Crisis of Faith – Elections & Money
Not the way we usually think about it. Like campaign money, lobby money, ad money, etc. The election is boiling down to a debate about money. How much money should the government spend, where should they spend it, and how the government taxes “our” money.
Of course neither party is talking much about money spent on war; and there are good (pragmatic) reasons for that.
War is currently the best of several bad options for the United States (speaking here of the nation-state and its “interests”). War simultaneously accomplishes “politics by other means” against other nation-states and non-state formations, and it is embedded in the economy in such a way that it serves as a surrogate export market as the US exsanguinates the last drops of its former non-war industries into distant maquilas. People can sell everything from fighter-bombers to frozen chicken to duct tape to angora goats to the Department of Defense, and they do.
Since war is a good option – from a strictly pragmatic perspective – then neither party will open real public criticism of war spending or the practice of war. These interests reach locally into individual communities in individual districts where this or that plant or this or that base circulates money through those local economies.
(Say what you want, ye moral paragons. Every time we drive or ride, we are doing so on a flow of oil which requires a half dozen naval battle groups to guarantee.)
These are relations of exchange and patronage; and while this is important, our topic today is money… itself. What is it? Neither party talks about that either; and with far better reasons than those they have for minimizing criticisms of war and war spending.
So what is money? What is this stuff we are all seeking, fighting about, hoarding, loving, and hating?
Not going down the road of past debates about gold standards or the way present-day banks and the government produce money. This is the minutiae of only the latter post-Enlightenment; and I just don’t agree with theories in which certain manipulations of money will teleport human society back into the Garden of Eden.
The reason I ask is that when people argue about whether to spend money on war or schools or surveillance technology or health insurance, and when people argue about “their” money, those wages and salaries and other personal remunerations called income, and they argue about taxes taking “my money,” none of these partisans ever takes the trouble to point out that the ability of money to do what it does is extremely contingent. It can gain and lose value, or be swallowed into black holes like the Wall Street bailout; and most of us – the overwhelming majority – have neither the knowledge of the system nor the authority – even when acting collectively – to protect, stabilize, or otherwise control the value of money when monetary crises emerge.
And they do.
And one has.
And they will again.
And neither those who want more bombers nor those who want universal health care are talking about this. Because thinking about money more deeply than mine-and-yours confronts them… us… with a crisis of faith.
In a world where production is far-flung and diffuse, and where consumption remains inevitably local, most of us no longer understand the specifics of how all those things get done that more or less stabilize our society. We assume that certain critically placed people with grave but obscure responsibilities are doing their jobs. These people are called “Them”… or “They.”
They and what They do is unknowable; therefore our belief in Them is predicated not on evidence, but faith. That’s no indictment. I am a Christian, so faith for me is not somehow the opposite of reason. I do however, believe that faith can be misplaced.
In this case, the crucial article of faith is that there is some firm and immovable ground upon which both money and politics rest. (Let’s not pretend they can be separated. The modern nation-state is a direct outgrowth of the monetization of economy, and the captains of the state are produced or selected by haute finance.)
It is far from clear that we can assume that our money now will hold its value… even in the near term. I can pretty confidently predict that US money will crash or phase out at some point in the future. There is no ground. It’s an agreement, and if the perceptions of a currency change (look now to Europe), an essence called “value” disappears into a gaping omniverse of nothingness.
What was once shells or red ochre became gold and silver, became IOUs, became paper, became digitalized. Money.
Money requires an agreement between people that it has value. That value corresponds to things-for-sale as prices. One medium for many things and so value is divorced from things we use. Value can fly around in pieces as a pure substance alienated from actual things. Flying value. As long as we all agree to recognize it as a valid carrier of disembodied value.
But money is something else, too. Money is an entitlement. Modern economies have intentionally been created to make as many people possible as dependent as possible on money to survive. That means that those who have a lot of money can compel those with very little money to do things those with a lot of money don’t want to do. If I have the money, I am entitled to whatever it is you are selling – even your obedience (like in a job). Since most actual things for sale are products of both material (nature) and labor, then money becomes an entitlement to nature and labor. Those with more money have more entitlements to nature and labor.
This is a legal entitlement. Money is a legal entitlement; its status is afforded by the state. The state underwrites a single currency that can serve both as an exchange-value and as a means of collecting taxes. That’s what “legal tender” means that is printed on dollars. “This note is legal tender for all debts public and private.” (I love hearing people talk about how the government is taking away their money, when the money they are talking about is backstopped and maintained at some value through the heroic interventions of the state.)
Our generalized dependence on money means that we are exactly as vulnerable as money is. We cannot “ride out” a hypothetical and sudden devaluation of money (or, for that matter, free-falling prices). In earlier societies, there were various mixes of gift economy, direct barter and other reciprocal economies, redistributive economy, and market economy. Our current system is one where legal measures were taken by past leaders to stamp out those other forms of economy, allowing the market alone as an economic practice. With the suffocation of other forms of economy, money became ever more essential for basic necessities – while the profit motive moved and concentrated production further and further away from consumption.
The flying-value of money created poverty. Only in a society completely dependent upon money can the lack of money become a a crisis. A peasant without a job can grow something at least. A city-dweller finds food at outlets… for a price. Poverty is the flip side of great wealth. The flying-value of money allowed some people who were very “good with money” to accumulate more than they ever could without that particular kind of entitlement.
If money fails, we will not abandon ship en masse. If money fails, most of us are lashed to the ship.
But there is more to money than just our lack of resilience in the face of its power, or the way it lets a few people gain dominion over others by the trick of flying-value. Money is a corrosive that burns through the connective tissues of communities.
“Without general purpose money,” Alf Hornorg wrote, “people couldn’t trade tracts of rain forests for Coca-Cola.”
Just a couple of thoughts.
Richard:
Good thoughts, good points.
