“The true scale of the national debt is £2 trillion - more than twice the official figure, an alarming study shows.
The black hole in the public accounts equates to £78,000 for every household in the country.” Read in This Is Money (hat tip Mike Shedlock).
Here we see the standard and totally unsurprising equation of money and earnings with wealth, and consequently of debt with not-wealth. Nowhere is the nature of money creation discussed, nor is it even implicity suggested that wealth and money are not in fact joined at the hip, that the “black hole” in public accounts is a mere notion, a totalled number of other numbers we have counted over time to track things like pay and costs. Everywhere we look, money is value, money is wealth. This silly story we tell ourselves is deeply and dangerously wrong. There is indeed profligacy and useless State and Market waste across the world, but this too is part of the deeper problem of the flawed money-story this post briefly discusses.
The tight and inflexible cultural association of money with wealth is doing unknowable amounts of harm to society and the wider world. It veritably forces us to pursue those endeavours and enterprises which earn money, at the cost of pursuing those which lose money. After all, money makes the world go around, right? If you’ve got enough money, you can do anything, anything at all. Only your imagination limits you. But what exactly are ‘earning’ and ‘losing’ money, and why is the former good and the latter bad?
First a brief reminder of what I believe money is. It is a symbolic tool for distributing scarce goods and services (including land and labour) throughout a forever insatiable planetary population. It is furthermore an enabler of complex economic activity (as opposed to barter which only enables simple economic activity). It is NOT a store of value. A medium of exchange cannot store value. That’s what makes it a medium. Just like language does not contain reality but strives to represent it, so money does not contain value but strives to represent it. So, money is an abstraction of value, or wealth, for distributing scarce stuff, via price information, to and from people.
Earning money is the short or long term accrual of this representation of wealth to some part of the economy, be it an institution, a corporation, a person, or whatever. Losing money is the opposite. That this equates to good and bad in modern society (post-farming) is a function of the utility value of money. While society is capable of producing surpluses for sale, money is very handy to have. And since we have specialized labour to the extreme point of total dependency on surpluses being produced by others (typically machinery), we badly need money to survive. This societal progression deeper into the money story explains, in part, how we have come to equate money with wealth. Without it we are in deep doodoo.
But – and this is an extremely important ‘but’ – you can neither eat nor drink money; you can only spend it or save it. Of course this is a tired cliché, but that does not make it less true. As time goes on we are destroying the ecosystems and burning through the fossil fuels that make surplus possible. See ecosystems as the organisms keeping our social bodies alive, see fossil fuels as inherited savings from Mummy Earth and Daddy Sky. We are, like spoiled brats, racing through our savings to destroy our life-enabling habitat, just to perpetuate, for as long as we can, the enormous, high-paced, multi-century party we think ourselves addicted to. We call this party Perpetual Economic Growth. It is totally unsustainable, just like the tower of Babel which was supposed to reach heaven. Money (among other things) makes us do it, but money will be of no use to us whatsoever once the surpluses start running out.
That is one way in which money earnings and losses are not that important. Ecosystems and communities are important, and in a state conducive to human society.
The second is derived from a systems analysis of money’s functioning in society. Money needs to flow, to move from place to place if it is to enable trade. Money-wealth is hoarding, which is the antithesis of flow, so important to functioning economies. It follows therefore that earning and losing money are (or should be seen as) brief but necessary eddyings in the total money pool as economic activity takes place, where “brief” is the important qualifier. The more we stress ourselves culturally and politically about these poolings, the more we will tend to hoard, or stagnate economic activity. A stagnant economy is one in which wealth/debt divisions freeze in their current positions. Also problematic is the simple truth that having more and more money makes sense in this system. Being ‘rich’ is better than being ‘poor.’ (This second observation does not take growth into account, so is incomplete. It serves therefore merely to highlight the internal illogic of lauding profit and denigrating loss. Both are logically necessary qualities of flow, money-flow is vital to healthy economies.)
The third way in which profit and loss are not the sweet and bitter our incomplete money story characterises them as, relates to the different societal roles and consequences of Market and State. In an old post I describe how debt-based money becomes ‘genuine’ money in the economy via asymmetrical payback of loans. This happens in the private sector, because borrowing leads to production, buying and selling, which generates the uneven pooling I describe in the paragraph above. To my way of thinking, uneven pooling is what profit/loss is, systemically speaking, and occurs only in the private sphere. Because we have come to confuse money for wealth, this in part explains our current cultural love affair with private enterprise – it ‘earns’ money.
Modern Monetary Theory offers a model of society in which the State sector functions as provider (creator, printer) of the money the economy needs to function. To see this money-creation as somehow indebting the State is deliberately to fail to see, 1. that money is not wealth, and 2. that the State is providing a service from which economic activity can thrive. Also important is the acceptance of the necessity of non-pooling (loss making “black holes”) societal activities, such as public education, army and police, which cannot generate money profits. They do, however, generate other, more important, profits, such as a well educated (hopefully) and healthy population. To think of the State, which is society’s self-organizing element, as going into debt for maintaining (paying for) a fire brigade, a national health system, a national education system, a defense system etc., is completely to misunderstand wealth, and also the complex ways in which society stays cohesive.
I had intended to write a short blog. I failed, even without discussing taxes as government ‘earnings’. Yet even this would have been too little. All money-systems are necessarily about scarcity, and therefore encourage hoarding and fear of want by design, on a planet rich in abundance of those things we need to survive happily and healthily. If this were not true, we would not be alive (we don’t eat money), and yet this simple fact utterly eludes us at the cultural level. Planet Earth, not money, gave birth to us, is the set of systems out of which we arose and in which we are embedded. This deeper component of the money story, which most will not confront, including flawed notions of ownership, control and elitism, is the deeper root of the nonsense I quote above.