In the horserace of life, we take it for granted that Economic Growth and Technological Progress will be the winners. In fact, until very recently, this was considered so self evident that only unreformed hippies and anarchic punks, the sort of unsavory misanthropes who frequent anti-globalization or environmental rallies, ever questioned this basic premise. Tomorrow will be better than today. This is morning in America. It is the end of history.
Of course, in late 2008, history came back with a vengeance, and bit us right on the ass. The Great Recession (Depression II) was the result in part of financial chicanery and outright fraud on a massive scale. Should you wish to explore this in detail, the documentary “Inside Job” is a good place to start.
A year ago, September, the rage and frustration boiled over into the street, and we saw something we have not seen since the late sixties and early seventies, mass protest on the streets of America and the world. Occupy Wall Street exploded onto the scene and we couldn't escape the cry of “The banks got bailed out, we got sold out!”, punctuated by the cadence of the drum circle. The Anons came out from behind their proxies, the unions rallied their members, the students organized. All of this was driven by one simple fact. You could work hard and play by the rules and...it didn't matter. Forces entirely beyond your control could eliminate your job, take your house, wipe out your pension. Suddenly it seems that in the blink of an eye, everything could disappear and everyone was at risk. Well everyone that is except for the 1%.
For the first time in 5 generations, the two front runners had stumbled and Financial Chicanery had taken the lead. Oh we've been through downturns before. But with every other recession in recent memory, all it required was a few tweaks to the system, a tax cut here, a bit of deregulation there, and once again we were off to the races. This time the crisis was so great (according to Paulson and Bernanke we were 48 hours away from total collapse of the banking system when Lehman failed) that even our compassionate conservative Dubbya became a Keynesian. TARP, anyone?
With Obama's election, we doubled down on Keynes, yet the economy languished, throwing gasoline of the idiotic fire of the Tea Party, and here we sit, apparently stuck in the doldrums, keeping a weather eye out, waiting for the wind to stir. Some of us pray to the gods of laissez-faire, some to stimulus, each sure that if only that approach was wholly embraced, the sails would catch the wind and growth would return.
Sucks, don't it?
Most Americans don't reflect long, or even often, on what makes our monetary system tick or what happened to us. Before we can really dig into this, we have to answer a basic question. What the hell is money?
In order to answer that question you have to jump into the Tardis and fly back to a time where there was no money. We are told that money emerged because barter was inefficient and well, that seems not to be entirely true. Before the advent of agriculture, before civilization, deep in the paleolithic, we existed in small familial groups, bands, and tribes. Rarely did the size of these bands of human beings exceed 250 people. The archaeologists and anthropologists think 50-100 would have been a much more common number. As well the bands had a much flatter hierarchy. There may have been a chief or a “Big Man” but he was easily accessible to all members of the group. Just try and speak to the governor, or chair of the county board, or the mayor. First you will have to navigate a robotic phone tree, then run the gauntlet of receptionists and minor functionaries, and if your very, very lucky, you might get ten minutes at a “meet the mayor” event. Your best bet is to write a letter, send an email, or post a comment to their Facebook page, which of course will be reviewed by a volunteer or low level staffer, and you will receive a form letter for a reply.
Dear William,
Thank you for your interest in the matter of widgets. I believe the widget industry is a
vital source of jobs and growth for our community. I appreciate your opinion on the
issue and I value feedback for all my constituents. I encourage you to remain engaged in
the political process.
Best Wishes,
Pre-printed Signature
But at the level of the Paleolithic hunter-gatherer, the Chief was someone you knew personally, could be related to, have shed blood with. Talking with leadership was as simple as walking to the next shelter over. The reason these bands we so small, relates in part to the circle of trust, the maximum number of individuals we have a connection to in a social setting. The maximum amount we can handle is about 230-250 and is referred to as Dunbar's number. Beyond that, we tend to if not distrust people, at least relate to them at arm's length. Think of the difference between your good friend and the red-smocked clerk wandering the cavernous aisles of the big-box hardware store.
As well, hunter-gatherers often use a consensus approach to making decisions. After all, it would not bode well for the “Big Man” to alienate a significant portion of the group, as they all depend on each other for their very survival.