I’m curious, Stan, if you’ve had a chance to take a look at Graeber’s Debt yet. He says some interesting things about money there, too.
also, yesterday I read this article about the unbelievably appalling nature of student loan debt:
http://www.reuters.com/article/2012/08/15/us-student-loan-crisis-idUSBRE87E13L20120815
I knew it was enormous, and not subject to bankruptcy declarations, but I had no idea of the history behind that fact and the extent of the ideology behind it.
23 August 2012, 3:27 pmm.c.:
I read this from someone on a blog fairly recently and don’t remember who to quote, so sorry to the original author.
ECONOMICS/FINANCE/MONEY & LAW(as two of the largest examples) are Categories of Thought. That is, they have their own Language & Reasonable Logic, that the ordinary Jane/John Doe who just rolls out of the bed in the morning don’t usually grasp very well.
The Sun which is 93 million miles away 24/7/365, doesn’t care about Wall Street or the City of London. The Earth likewise doesn’t read the WSJ, the Times of London, The FT, or the Economist either… The Sun doesn’t get mail delivery or the internet either.
23 August 2012, 4:13 pmmichele:
Stan, i just wanted to thank you for this post, although those words just do not do justice to how much i appreciate it. Money, the ultimate derivative, is at the core of every challenge we face as a species. When you brought up resilience there at the end, i could not help but think of a talk Bernard Litauer gave a couple of years ago about the need for some balance between resilience and diversity in our economics. It also got me thinking again about the benefits of pluralism, PAECON style.
24 August 2012, 6:28 amPerhaps what i am going to say will sound ridiculous..but i cannot help but think of the necessity for all of us to take tours of our infrastructure: garbage centers, sewage plants/water treatment centers, power plants and the like. And that we learn where it really is that our goods come from. Why is cotton shipped overseas to be fabricated and then sent back and sold to us in the form of textiles? And so much more..
Really Stan, these words are so much more than the page they cover here online. Again, thank you so very much!
Michael H:
Stan, have you read Charles Eisenstein’s ‘Sacred Economics’? It is available in book form and also online at
http://www.realitysandwich.com/homepage_sacred_economics
His lines of thought regarding money seem to parallel yours.
24 August 2012, 7:29 amHenry:
As the GOP’s misogyny becomes more evident, the risk of the ‘fiscal cliff’ diminishes
August 24, 2012 Marshall Auerback
Missouri GOP Senatorial candidate Todd Akin’s absurd comments that women’s bodies can prevent pregnancies in cases of “legitimate rape” are disgusting in and of themselves, and also point to a deeper problem within the GOP. This is a party that hates women. And given the huge gender gap opening up in favour of President Obama over the presumptive GOP candidate, Mitt Romney, this has important implications for fiscal policy going forward because the Democrats are less likely to embrace the draconian fiscal austerity proposals now advocated by Romney’s leading economic advisors.
http://macrobits.pinetreecapital.com/as-the-gops-misogyny-becomes-more-evident-the-risk-of-the-fiscal-cliff-diminishes/
24 August 2012, 12:24 pmm.c.:
The Sun didn’t go to law school either…
24 August 2012, 12:37 pmMichael Anderson:
“Say what you want, ye moral paragons. Every time we drive or ride, we are doing so on a flow of oil which requires a half dozen naval battle groups to guarantee.”
I drive a lot, in order to work (play music), so I am well aware of the support I’m giving to the M.I.C.C. and dirty money in general.
Recently removed 2 stickers from my van–”Ill believe Corporations Are People When They Execute One In Texas”, and “Militarized and Corporatized Government is Fascism.” Seemed foolish to be shooting off my mouth when I have to exist inside a system that is all-pervasive and corrupt….and can turn violent at the drop of a hat.
Can’t create any kind of alternatives between the powers’ toes that way. We WILL have to use parts of the existing system, creaky as it is, to prepare, though. Discussions on money, or mediums of exchange, if you will, are necessary. Bartering, Freecycling, the free page on Craigslist….
25 August 2012, 3:29 pmKim Sky:
MONEY = FREEDOM
With money we can buy basic freedoms such as: a place to live and food to eat.
With a place to live and food to eat, we can then: dream, spend time educating ourselves, go places, breath, take a walk for the pursuit of natures’ offerings. Contemplate whether we are or are not going to vote: Stan’s article titled “Why I won’t vote (and you shouldn’t either))”
In Saudi Arabia, a country that employes foreign women, many of them can no longer find employment in the Western World, we say: Financial Freedom is REAL.
Another article(s) of interest can be found at: http://www.moonofalabama.org/2012/08/human-rights-or-civil-rights.html
HUMAN RIGHTS OR CIVIL RIGHTS.
31 August 2012, 1:42 amR.:
All,
Apologies in advance for not further this particular discussion.
While this site is very wordy and full of true intellectuals (of which I am a poor dinner guest), I do appreciate it although I might not agree with most of it; it scratches the brain in that bittersweet way.
Mr. Goff, I am extremely interested in the phenomenon you are; I first found references to yourself on other types of sites, which I troll almost endlessly looking for nuggets of wisdom.
Off to school in next few days- will check site if ever allowed.
God bless
6 September 2012, 1:35 pmGarrett:
Hey Stan,
I wanted to email you but see no way to do so. So, I thought I’d just find your most recent article and post a comment. In response to this particular article, I encourage you to read Debt by anthropologist David Graeber (if you haven’t already done so). It involves the origins of money, and how ethnographic studies show that money actually preceded large-scale bartering. A link to a review: http://thenewinquiry.com/blogs/zunguzungu/david-graebers-debt-my-first-5000-words/
I was just reading your article about why you don’t vote. You should definitely read A Theory of Power by Jeff Vail. It is very compatible with your philosophy, and mine. Localization, recognizing Dunbar’s Number, etc. You can read the book online for free (just Google it), though I wanted a hard copy and bought one off Amazon. Here’s a link to some related writings of his: http://www.jeffvail.net/2007/01/what-is-rhizome.html
You do such a great job of expressing what’s been floating around in my head for years. And reading your article titled, “The Roles of Finance Food and Force in US Foreign Policy” was a profoundly educational experience for me.
