If Money is Infinite, Why Do We Still Have Poverty? | Prof. Jiang Xueqin

Summary

The video explores the origins of banking and money, tracing its roots to merchant trade. Initially, banks held gold for safekeeping and issued receipts to facilitate trade. Over time, these banks lent out gold, creating money out of nothing and introducing the concept of scarcity. The video argues that poverty and inequality are not due to limited resources but are artificially created to maintain the illusion of money's value, compelling people to work hard. It concludes that the real value in society lies not in money but in the labor we perform.

Takeaways

• 😀 Merchants were the pioneers in finance, using banks to facilitate trade by storing gold and issuing receipts.
• 😀 Banks began by offering receipts for gold deposits, which allowed easier trade by providing a promise to return gold upon request.
• 😀 Receipts issued by banks acted as a form of currency for merchants, enabling trade across borders without physical gold exchange.
• 😀 Banks started lending gold to other merchants, creating more receipts than the actual gold they held, effectively generating more money.
• 😀 The concept of money and finance initially stemmed from the need to trade goods, and money was seen as a symbolic representation of debt.
• 😀 Throughout history, money was not always necessary for daily life, and was mostly used to settle disputes or as compensation for debt.
• 😀 A key problem in the banking system is the potential for a bank run, where more receipts are issued than the actual gold reserves, causing bankruptcy if too many request their gold at once.
• 😀 Merchants and kings often sought gold from banks, but kings could default on loans, which posed a significant risk to the banking system.
• 😀 The creation of banking cartels helped mitigate risk by ensuring that if one bank failed, others could support the system.
• 😀 Central banking evolved as a way to maintain control over money, wealth, and power, ensuring that those in charge could influence economic outcomes.
• 😀 The concept of scarcity is an illusion. While money is infinite and can be printed at will, the resources to create goods and services are limited, causing inequality and poverty.

Q & A

Why did merchants initially get involved in finance?

Merchants needed money to facilitate trade, and some became wealthy enough to establish banks to support other merchants and trade.

How did the early banking system work in terms of gold?

Merchants would deposit gold in the bank for safekeeping. In exchange, the bank would issue a contract, or receipt, promising to return the gold when requested, which could be used to facilitate trade.

Why were receipts or contracts issued instead of physical gold during trade?

Receipts were easier to carry and transfer across borders, facilitating smoother and more efficient trade, especially for merchants involved in international transactions.

How did banks make money in this system?

Banks would lend out gold or issue receipts for gold that they didn’t actually possess in full. This allowed them to create more receipts, theoretically increasing the amount of money in circulation.

What is a bank run and why is it a problem?

A bank run occurs when a large number of people demand their gold at the same time, but the bank only has a limited amount of gold on hand. This can lead to bankruptcy and the loss of the bank's reputation.

Why did banks often lend money to kings and nobles rather than entrepreneurs?

Kings and nobles frequently needed money to fund wars, which created a demand for gold. This was a key reason for the flow of money into the hands of rulers rather than entrepreneurs.

How did cartels help mitigate risks in banking?

Cartels were partnerships between banks, often formed through intermarriage. This allowed them to cover for each other in case of a bank run or if a king failed to repay his debts.

What is the role of central banking in the modern world?

Central banking controls the money supply and maintains economic stability. It operates on the same principles as the historic banking system, using power to manage and distribute money.

Why is the belief that money is scarce considered a misconception?

Money is technically infinite because it can be printed at will by central banks. The scarcity of money is an illusion created to maintain economic control and encourage people to work for it.

How does poverty play into the creation of wealth?

Poverty is deliberately maintained to create an illusion of scarcity, making people believe that money is valuable and worth working for. Without poverty, the motivation to earn money would diminish, destabilizing the system.

Why are economic crises, like stock market crashes, created?

Economic crises are intentionally created to destroy money and reduce its supply. This is done to reinforce the illusion that money is scarce and valuable, motivating people to continue working and producing wealth.

What is the connection between wars and money destruction?

Wars are often used as a method to destroy wealth, thereby reinforcing the perception that resources are scarce and ensuring that people continue to value and work for money.