At any rate, these hunter-gatherers operated without money. They had a gift-economy. Barter, if it was used was between different groups or tribes, people outside their circle of trust. Why worry about trade, when I can give this very fine atlatl I carved to my cousin. My status as a generous and skilled guy is boosted. And when my cousin takes down a plump goose with a dart, he is likely to give me a share of the meat. His status as a generous and skilled hunter is boosted and we both benefit.
And then something weird happens. The Younger Dryas period strikes, resulting in climatic change. The forested areas of the middle east dry out, cool off, and become grassland, and clever humans figure out over hundreds and thousands of years how to domesticate and grow cereal grains, and Voila! Agriculture is born. Then resulting food surpluses lead to larger settlements (cities), division of labor, and trade. It is in this context that we first see money. It is an emergent phenomenon to facilitate trade between and within cities, amongst many thousands of people, a number far beyond our circle of trust. The Sumerians may have initially used shekels, a fixed quantity of barley. Later we see the development of copper, bronze, silver, and gold coinage. And lest you think those people in the Fertile Crescent were unsophisticated, the Sumerians had tablets (cylinder seals) on which they recorded transactions with complex calculations of compound interest. The importance of this cannot be overstated, for money is in fact debt.
So what is money? “Money is a matter of functions four, a medium, a measure, a standard, a store.”
It is a medium of exchange (I can buy a gallon of gas for four dollar bills). It is a unit of account. (my car is blue booked at $5000). It is a standard of deferred payment. (this note is legal tender, for all debts public and private) It is a store of value. (I have $500,000 in my retirement fund, nah...I'm lying on that one.)
I read that modern economics teaches that the third function (standard of deferred payment) is subsumed within the other three. This doesn't surprise me one bit. Good ole' Adam Smith said an economy has three main components, capital, labor, and land. But land has been subsumed by the other two. The neo-liberals however don't want you to think of land as a separate and distinct piece, they assume is is part and parcel of capital, It is this subversion which allows us to see a forest as a sea of dollar bills, as a resource to be exploited and owned and as something limitless and substitutable, as a commodity. Likewise, they don't want us to see money as debt, it opens up a whole can of worms. By the way, I am not convinced that this is necessarily the result of a grand conspiracy. Rather I suspect it is yet another emergent phenomenon birthed of very human failings, such as greed and a lack of long-term thinking. But in my opinion it does expose a certain weakness within the dismal science.
So what happened when the Sumerian landowner had a bad season or two, and defaulted on his loans? Well he became a debt slave. Literally a slave, as were his children and grandchildren. With time, such a large percentage of the populace would become locked into peonage that it destabilized the society. The debt had reached such a level that it could never be repaid. The peasantry began to agitate for land reform and other such heretical ideas. They risked a slave uprising, a rebellion. However, these societies had a safety valve. When a new king was crowned, he would declare Jubilee and wipe the slate clean.
With the development of precious metal coinage, a specie standard became the typical monetary operating system for the civilized world throughout most of recorded history. There were occasional breaks such as tally sticks in England or Continentals in Colonial America, but these were by far the exception, not the rule. Economic growth was very slow and stable. We were still living within a solar budget.
Then two things happened. Columbus discovered the new world and a few hundred years after that, Drake discovered oil. Suddenly we had vast resources and the means to quickly convert them into products and services via machines fired by fossil fuels. Yet the currency could only expand as fast as new gold and silver could be discovered, mined and minted. The fledgling US fared pretty well, as we operated on a bi-metallic standard. Andrew Jackson dismantled the Second Bank of the United States, and silver was plentiful. Greenbacks and “Free Silver” allowed the currency to expand as the US grew. However, in 1873, the Congress bowed to powerful banking interests, and put the US on a hard gold standard. When the virus of a financial crisis took root in Europe, it spread to American and found fertile soil. With the Crime of 1873, currency was removed from circulation (deflation) , there was a huge railroad bubble, and our economy could produce far more goods and services than the public could buy. Enter the Long Depression, which didn't truly end until J.P. Morgan personally bailed out the Federal Government in 1895. Then in 1907 there is another financial crisis and JP Morgan has to bail out the US banking system. This leads to what I view as the Crime of 1913, when Congress cedes its constitutional power to coin money to a private banking cartel we call the Federal Reserve. This was supposed to fix the problem of financial crisis, but in 1929 a giant speculative stock bubble pops and we enter the Great Depression.