Keep up the great work.
Garrett
6 September 2012, 5:38 pmMichael H:
Stan,
Mind if I post a few passages from Eisenstein’s book?
From chapter 1:
At its core, money is a beautiful concept. Let me be very naive for a moment so as to reveal this core, this spiritual (if not historical) essence of money. I have something you need, and I wish to give it to you. So I do, and you feel grateful and desire to give something to me in return. But you don’t have anything I need right now. So instead you give me a token of your gratitude—a useless, pretty thing like a wampum necklace or a piece of silver. That token says, “I have met the needs of other people and earned their gratitude.” Later, when I receive a gift from someone else, I give them that token. Gifts can circulate across vast social distances, and I can receive from people to whom I have nothing to give while still fulfilling my desire to act from the gratitude those gifts inspire within me.
From Chapter 3:
…, stamped coins had a value (which, following historian Richard Seaford, we shall call the “fiduciary value”) greater than an identical but unstamped disk of metal. Why? What was this mysterious power that inhered in a mere sign? It was not a guarantee of weight and purity, nor was it an extension of the personal power of a ruler or religious authority. Seaford observes, “Whereas seal-marks seem to embody the power of the owner of the seal, coin-marks create no imagined attachment between the coins and their source.”5 Rather, coin-marks
“authenticate the metal as possessing a certain value. And they do so not by transmitting power (magical or otherwise) to the piece of metal, but by imposing on it a form that recognizably assigns it to a distinct category of things, the category of authentic coins.… The coin-mark … operates in effect as a mere sign.”6
Signs have no intrinsic power, but derive it from human interpretation. To the extent a society holds such interpretations in common, signs or symbols bear social power. The new kind of money that emerged in ancient Greece derived its value from a social agreement, of which the marks on coins were tokens.7 This agreement is the essence of money. This should be obvious today, when most money is electronic and the rest has the approximate intrinsic value of a sheet of toilet paper, but money has been an agreement ever since the days of the ancient Greeks. Those reformers who advocate gold coinage as a way to return to the good old days of “real money” are trying to return to something that never existed, except perhaps for brief historical moments almost as an ideal. I believe that the next step in the evolution of human money will be not a return to an earlier form of currency, but its transformation from an unconscious to an intentional embodiment of our agreements.
Also from Chapter 3:
When the primary function of money is as a medium of exchange, it is subject to the same limits as the goods for which it is exchanged, and our desire for it is limited by our satiety. It is when money takes on the additional function of store-of-value that our desire for it becomes unlimited. One idea I will therefore explore is the decoupling of money as medium-of-exchange from money as store-of-value. This idea has ancient roots going back to Aristotle, who distinguished between two kinds of wealth-getting: for the sake of accumulation, and for the sake of meeting other needs.16 The former kind of wealth-getting, he says, is “unnatural” and, moreover, bears no limit.
7 September 2012, 7:45 amStan:
thanks
10 September 2012, 5:10 amaskod:
If I understand Graeber correctly, the history of money is pretty simple. Some smart administrators in ancient Egypt figured out that if they handed stamped metal to the soldiers instead of food and other things they needed, while at the same time demanding merchants and shopkeepers to hand in – on penalty of violence – said stamped metals at the end of the year, they signnifcantly reduced their own administration (by handing it off to everyone else).
So it is not all just confidence, it is also state power with taxes backed by violence that upholds the system. If people starts thinking that maybe there is nothing important with these monies after all, all the state needs to do is slapp a significant tax on them and they will realise that bartering what they have with those that have money is a necessary to stay out of jail. Which is important to most.
Leaving Graeber (whose book I have not yet read) I have some objections with your description of the current crisis in Europe. It is not that people in general has lost fate in the euro, it is still used as before. Instead the European Monetary Union is built in such a way so it leads to imbalances which unfixed will lead to a split. The moneytraders are using the reluctance to make the necessary reforms to enrich themselves, the central bank is using the crisis to amass power and kill what welfare exists in southern Europe, the politicians of the core countries (in particular Germany) are using “bailouts” to southern Europe as a way to hand money to their own banks (the conditions of the “bailouts” is that they are used to pay old debts) without having to admit how bankrupt they are in the first place. And so on. Shock doctrine, coup and massive theft under the banner of euro crisis.
For further reading on the mecanics of the euro system and crisis I suggest “A Modest proposal” – not Swift but Varoufakis: http://yanisvaroufakis.eu/euro-crisis/
12 September 2012, 1:53 pmStan:
Confidence becomes an issue when currencies are exchanged as commodities on an international market. Polanyi noted that there are all kinds of mischief associated with treating three non-commodities as commodities: labor, land, money.
The euro crisis is based on the contradiction (as Harvey puts it, I’m paraphrasing) between capital and state, when one is circumscribed by geography and the other isn’t. The euro crisis is a sovereignty crisis (between state and a currency regime) that threatens the currency, but in today’s economic world, exposure to a damaged euro is widespread.
13 September 2012, 4:43 amaskod:
Yes, but so far confidence in the euro’s future appears widespread since the euro is trading roughly at the same prices as before. What fall it has had appears to be better explained by killling off the economy in several countries then a lack of confidence.
Lack of confidence is instead expressed in particular states future within the euro – in particular Greece. This is seen in the price of Greece’s debt, where the price is much lower then the nominal value pricing in a substanial risk of partial default through leaving the euro and letting the New Drachma float. And rightly so, since this is the only logical outcome as long as the trade surplus countries – in particular Germany – refuses to deal with the trade imbalances within the euro and the payment imbalances it produces.
