they create “value” or “products of value or objects that have actual intrinsic value attached to them, like a nail, a mobile phone or a carrot. or they produce the stuff that everyone else wants. And when everyone starts buying things, the money will come back to them eventually. Be it real estate developers, land owners, moneylenders, manufacturers etc. Those who do not create any solid objects of real value (including software and such services) will remain consumers. It is not possible to make everyone rich, because without consumers, value and wealth cannot exist.

Call me (economic) right-wing or whatever, but this is the truth. What we should do instead of trying to make everyone rich is to provide basic, dignified means of life to everyone, where everyone is paid their worth. That is what real Socialism is and where countries like the European “Socialist” economies (Scandinavia, Finland, Switzerland etc) have excelled.

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