One of the things FDR's New Deal did was to take us off a hard gold specie standard, and put us on an exchange standard. All gold currency and bullion was confiscated by the Federal government and sequestered in Fort Knox. It took the massive injection of deficit spending that accompanied WWII and the US transition to the armory of the world to break the cycle of deflation and finally kick-start economic growth. But the worldwide gold exchange standard, formalized by the Bretton-Woods agreement couldn't hold. In 1970, Nixon unilaterally closed the gold window and we entered the realm of fiat currency. Now there was no brake on the uncontrolled growth of debt and the economy. In fact, the economy became dependent on the growth of debt.
Here is the funny thing about the Federal Reserve, as currently structured. If they increase the money supply (printing money) , the Fed loans the money into existence by funneling it to private banks. The banks then loan that money into the economy, at interest. To make matters even worse, the banks are allowed to run a Ponzi scheme through fractional reserve banking. They are only required to have 10% in reserve when they make a loan. So when a bank loans you $100,000.00 for a house, they have created $90,000.00 out of thin air. Each year the debt (public and private) must increase or there is not enough currency flowing through the system to pay off the interest on the previously existing debt.
Another odd thing happened in the seventies. Wages began to stagnate as globalization took hold. Adjusted for inflation, wages remained flat through the early 2000's. Since the Great Recession took hold, wages have declined. Yet 70% of our economy is dependent on consumer spending. So what to do? The once great middle class deployed a number of coping mechanisms. Firstly, women entered the work force. While the women's lib movement may have plowed the soil, I believe it was simple economic need at the family level that led to most American women entering the work force. Then people began to work more hours. When that option was exhausted, they took out credit cards. The national savings rate plummeted. Finally, in a last gasp, people en masse began to use the equity in their houses to prop up consumer spending. And in '08 it all came crashing down.
David Harvey states that crises of capitalism are never solved, they are just moved around geographically. What began as a banking and financial crises has morphed into a debt and growth crises. And the solution being offered up? Austerity. With each spending cut, or government layoff, or sequestration, overall revenue falls, the debt increases, the interest rises, necessitating more cutbacks. Austerity has become a positive feedback loop, driving us deeper into the hole. And all those bailouts, all they did was to prop up the broken banks. They are still sitting on trillions of dollars in bad loans and derivatives. Each new addition of QE is supposed to spur the banks to lend. But with only 1-2% growth and a mountain of defaults they cannot. They are effectively insolvent.
I saw a bumper sticker once about fifteen years ago on a truck in Casper, WY. It said “Lord, give me just one more oil boom, I promise I won't piss it away.” This is the jist of our current economic plans. Please just give us one more bubble of growth, we promise, we won't piss it away.
I would also say that money is subject to a funneling effect, a concentration. Our capitalist system tends by its very nature to wants to consolidate wealth at the top of the pyramid. And just who sits at the top of the pyramid? The financiers. They seem to have a glorious vision is which exponential growth continues ad infinitum and eventually we reach the shores of a utopian paradise where all are rich. Of course they will be deserving of behemoth sized bonuses in return for their innovation. Sadly this flies in the face of the laws of physics and the simple arithmetic of the exponential function. Economic growth and our financial system are unsustainable. As Paul Gilding puts it “When things are unsustainable, they stop.”
Lest I be accused of offering no “solutions”, here are a couple of things that might be done. First of all, implement a Global Debt Jubilee. Wipe the slates clean. If this idea is dismissed as being a remnant of godless communism by uber-conservative pseudo-Christians, just cite Leviticus. Secondly, initiate monetary and currency reform. Dismantle the Federal Reserve and institute a debt-free currency as a public good. Perhaps a bi-metallic standard is an option. Perhaps a fiat currency is better, but the key is that they be debt-free and that they are controlled by the people.
Of course the chances of any of the above happening is about nil. Therefore it may be an awfully good idea for communities to begin experimenting with local alternatives. BerkShares, bit coins, and LETS programs are all examples that could be tried. Heck, Utah made gold and silver legal tender, and they are not exactly a bastion of progressive experimentation. Perhaps people could responsibly stock up on some junk silver coins, and gold Eagles (budget permitting) as a personal currency of last resort. The idea is that communities that have access to a alternative currency will be far more resilient when the next crash comes. And come it will.
In a way, we may be far luckier if it is the financial horse that crosses the line first. After all at it's heart, money is nothing more than a social agreement, and those can be renegotiated. If it is oil or God forbid climate that pulls the trigger on collapse, we will be in far, far worse shape.