I would say it is a sovereignty crisis (between the states and a currency regime) that primarily threatens the weaker states.
13 September 2012, 2:21 pmHenry:
Hope this isn’t too long, but the quotes are very interesting.
What is Money?
http://moslereconomics.com/mandatory-readings/what-is-money/
Fifteen Fatal Fallacies of Financial Fundamentalism
http://www.columbia.edu/dlc/wp/econ/vickrey.html
Modern Money
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=137409
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All the following at mikenormaneconomics.blogspot.com
“The Greek Scriptures consistently use two different words when referring to things that are most often today falsely conflated and called “money”.
The first scriptural term here, nomisma, which looks like it is a derivative of the Greek word for “law”, nomia, is used only once in the Greek Scriptures.
17 Tell us, then, what you are supposing. Is it allowed to give poll tax to Caesar, or not?” 18 Now Jesus, knowing their wickedness, said, “Why are you trying Me, hypocrites? 19 Exhibit to Me the poll tax currency.” Now they bring to Him a denarius. 20 And He is saying to them, “Whose is this image and the inscription?” 21 They are saying, “Caesar’s.” Then He is saying to them, “Be paying, then, Caesar’s to Caesar, and God’s to God.” (Mat 22:17-21)
The English word “currency” shown here, in the Greek appears as nomisma. Jesus uses this word when referring to the denarius, a Roman metal coin, with the implication that nomisma was a broad term that applied to state currencies that were being issued and taxed for provision of the civil governments of that day. The taxes that were payable in this case to the Roman government headed by Caesar, were payable in a certain unique type of nomisma. It is revealed here that the Roman poll tax was payable in the denarius.
Other types of nomisma were also being used in that day. The scriptures reveal that the Greek drachma and stater were also being used.
24 Now at their coming into Capernaum, those getting the double drachma came to Peter and say, “Is not your teacher settling the double drachma tribute?” 25 He is saying, “Yes.” And, coming into the house, Jesus forestalls him, saying, “What are you supposing, Simon? The kings of the earth, from whom are they getting tribute or poll tax? From their sons, or from the aliens?” 26 Now he averred, “From the aliens.” Now at his saying “From the aliens,” Jesus averred to him, “Consequently the sons, surely, are free. 27 Yet, lest we should be snaring them, go, cast a fish hook into the sea, and pick up the first fish coming up, and opening its mouth, you will be finding a stater. Getting that, give it to them for Me and you.” (Mat 17:24-27)
In this passage we see that some other government authority was demanding tribute, payable in the previously issued Greek drachmas or staters. What specific government entity this was is not revealed (perhaps it was the Herodians), so it is probably not ultimately important, but it is indeed revealed that the government authorities were issuing and taxing types of nomisma. In addition to government issuance and taxation for provision, these nomisma were also being used in general private sector commerce…
The Greek Scriptures depict how nomisma of several types was being lawfully issued and taxed for government provision; and in addition, those outside the government were using these same nomisma in commerce and to fulfill savings desires.
Then we come to the other word in our study here, argurion which is the Greek word for “silver”, the metal.
This word is never used in the Greek Scriptures related to payment of a government tax.
Argurion is used when describing transactions or commerce among those of the House of Israel, and in specific instances relating to the provision of presents or offerings at the Temple.
2 And He commissions them to be heralding the kingdom of God and to be healing the infirm. 3 And He said to them, “Nothing pick up for the road, neither staff, nor beggar’s bag, nor bread, nor silver, nor have two tunics apiece. (Luke 9:2-3)
The argurion is dealt with solely in measures of weight.
24 Now, at his beginning to settle, one debtor was brought to him who owed ten thousand talents. (Mat 18:24)
15 Now they weigh for him thirty pieces of silver. (Mat 26:15)
Nomisma is never weighed, it is counted…
So we can learn from the Greek Scriptures how in the days of Jesus ministry, the civil government of Rome was running what we might call today a state currency system, using the issuance and taxation of quantity measures of nomisma to both provision the government and facilitate commercial transactions and savings. While the religious authorities of the House of Israel used weight measures of argurion in certain transactions related ideally and primarily to religious procedures and the operations of the Temple.
The two terms nomisma and argurion are never conflated or used interchangeably in the Greek Scriptures, because they are logically two completely different things that have no commonality. Nomisma has nothing to do with argurion.
The system utilizing nomisma was mandated out of the lawful authority of civil government, while the system utilizing argurion was mandated by the lawful authority of the religion of the House of Israel. Completely separate earthly authorities…Which of these authorities is in control of the systems we operate in the economies of the west today? It seems like it is a chaotic false misguided conflation of both earthly authorities, that results in systems that simply cannot deliver just and righteous economic outcomes.”
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Alexander del Mar on the Ages Old Monetary Conflict
Key excerpt from del Mar’s book ‘History of Monetary Systems’ (c.1895) that comments upon what I view as a thousands of years old conflict between forces that see “money” as a lawful human construct, and forces that see “money” as otherwise. From the Preface:
If in view of the existing monetary conflict, the reader should be led to inquire whether this is a ” monometallic” or ” bimetallic ” work, the answer is, It is neither. These terms, and many others employed in the monetary literature of to-day, the author regards as misleading. They involve doctrines which are fallacious, and defeat a correct comprehension of this difficult subject, by pro- moting the discussion of false issues, or the adoption of make-shift or mischievous measures. Monometallism and bimetallism both imply that money consists of a metal or metals, and that this is what measures value. The implication is erroneous ; the theory is physically impossible. (Value is not a thing, nor an attribute of things; it is a’ relation, a numerical relation, which appears in exchange.) Such a relation cannot be accurately measured without the use of numbers, limited by law, and embodied in a set of concrete symbols, suitable for transference from hand to hand. It is this set of symbols which, by metonym, is called money.
