Personal wealth management as a fundamental human right

A few months ago, the Indian government removed 86% of all banknotes from circulation . At first glance, this measure was taken to combat the black market and tax evasion, but in fact it led to the depreciation of the savings of the poorest segments of the population, whose representatives keep all funds in cash. A few weeks after that Venezuela resorted to a similar measure .

We will describe the details in the material by Brian Armstrong, which we quote on the blog of our payment blockchain service, Wirex .



Denominations of 500 and 1 thousand rupees were abolished. Residents of India are in line, afraid to not have time to exchange them for new in the allotted time.
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All this led me to think about the extent to which the inhabitants of the modern world are able to control their own material well-being, and should they get more control over it?

Who manages the money?

For most of human history, ordinary members of society had very few rights in terms of the ability to manage and dispose of their material well-being. Warring tribes raided villages, and omnipotent kings and emperors could seize any property with the click of a finger. If you worked diligently and managed to accumulate a certain state, you nevertheless could never be sure whether you could save it, so most people had to put up with the current state of affairs, drag out a miserable existence without attracting too much attention.

However, in the 17th century, something important happened - the establishment of rights to private property . In his “Second Treatise on Power,” John Locke wrote:

... yet each person has some property, consisting in his own personality, to which no one, except himself, has any rights. We can say that the work of his body and the work of his hands are by his very strict account.
- John Locke

This was the beginning of a social shift: people were able to retain more results of their labor. It also meant that your position in society (class, caste, and the like) was no longer predetermined from birth. Hard work could turn you into a person who “made himself” by opening access to a better life for you and your children.

With the advent of the opportunity to move up the social ladder, people began to create new products and services in the hope of getting rich by selling them. The process of the emergence of innovations has accelerated, which has led to an improvement in the lives of both the poor and the rich. In the end, some cultures even began to treat people who achieved everything on their own, with more respect than people from wealthy families — a sharp contrast to the mores of the kings and emperors.

Paul Graham wrote about this:

“Quite a lot was written about the reasons that led to the industrial revolution. I note, however, that a necessary, if not sufficient, condition for it was the ability of people to freely and without any fear reap the fruits of their labor and accumulated wealth. ”

Providing people with the ability to manage their wealth not only sped up innovation, but also attracted the best and smartest people in certain countries. In the US, for example, 51% of all technical startups worth more than $ 1 billion were founded by immigrants .

Unfortunately, this idea has gained popularity in far from all countries of the world and the situation with the abolition of banknotes in India is just one small example. Here are a few similar situations in other countries:

• In 2008, Argentina nationalized $ 30 billion in private retirement savings.
• In 2013, Cyprus confiscated up to 40% of bank deposits amounting to more than 100 thousand euros.
• In 2016, valuable property of Syrian refugees was seized by the border services of Germany, Switzerland and Denmark.
• In 2016, the size of inflation in Venezuela reached 720%, as a result of which the Venezuelan bolivar depreciated by 90%.

It would be unfair, however, to characterize the government as the only agent capable of depriving people of their welfare. The seizure of funds or hyperinflation, of course, are serious problems, but material wealth can also be taken away by companies or stolen by individuals. To understand how we can give people greater control over their own welfare, we must take a holistic approach to addressing the current situation.

What happens when people get more control over their wealth?

Much has been written on this topic, but I will nevertheless present here my view on the advantages and disadvantages of empowering individuals to manage their property.

Benefits:

1. People have an incentive to work harder.
   The knowledge that hard work allows you to achieve a better life for yourself and your children inspires and creates additional motivation to engage in any activity. But the understanding that personal funds can be withdrawn without personal consent, on the contrary, deprives a person of self-esteem and motivation to work.
2. Innovations are accelerating
   The opportunity to get rich by offering a new product or service is a good incentive to try to invent something new. Increased competition in the market leads to improved product and service quality, with the result that consumers also benefit. This is one of the most effective ways to improve all areas of human life, from the invention of smartphones to steam engines.
3. Attracting the best and smartest members of society
   For most of the history, people spoke in favor of or against this or that social system by changing their place of residence and emigration to places that provide more opportunities. Societies respecting property rights are the most attractive from this point of view.

Disadvantages:

1. Growth property stratification
   The redistribution of material resources is for the most part incompatible with the idea of ​​managing one’s own wealth, with the possible exception of cases of private philanthropy. I referred this point to shortcomings, because I believe that most people look at it that way, but in fact, not everything is so obvious.
2. Growth-recession cycles in the economy increase
   The weakening of control over interest rates, inflation and other levers of compensation for large-scale economic processes leads to an increase in the overall volatility of the economy.
3. Unwanted elements are equalized in opportunities with those who work for the benefit of society.
   Greater control over material goods simplifies the management of personal well-being for all members of society, including those acting against public interests. And even despite the fact that I consider 99% of people in the world to be good, I still regard this as a disadvantage.

The main question is whether such positive aspects as economic growth based on hard work, testing of new ideas and attracting the best representatives of society, can outweigh the disadvantages in the form of property stratification, increasing volatility and giving new opportunities to undesirable members of society. .

Digital currency as a way to give people more control over personal wealth

I truly believe that digital currency is an unparalleled tool that allows people around the world to have more opportunities to manage their own wealth. However, this approach has its pros and cons:

Benefits:

1. Forced seizure resistance
   The use of special mechanisms for accessing wallets (including storage of access in the mind ) greatly complicates the process of seizing or confiscating money.
2. Less susceptibility to hyperinflation
   Digital currency exists without any central authority capable of unilaterally increasing the size of the money supply.
3. Universal accessibility
   The smartphone — the only device you need to have to access digital currency — is becoming more and more accessible around the world.

This video gives an idea of ​​how digital currency can empower people by giving them greater control over their material goods.

Disadvantages:

1. Cybercrime
   Just as your wealth can be confiscated by governments, so can a digital currency be stolen by cybercriminals. Loss of funds occurs in both cases, but if we compare the reliability of public money and the security of cryptocurrency exchanges, the history of the last few years clearly plays into the latter's favor. Fortunately, modern methods of protecting wallets are becoming more affordable and closer for ordinary people, and the market and its players are gradually growing and causing more and more confidence in themselves and therefore the issue of security is no longer so acute today. One way or another, digital currencies, although they are becoming easier and closer to users over time, still impose serious requirements on them in terms of understanding the mechanisms for protecting assets.
2. Volatility
   Price fluctuations of digital currencies are still significantly higher than national currency fluctuations. No matter how profitable such a situation may be for investors who are speculating on prices, sharp jumps in price can lead to the loss of savings of everyone who uses cryptocurrency precisely as currency. Fortunately, the stability of cryptocurrency has been growing annually for the past 4 years. In particular, in 2016, bitcoin, for the first time in history, achieved a lower indicator of volatility compared to some national currencies, such as the Venezuelan bolivar. I believe this tendency to strengthen in the future.
3. Control, but still not 100%
   Any currency changes do not come from the central bank. Instead, digital currencies use a consensus model, within which any change must be approved by at least 51% of network participants. Despite the relative novelty of this concept, it is believed that it is able to offer much greater stability and balance.

In general, the situation looks quite optimistic, because improvements over time occur in each of these areas.

Conclusion

Governments exist to serve the citizens. Of course, it can be argued that the withdrawal of banknotes by the Indian government had its positive consequences (an increase in taxes on education, road construction, etc.). Nevertheless, this action also harmed millions of people by devaluing their savings. Attempts to maintain this delicate balance of power between ordinary members of society and the government have been made throughout the entire history of mankind, and therefore it is by the way today to have on hand tools to check whether this balance is not disturbed at the moment.