Debt Generates Wealth

Capital ownership has driven increasing social and wealth inequality practically everywhere. Social inequality is a global phenomenon driven by the power of capital, and the owners of capital. Capital- human and physical assets that generate wealth- tends to increase the wealth and power of those who control capital. Today, wealthy capitalists own the most powerful corporations and practically run the world.

There is a belief that Inequality may have become unsustainable, and is driving a resurgence in fascism, nationalism, and conflict worldwide. Dubious populists, many who are billionaires themselves, are using growing inequality to stir up the masses to anger, in an attempt to grab power: the drivers of Brexit, Donald Trump’s Revolution, and Hungary’s Orban are prime examples.   

1. Loans, mortgages, and credit enable the capitalist system. Modern markets would not function without debt termed financial capital. Debt generates wealth for both lender and borrower in specific circumstances. However, debt overwhelmingly benefits the lender also known as the investor.

Debt can be a good thing if it is debt of the right type. Debt that is sustainable. Debt that fosters investment. Debt used for a business’s cash flow. Debt that offers benefits such as shopping discounts, travel privileges, and air miles and so on and so forth.

The Capitalist system pushes this tale, advising us to keep a good credit score by adopting a healthy relationship to debt, by keeping what we borrow sustainable and not defaulting.

Now, there are two types of individual in economics: producers and consumers. Economics is the study of scarcity, with producers using scarce human and physical resources to produce products needed by markets and society.

Consumers – and we are all consumers- in the marketplace, determine production: what and when to produce. The producer decides the where and how. Both producer and consumer are critical to the marketplace.  Both exist no matter the ideology or system in place.

Then, the fine balance of demand and supply is the invisible choreography that brings us the goods and services we need. The producer observes and assesses the market and influences consumer choice through advertising and marketing. The producer decides what to produce based on consumer behavior. The preceding is the basis for Supply Side Economics.

The presumption is that consumers possess the ability to pay. The problem is that consumers do not always have the means to pay for what they want, need, and consume. However, producers require payment or business goes to the wall.

That is where debt features. Debt is the bridge linking investors to consumers, who sustain the corporate world.