13 September 2012, 2:31 pmIn the Greek and Roman republics it was called (with a far more correct appre- hension of its character) nomisma and nummus, because the law (nomos) was alone competent to create it. The number of the symbols may be limited, but rudely ; the limit may even — though equitably it should not — be left to the chances of conquest or mining discoveries, still, repeated experiments prove that it is the number of the symbols that definitively measures value, not the quantity or quality or merit of the materials of which they may be composed,…
This is quite a forceful logical and mathematical argument made by del Mar that properly, at least here in the West, “money” is solely an authorized legal construct used for exchange. But many people today, even though they live here in the West, simply WILL NOT ACCEPT THIS, and zealously cling to the non-Western beliefs that “money” is either properly thought of as a “debt” of some sort or otherwise and more popularly a weight of a metal.
—-
One of del Mar’s important contributions was his ascertaining that gold never pays from the point of view of society as a whole. That is, the “cost of production” is always greater than the value of the metal. This was even true of the Comstock lode, the greatest “gold strike” of the 19th century. Writers on money have been consistently confused in this, supposing seigniorage to be the difference between the monetary value and the commodity value (cost of production) of the money token. In reality, seigniorage was simply the sovereign’s price for monetizing the metal. Since no sovereign post-rome could effectively control the supply of precious metal commodities, they lost doubly as they began charging lower fees to try to bring more metals into their mints.
m.c.:
One noteworthy thing to remember is Jesus strove to teach us Good News in the Gospels! Sure he was rather critical but he appealed to the free choices of our better nature. Same with those like St. Francis of Assisi & Martin Luther.
We are very well capable Apes. Positive Change is well within our Capabilities without us all crashing the global economy and becoming Luddite destitute beggar cavedwellers…
15 September 2012, 10:53 amGarrett:
Money, a thing with no intrinsic value, is completely unnecessary. Yet destitute beggars walk this Earth in great numbers for the lack of money. People die for the lack of money. This is an absurdity, but one must leave Plato’s cave in order to recognize it.
18 September 2012, 10:56 pmHenry:
@Garrett
Well, money is not supposed to have intrinsic value, whatever that may mean, since for some cultures gold is not “valuable” in our pecuniary sense at all. Money, in the Greek sense of nomisma, is a creature of the law, and is essentially a kind of tax credit–that is to say, a token or a currency that is guaranteed to be accepted, and alone accepted, as payment for taxes. As noted in the above post, it is never weighed and it is always counted.
It is also very difficult to conceive how you can have a complex civilization such as ours, and with populations numbering in the hundreds of millions or even billions, without it, or without governments that need to be outfitted to carry out their functions, however limited these may be.
Plato’s conception has the philosopher-kings living without money or possessions to avoid the temptations to corruption, but essentially because a lack of interest in material accumulation should be natural to the nature or mentality of the ideal ruler, who is typologically a sage-saint.
However, the material support of any society necessarily rests on the class of producers. This whole conception is fairly common in its essential outlook and formulation to the ancient world, as in the myth of Purusha among the Hindus, where the four types of humans spring from the Divinity’s head, arms, legs, and feet. In the medieval Christian world, there was the doctrine of the three estates. These are all analogous ideas and correspond to the basic vocations or tendencies or aptitudes in people. So it is not so much that the productive types “love money,” as that their vocation is to produce material plenty and material values. “Love of money” is a perversion of this necessary and beneficial function, since humans, unlike animals, are capable of conceiving the transcendent Good (To Agathon), and hence are also bound to practice the essential virtues of veracity, charity, and humility or, in Hindu terms, should conform to Dharma.
Purely qualitative considerations can obtain when populations are very small and largely self-sufficient. The realm of quantity–hence inevitably money–comes into play with large settled communities, above all when dependent on trade to some degree and when there are situations, as in farming, when you need to sow before you can reap. The rulers made sure that there were stores of granaries for food as well as seed during times of drought or famine. In such cases, farmers borrowed from the royal stores. Matters of this kind seem to be at the origin of money, and not, as was formerly taught, barter “evolving” into money. See Michael Hudson’s writings for more details, as well as Randall Wray’s at the Levy Institute.
For the ancient world’s conceptions of rulership, see Jean Hani, Sacred Royalty: From the Pharaoh to the Most Christian King.
19 September 2012, 11:11 pmHenry:
An important point, when considering the nature of money as nomisma is the question of interest. According to Aristotle, it is fundamentally unjust to conceive of nomisma as being “fecund,” that is, as capable of reproducing itself. In fact, the compounding of interest is fundamental to a gradual impoverishment of society, even while it works to concentrate wealth. The only just interest was considered to derive from the profits of trading expeditions or other investment situations entailing great risk, and in those days trading expeditions entailed a very real risk of total loss. So if someone lent the expedition capital, it was expected to be returned from the profits plus a reasonable amount of what we call “interest,” as a reward for the risk taken. The kinds of interest paid today, above all on homes, would have been considered criminally unjust.
“Capitalism,” etymologically understood, is simply the investment of capital or resources with the intention of gaining some benefit, and this is a procedure which any small craftsman can undertake without having to exploit anyone, and is totally different in kind from the modern industrial system tied to international finance and modern banking practices, not to mention the devastation produced by organizations such as the IMF or the World Bank with their “structural adjustments” to pay off their loans, and which increasingly control the entire economic life of the planet.
In traditional civilizations, such as the Islamic or Christendom, the purpose of man’s activity was never for gain and for the sake of gain alone. As Thomas Aquinas wrote, “the need for gain considered in itself knows no limit.” The object of gain–or of a “just wage”–was rather simply to provide for oneself and one’s family, so as to be able to “live virtuously.” It was considered that to practice an art only for profit or gain was contemptible and showed a complete ignorance of the purpose of life which, in Christian terms, followed the teachings of the Gospel which teach that this life is a preparation for the next, which would be good or ill depending on one’s fundamental orientation and efforts.
