Is the Financial System One Giant Pyramid Scheme?

SET UP

For one, how should we define our present financial system?

Well, we can start by focusing on the financial system that the modern world’s majority uses: Monetarism. This is a theory whereby, according to the American Heritage Dictionary, “economic variations within a given system, such as changing rates of inflation, are most often caused by increases or decreases in the money supply—usually enacted by controlled government policy.” (For those new to economics, don’t worry. This will be explained more simply soon enough.)

No matter the country, nor the dominant ideology we ascribe to—be it communist, socialist or capitalist—they all use a monetary system; only the degree of government intervention in the system varies.

Next, what kind of scam are we charging our financial system of resembling? For the purposes of this article, we will use a pyramid scheme as a model (albeit the most sophisticated pyramid scheme ever devised).

[pullquote]One should also consider that it often isn’t a shifty looking man in a trench coat trying to recruit you into these get-rich-quick-schemes, but normal, honest-looking people.[/pullquote]

Briefly, a pyramid scheme is a scam where one ringleader (sometimes a team) convinces a number of individuals to invest money into a ‘new money making system,’ which requires these new investors to work—usually on a kind of commission—to recruit others to then invest money back into the said ‘system.’ Those new recruits are then encouraged to lure even more individuals into this system and so on.

This scheme is called a pyramid scheme because of its shape: if one person recruits ten people and those ten each recruit ten others and so on, the pyramid could potentially involve everyone on earth within ten rounds of recruiting—with most or all the money being funnelled to the top.

That said, such schemes never make it to this level, as once it reaches a certain size, there will always be a few who begin to smell a fish.

So with these parameters set, let’s turn our attention to some of the biggest reasons why people get caught up in financial schemes. According to Skepdic.com, greed is probably the underlying factor. The desire for wealth and power are easy levers the crafty can use against most anybody.

This greed, or even just a basic desperation for money, can lead to varying states of wishful thinking, where even the smartest of those involved throw away logic and reason for the hope that this ‘money-making system’ is actually legitimate. As a result, asking those worthwhile questions that can save one’s wallet all of a sudden begins to feel uncomfortable or impolite.

Even those few who catch on to what they’ve gotten themselves into continue playing along, thinking, “Hey, I’m not at the bottom of the pyramid; I’m near the top. I can still get out of this making a profit!” Housing Meltdown, anyone?

Finally, one should also consider that it often isn’t a shifty looking man in a trench coat trying to recruit you into these get-rich-quick-schemes, but normal, honest-looking people. These people are quite often educated and/or well-respected, like teachers, investors (ala Bernie) and even police officers. Anyone is susceptible, and the more the initial ringmaster can attract respected participates into this system, the more it wraps around itself an air of legitimacy borrowed from such individuals. This makes the system that much more attractive to future recruits.