Our economy should benefit everyone. So where did it all go wrong?

As Ralph Waldo Emerson said: money often costs too much. But, as to exactly how much it actually costs, well, no one really has a clue. One thing’s for certain though; it costs a whole lot more when it’s misused. Perhaps today more so than ever before.

Capitalism, which claims to steadily increase the standard of living for all of its citizens, is not working. Generational progress has ground to a halt. Children born today will not enjoy higher living standards than their parents. Or, should that read the majority of children? All the signs are that a small number of the elite will be much, much better off and increasingly so.

We’re already in a situation where the richest 10 per cent own nearly half of British wealth and that figure is heavily skewed to the top 1 per cent. Meanwhile, the bottom half of the population together possess less than 10 percent of it. That gap is widening at an alarming rate too. The Office of National Statistics (ONS) does a survey of wealth and assets every other year, and it shows the average mean wealth for the highest decile wealth bracket consistently gaining, while the poorest decile barely changes. There is zero chance of things changing any time soon, either.

Those who exist at the bottom level of wealth distribution have no wealth or savings to shift their position. They can’t afford to take risks, or try out new opportunities, whether it is in their jobs, improving their educational prospects, or moving to a more thriving location. At the same time, those in the middle, including those who have the benefit of a university education, are finding it increasingly difficult to make headway.

Getting on the housing ladder without help from the Bank of Mum and Dad is extremely difficult, so much of their hard-earned money goes in rent payments to landlords. Meanwhile, those at the top continue to grow their wealth using sophisticated tax avoidance schemes. Furthermore, with inheritance tax low, and easy to avoid, money cascades down the generations. The wealthy congregate in affluent centres such as London, Oxford and Bath. High (and ever-growing) house prices further reduce mobility, and price youngsters out of home ownership. People can’t afford to move. The result: little changes. Inequality becomes self-reinforcing.

The foundation of the problem is that we have all been brought up to accept as gospel that investment for financial gain is good. Nothing else seems to count. I first started to think seriously about this in the aftermath of the 2008/9 financial crisis, when I heard the expression: privatise the profits and socialise the losses. In other words, make sure the big corporations and investors are OK, while passing on the debts for the rest of the nation to deal with.

No one liked the ensuing austerity, but it was accepted as the price we all needed to pay to get things back on track and get the economy working again. This was patently unfair. The people who were expected to shoulder the debt were the 90 per cent who did the work that actually created the wealth by adding real value. Why were they then expected to live in reduced circumstances? Whereas the people reaping the rewards of this work, who did very little, were given even more money for their minimal efforts.

There’s clearly something very wrong with a system that encourages this. It certainly isn’t working in the interests of the majority and doesn’t reward people for the fruits of their labours.

To trace how we got to this point – and why the economy isn’t serving the 90 per cent well, or indeed as intended – we need to go back to basics. A big part of the problem stems from the fact that whilst most people think they understand money, they don’t understand how it’s misused by the extremely rich in order to control all of our lives. On the other hand, they believe the economy is complicated and best left to experts, whereas it’s basically quite simple and should be controlled by all of us.

At its heart, the idea of money is indeed pretty simple. It was always intended as a means for fair exchange of dissimilar goods and services. Thus, in our early history, when barter was the way to do business, if goods or services were exchanged for goods or services of a similar value, happy days.

However, if the value of one side of a deal was seen not to balance the other, then a cash payment was required to make up the shortfall. Money was simply a very handy way to supplement a barter system that was otherwise difficult to keep track of. There was never any intention that money should become a commodity of any huge import, let alone become a major driving force of how we live, or a measure of success or failure.

The core concept behind economics is equally straightforward too. It’s simply the study of how goods and services are produced, distributed and consumed from the limited resources available. You might consider it as a social science that describes how groups of people organise themselves and the assets available to them to best serve the interests of the group as a whole and the individuals within it. This applies to all sizes of groups ranging from families through clubs, societies, and companies to the country as a whole.

So far, so good. Where did it all start to go wrong?

This is an extract from the first chapter of JK Wrights latest book, ‘Short-Changed: How the rich and powerful extract wealth from the real economy and what WE can do about it.’, out now.