In these civilizations, usury was forbidden and considered a capital crime. Aristotle, as mentioned, considered it both unjust and contrary to the nature of things, while Cicero and Seneca likened it to homicide. Luther also condemned it, and it was rather Calvin who first approved of it as “interest,” and this was later also approved by the Renaissance popes.
If money is erroneously conceived of as fecund, he who lends it claims the right to its return with profit. However, all traditional societies held that lending money to those in need was an act of charity, and that its return depended on the borrower’s condition having improved. The idea that the return of such money could be enforced by contract and even by force would have been considered fundamentally unjust, just as failure to return it when capable would also have been considered unjust. However, a business loan was considered a form of partnership in which the lender shared both risks and rewards, and thus had the right to a share in justly acquired benefits. Thus conceiving the money as fecund is both unjust and a misconception: it is only an increase that is concrete, as in the gains from a trading venture that can be reasonably associated with a value in nomisma.
Obviously, lending money without risk would be usury. Thus, today, when a bank lends money to buy a home it takes no risk, because the bank owns the home as “collateral.” However, in addition to this, during the course of a series of mortgage payments, a person may end by paying the bank several times the actual value of the house in interest. If the borrower happens to fall on hard times, the bank forecloses on his property, and the person in addtion loses all monies paid out. This is such a part of today’s society that scarcely anyone notes the sheer injustice of the arrangement. It is no wonder that the Church once included in its petitions after Mass the prayer that God protect the faithful from usurers.
Islam, as is now well known, also forbids usury, hence the virulent attacks by the Western banking interests on all such ideas of finance.
For a view of the devastation that was produced in England after the destruction of the medieval order, one can read Corbett’s “History of The Reformation in England.” Prior to the Reformation there were no “poor laws” in England. After the Reformation, pauperism became so prevalent that during the reign of Queen Elizabeth men were hanged if they were twice convicted of this “crime”–and the victims numbered in the thousands. At the same time, it has to be recognized that Corbett’s blaming everything on the Reformation is excessive and does not take into account the changes in the European culture and mentality that were already in evidence in the 13th century, and which were the root causes, not to mention the terrible events of the 14th century and the Black Plague.
Corbett’s book can be downloaded here: http://archive.org/details/ahistoryprotest04cobbgoog
and here: http://www.exclassics.com/protref/protint.htm
Also, Corbett’s “Rural Rides,” gives an idea of what was rapidly disappearing in England: http://www.visionofbritain.org.uk/text/contents_page.jsp?t_id=Cobbett
As has often been noted, financial interests which progressively controlled the wealth of the country eventually either replaced or controlled the ruling houses with “democratic systems” dependent upon them, and thus was created a new “aristocracy of wealth,” that is, of money. From this situation, it was a series of steps to arrive at a humanity driven by economic goals above all, the creation of international banking, and the rise of a new class of people termed the “proletariat.”
20 September 2012, 2:24 pmStan:
http://cluborlov.blogspot.com/2012/09/extraenvironmentalist-episode-49.html
24 September 2012, 10:37 amHenry:
Orlov fails to distinguish between private and public debt. He doesn’t understand what it means when a nation is sovereign in its currency, nor the difference between issuers and users of the currency in such a system. This is the biggest point of ignorance in the public today regarding the economy, and it allows the banksters to bamboozle just about everyone, and also allows the President to say that “we’re running out of money.” And in Europe it allows obfuscating the crucial point that a monetary union is one thing and a fiscal union another. The latter is what Europe lacks. Unfortunately, all this ignorance and nonsense determines policy all too often–sometimes unwittingly and sometimes cynically and with malice of forethought–and keeps the chattering classes in business.
7 Deadly Innocent Frauds
http://bit.ly/Q2TJwq
Quantitative Easing 101
http://bilbo.economicoutlook.net/blog/?p=661
QE2 Is Equivalent to Issuing Treasury Bills
http://www.creditwritedowns.com/2010/11/qe2-is-equivalent-to-issuing-treasury-bills.html
Fear of Inflation Scales New Heights
http://bilbo.economicoutlook.net/blog/?p=21067
Quantitative easing: more policy failure ahead for the Bank of England
24 September 2012, 5:22 pmhttp://macrobits.pinetreecapital.com/quantitative-easing-more-policy-failure-ahead-for-the-bank-of-england/
Henry:
A good day for good articles:
Quantitative easing isn’t magic
It is unrealistic to expect central banks like the Fed and the ECB to solve our deep economic problems
http://www.guardian.co.uk/commentisfree/2012/sep/20/quantitative-easing-not-magic-central-banks
Philip Pilkington: The 19th Century Long Depression: How it Fostered Oligopolistic Capitalism and Serves as a Model for Austerity
http://www.nakedcapitalism.com/2012/09/philip-pilkington-the-19th-century-long-depression-how-it-fostered-oligopolistic-capitalism-and-serves-as-a-model-for-austerity.html
A time of hoarding and inflation fears, 1930s edition
24 September 2012, 5:49 pmhttp://ftalphaville.ft.com/blog/2012/09/24/1173781/a-time-of-hoarding-and-inflation-fears-1930s-edition/
Henry:
This requires a Facebook login, and since not everyone is on Facebook, I’ll venture to post this in the hopes it is not too long. I think it is worth it.
———
Rome, 26 October, 2012, on the theme of ‘National Debt’– Warren Mosler
I’ll first address what I believe is the most misunderstood question, which is why the euro national governments debts are as high as they are.
