Tuesday, January 12, 2010

Should money store value?

A series of powerfully written articles by Charles Eisenstein at Reality Sandwich has renewed my interest in money alternatives, in particular a money-type which by design does a poor job of storing value. This money contains a built-in “rotting speed” in the form of negative interest, or demurrage. Demurrage would mean a money that acted as a very poor store of value, as compared with, say, income-generating entities such as farms or property or corporations. Not storing money to secure against future want would speed up its movement through the economy, thereby improving employment and, hopefully, community bonds. It would help turn money into a medium of exchange pure and simple, not something to stuff under the mattress. A money suffering negative interest was conceived to reflect the fact that value decays over time, like grain and meat for example. So the theory.

At first I was attracted by the idea of demurrage, but more thinking on it has led me to doubt its potential efficacy long-term. Any money, no matter its design, is based on the presumption of insoluble scarcity. If everyone just knows scarcity is insoluble, they will hoard to protect against want. With a money that decays, all that would change would be that which is hoarded.

Hoarding is a problem for two main reasons: 1. it slows the flow of wealth through society; and 2. it gives rise to gross societal imbalances characterized by wealth-gaps, health-gaps, education-gaps and so on. These two tendencies lead to status quos which calcify into inflexible institutions bent on self-protection at virtually all costs. Because hoarding is a fear based mechanism, in the time-honoured tradition it spreads more fear, which exacerbates the hoarding impulse and sets us up for violent collapse.

If we want to address hoarding, we must change our perception of scarcity, at the cultural level, towards a perception of nature as abundant and trustworthy (if we treat the ecosystem wisely). Only thereafter can there be a transformation in where we feel value lies, namely, in a healthy, balanced ecosystem and in sustainability generally, not in accumulated material possessions. We seem to see value in those tools or processes, typically of our making, which enable accumulation and so protect us best from want. We lack faith in nature.

In conditions of scarcity – perceived, real or both – we project value into money, or, if we have lost faith in that, perhaps into gold or silver, or some other commodity that can store “value” indefinitely and be handed down to our progeny. Historically such things have tended to afford us security and, if we’re lucky, a nice life. Everybody wants a nice life. Sadly, because scarcity over-encourages competition, a nice life is currently seen as one characterized by the “victory” of material acquisition. On the other hand, building a socioeconomic system around the presumption of abundance would foster a perception of security and pleasure as necessarily arising out of a healthy ecosystem and a well functioning society. To my mind, the only way to begin such a task is by aiming to transcend all media of exchange. This turns economics upside down and inside out, I know. Nevertheless, we need to consider this analysis.

Our relationship with value is by my lights the principle problem. Because of our unhealthy and monetarily sustained perception of scarcity, we fear the wrong enemy, desire the wrong pleasure, and place our trust in the wrong processes. Scarcity lies at the root of this error, and lies too at the root of money, whether with demurrage or without, whether commodity backed or fiat, whether debt free or as debt.

In economic parlance, value arises from the interplay of supply and demand. As centimetres measure length, so monetary units could be said to measure value. In and of itself this is an elegant measuring system, but nothing operates in and of itself. Everything functions in relationships. Because supply and demand imply market activity and trade, and because, additionally, money is better than barter at enabling market activity, the measure has become confused with the thing measured, and we have lost sight of where value actually comes from. Economic activity does not generate value, it rides on value's coat-tails and measures it to boot.

Due to this false relationship, a relationship which fuses a tool for the mere enabling of trade with the function of storing value (a logical association given the circumstances), divergence between value as represented by money, and the ability of the ecosystem to sustain civilization, grows over time. As our success, fuelled by easy oil, has led to a rapidly growing human population, so economic growth has come at the expense of the health of other supporting systems. One simple function that exacerbates this tendency is that scarcity increases profit. The less freely available drinking water there is, the more money can be made from selling water. The less healthy top-soil there is, the more money can be made from increasing soil’s dependence on petrochemical fertilisers. The less healthy society is, the more money can be made from selling security against crime, and so on. We see value in money and economic growth, but not where it actually lies; in society, environment and healthy relationships.

Furthermore, as labour slowly loses power to extract a wage sufficient to drive “sustainable economic growth” (due to technological unemployment and globalisation), monetary value itself diminishes in a stealthy, non-apparent manner, which is “felt” generally by the population (globally in some measures), leading to a steep rise in the price of gold and other commodities (housing and commercial real estate included). The problem is, value is not added to the economy by rising prices, especially as ownership balloons at the top end. Rising commodity prices seem currently to be evidence of the slow economic panic of people desperately protecting their perceived wealth, which is nevertheless, and indeed because of their very efforts, being eroded. That erosion is sped up by the forces of technological change and capital concentration to the rich over time, both of which are, to a large degree, engendered by the pursuit of permanent wealth. It is a set of vicious, interwoven circles united and perpetuated by fear of want.

Can a correctly designed money stop this? I don’t think so, but it can redirect/slow the process down. Demurrage for example (see Charles Eisenstein and Bernard Lietaer) would likely make housing and land more “valuable” as money ceased to be a commodity, and might increase employment as well as investment in environmentally friendly enterprise. In the meantime, the “value” recent decades have puffed into the economy in the form of positive GDP, MBS, derivatives etc., will be vainly protected with a fierceness directly proportional to the somewhat unconscious perception that “value” is evaporating. The panic is on and growing, but will remain tectonic in speed from the point of view of a general population drunk on the ravings of the mainstream media, who think two weeks ago is old. At some point a global stampede will occur, but sadly there will be nowhere to go. There is no exit door from this one.


Anonymous said...


Toby said...
This comment has been removed by the author.