The answer begins with the absolute fact that government debt is equal to global ‘non government’ accumulations of euro financial assets. For any given ‘closed sector’ the euro is a traditional case of ‘inside money’- as with a ‘giro.’ The only way an agent could have net euro financial assets would be for another to be net borrowed. For every asset there is a liability, and one man’s asset is always another’s liability, with the net always 0.
This type of system famously can’t accommodate a net desire to save, unless there is a provision for net financial assets to enter the sector in question. And in the case of the euro, this means the non government sector requires government deficit spending to satisfy its net savings desires, should there be any.
Additionally, note that all government spending is either used to pay taxes or remains as net savings in the economy, in one form or another. And unemployment, as defined, is the evidence that the economy does not have sufficient euro income to pay its taxes and fulfil its net savings desires.
The answer to why national government debt is so high continues with an investigation of the savings desires that generate the need for net financial assets. What we see across Europe are powerful incentives to not spend income, and to instead accumulate financial assets. Historically these have been called ‘demand leakages’, and include tax advantaged as well as mandatory requirements for income to go into retirement funds, corporate reserves, and, increasingly, actual cash in circulation. Without an equal expansion of private sector debt (other agents spending more than their incomes), these savings desires can’t be realized, unless governments spend more than their income.
In the years immediately before the euro, the member nations with today’s high debts had their own currencies. As currency issuers, whether they realized it or not, they had no solvency issues, set their own interest rates, and tended to fulfil national savings desires with government deficit spending, which allowed them to sustain growth and keep unemployment relatively low.
The point I’m making here is that high deficits were offsetting the high demand leakages built into the institutional structures. And that requirement has not gone away, as the traditional demand leakages remain. And note that the nations with the lowest deficits, like Luxemburg, never had their own currencies, and instead market forces caused them to fund their net financial assets with net exports.
What changed with the euro was the ability to fund national deficits, but only because of the ‘divorce’ from the national central banks. This has put the euro nations into much the same position, financially, as the US states. They do not ‘print the money’ and instead are revenue constrained. However, the difference is that the euro member nations entered the euro with the higher debt levels incurred when they were issuers of their currencies, not constrained by revenues, and acting to offset demand leakages for the public purpose of full employment and price stability.
Today, the ECB is the central bank for the euro. I often call it the ‘score keeper’ for the euro. The ECB system spends and lends euro simply by crediting accounts. These euro don’t ‘come from’ anywhere. They are ‘data entry’. As Chairman Bernanke responded when asked where the hundreds of billions of dollars lent to the banks came from: ‘…we simply use the computer to mark up the size of the account they have with the Fed.’
The fact is any central bank, operationally, can make any size payments in its own currency. When the ECB makes a 500 million euro purchase of securities no one asks where the euro came from, whether it was taxpayer money, or whether the ECB somehow borrowed it from China. Central banks are not revenue constrained in their own currency, which puts them in the unique position of being able to act counter cyclically during a down turn in the economy.
Today, the euro members, like the US states, are not financially capable of reacting counter cyclically to increased savings desires when economies slow and private sector credit expansion fails. Only the ECB can, what I call, ‘write the check’ to allow for the provision of the net financial assets demanded by the institutional structure, as evidenced by the rate of unemployment and the output gap in general.
Furthermore, given the state of private sector credit and net export potential, the euro zone needs even higher levels of government deficit spending than otherwise to sustain growth and employment. And only the ECB can write that check. And yes, I realize the political difficulties this implies, including the most pressing issue, that of moral hazard.
Given the necessity of more national government debt and the fact that only the ECB is ultimately capable of writing the check, I’ll now discuss policy options that can close the output gap, and their associated risks.
A simple ECB guarantee of national government debt and an expansion of Maastricht limits to perhaps 7% of gdp would trigger an immediate surge of sales, output, employment, and general prosperity. However, without an adequate enforcement provision, it would also surely trigger an inflationary race to the bottom, as the nation that ran the largest deficit would benefit the most in real terms. So the challenge is to allow the right level of fiscal expansion to accommodate the demand leakages with independent member nations, and without the central control of a currency union like the US.
Tax credit bonds are another option. These are bonds that have the same characteristics of today’s sovereign debt, but state that in the case of non payment- there is no default condition- the fully transferrable bonds can be used for payment of taxes to the government of issue. These have the benefit of insuring taxpayers of other members won’t be asked to pay another’s obligations and therefore the moral hazard issue is also dramatically reduced.
An additional proposal is for the ECB to make ‘cash’ distributions to the member nations on a per capita basis of maybe 10% of euro zone GDP annually. This would begin a systematic reduction of deficits towards 0 over a multi year period, and it would also have to have strict spending limits to contain excess aggregate demand. To that end the ECB could withhold payment of violators, which is far easier to do than to impose and collect fines, as is the case today.
20 years ago I was in Rome at the finance ministry meeting with Professor Luigi Spaventa, along with my colleague Maurice Samuels of Harvard Management who had set up the meeting. Those, too, were dark days for Italy. Debt was over 100% of GDP, interest rates over 12%, the global economy was weak, and Professor Rudi Dornbusch had been making the rounds with his documentation that Italian default was certain. I asked Professor Spaventa, rhetorically, why Italy was issuing CCT’s and BTP’s. Was it to fund expenditures, or was it because if the treasury spent the lira, and did not issue securities, and the Bank of Italy did not sell securities, the overnight rate would fall to 0? There was a long pause before Professor Spaventa answered ‘no, rates would only fall to ½% as we pay interest on reserves’ indicating full and sudden understanding that there was no default risk. He then immediately rose with an attack on IMF conditionality. A great weight had been lifted. The next week it was announced ‘no extraordinary measures would be taken- all payments will be met on time” and the debt crisis receded.
Solving that debt crisis was relatively easy, as in fact there was no debt crisis. Today the situation is both more serious and more complex. The economic problem is that deficits are too small, while the political understanding is that deficits are too large. ECB funding with conditionality means low rates and high unemployment.
Let me next note that I have made no mention of interest rates or monetary policy in general. My 40 years of experience as an insider in monetary operations tells me they matter very little for growth and employment. And for nations with high deficits, I’ve come to expect high rates from the CB function to promote inflation from both the interest income channels, and through the general cost structure of the economy.
I will conclude with very brief word on inflation. Just like the dollar, yen, and pound, the euro is a simple public monopoly. And it goes without saying that any monopolist is price setter, not price taker.
24 September 2012, 5:53 pmFurthermore, a monopolist sets two prices. First is what Marshall called the ‘own rate’ which is how the monopolist’s thing exchanges for itself. For a currency that is the interest rate set by the CB. The second is how that thing exchanges for other goods and services. For a currency we call that the price level. I say it this way- the price level is necessarily a function of prices paid by the government of issue when it spends, and/or collateral demanded when it lends.
Henry:
Why is private debt so much better than public debt?
September 25, 2012 Marshall Auerback
That’s certainly the question one has to ask when reading the latest comments of Bundesbank President Jens Weidmann, who seemed to imply that money creation as proposed by the ECB was akin to the work of the Devil (http://www.telegraph.co.uk/finance/financialcrisis/9551309/Debt-crisis-Bundesbank-chief-compares-money-printing-to-work-of-the-devil.html)
The rest:
http://macrobits.pinetreecapital.com/why-is-private-debt-so-much-better-than-public-debt/
25 September 2012, 5:20 pmMichael Anderson:
The Orlov interview was interesting. I find it hard to believe that the rich elite have a higher tendency to commit suicide—as long as they have force at their disposal. And I still don’t believe they would.
I also find it hard to believe that the entire global economy is a week or two away from total collapse—-I believe that it will go in fits and starts (as it is doing now).
As far as money having some kind of base, it has had a (current)base since 1973, when Nixon made the Devil’s Deal with the Saudis. Historically, energy has determined economic development. Those Who Would Rule Us will go back to a more ancient model of energy production to do Work—human labor. In their hubris, they believe that they have seven billion of us to use up like spent bullets, and we’ve seen it happening already (hat tip to Boer Tom). The devaluation of labor costs worldwide means that all that fake paper liquidity will go farther, as long as control is top down. And a large portion of the populace (in the U.S.) is quite prepared to watch the rest of the world be destroyed for the sake of a goddamn “job”, no matter how demeaning it is. When a dollar a day, a barracks bunk, and a bowl of gruel start looking good to white people who used to own a house, car and an HD TV, then you’ll see jobs come roaring back to the U.S. This is disregarding the considerable white underclass already in existence chronicled by Joe Bageant.
What I got from the interview was changing how you think. Trying not to be emotional about the change that is coming, is very, very hard, rational as I try to be, since we are emotionally whipsawed every which way from ALL sides, every day; and expect this to increase exponentially as time goes on. I have ignored the email appeals from MoveOn and the other “progressive” organizations for some time now, because I believe it does nothing but fund an organizational structure that will eventually become what they fight against (like the State of Israel).
Orlov must have some interesting mental processes going on, to be able to separate his job completely from what we have seen with Reinventing Collapse & Club Orlov. Can’t do it myself, not in that large of a fashion. You would think he’d have been outed by now. Or maybe engineers are more tolerant than we like to think.
28 September 2012, 12:04 pmMichael Anderson:
A call for Jubilee…
http://therealnews.com/t2/index.php?option=com_content&task=view&id=767&Itemid=74&jumival=8875
30 September 2012, 11:12 amHenry:
Founding Finance: How Debt, Speculation, Foreclosures, Protests, and Crackdowns Made Us a Nation
http://www.amazon.com/Founding-Finance-Speculation-Foreclosures-Crackdowns/dp/0292743610/ref=la_B001IR3IHG_1_1?ie=UTF8&qid=1349044665&sr=1-1
1 October 2012, 4:15 pmMichael Anderson:
http://therealnews.com/t2/index.php?option=com_content&task=view&id=33&Itemid=74&jumival=956
The Making of “Untold History of the United States”
Interesting history, and very relevant to what IS today. Peter Kuznick leaves out some telling inquiries, but Paul Jay’s questions & commentary are good.
11 January 2013, 2:21 pmMichael Anderson:
One of the things I found in one of the video segments was (Senator) Truman in 1940 publicly advocating letting the Russians and the Germans kill each other off, and to aid and abet the process. Sounds familiar….Iran and Iraq? The Arab Spring? Syria?
11 January 2013, 2:25 pmHenry:
Oligarchy Exists Inside Our Democracy
By Ed Walker, who writes regularly for Firedoglake as masaccio
Suddenly it looks like we are seeing political victories for progressives, on LGBT rights, on issues important to Hispanics, even occasionally on issues important to women. At the same time, we lose every single battle over economic issues. How is it that when polls show that a huge majority oppose cuts to Social Security, Democratic politicians like President Obama and Senate Majority Leader Dick Durbin are all for it, as are the Republicans? How is it that when Obama gets elected on a pledge to hike taxes on incomes above $250K, with a huge majority and control of the Senate, and a legislative situation where all he has to do is nothing and it happens, and then it doesn’t? How is it that the same bill continued a bunch of disgusting loopholes for the richest Americans and the corporations they control, like the NASCAR loophole that essentially only benefits one enormously wealthy family? How is it that within days of hearings showing the incompetence of JPMorgan’s derivatives traders the House Agriculture Committee cleared legislation to inflict derivative losses on the FDIC?
Read more at http://www.nakedcapitalism.com/2013/03/oligarchy-exists-inside-our-democracy.html#Jdrs6YqiICxY3LrD.99
28 March 2013, 2:15 pm