Sunday, December 5, 2010

Austrian Economist says Money is Obsolete

The sharp-eyed will already have noticed I changed my tag line yesterday. My daughter's discovery of a free magazine in a 'green' store in Berlin has lent me the strength to be bold.

On this blog I've questioned economics' domain assumptions to the best of my ability, written oodles about them and the discipline's controlled refusal to deal with its base assumptions scientifically and openly. I have concluded it is so deeply flawed, so irretrievably rotten, the only way forward is to redefine the way humanity operates on planet earth as a species capable of civilization. Furthermore, Charles Eisenstein has convinced me with his writings that the depth we must go to in order to properly clean out our Augean stables is right to the notion of ourselves as separate beings isolated among 'other' separate and beings. The 'I'm alright Jack,' or 'me against you' core of our entire philosophical inheritance is wrong, not because it never made any sense – it did – but because we are writing a new story. Defining the way forward is our task now, as the old way rapidly collapses. The revolution is now, and is not being televised. It is, however, turning up here and there, and gathering momentum.

So, what is this magazine? It's called “Sein” (“To Be” or “Be”), and December's issue (no. 184) is called “Eine Zukunft ohne Geld?” (“A future without money?”) There are many articles for me to read, but I wanted to share with you (via my translation) the one that excites me the most. So, without further ado:


“Crash as liberation – life after money


The renowned Viennese professor of economics Franz Hoermann criticizes the economic sciences as political propaganda, says the current system has failed and expects a fundamental system change. The professor of the University of Economics of Vienna is respected by his peers, and a member of, among other institutions, “The Testing Committee of Accountants” [not sure about this translation – “Pruefungsausschuss fuer Wirtsschaftspruefer”]. Nevertheless, he has dared, in an interview with The Standard, to call our current financial and economic system obsolete, the economic sciences unscientific and “political propaganda” and banking a con game. Last but not least, Hoermann believes the final system crash is right around the corner, perhaps as early as next year.

Florian Roetzer interviewed the lateral thinker for Telepolis, and the interview appears here in a shortened form with friendly permission of the author.


Florian Roetzer: You say the current financial crisis is different from its predecessors.

Franz Hoermann: What we currently observe developing in the global economic system represents no single, unpredictable catastrophe which can be overcome in some foreseeable time frame, after which the old rules of the so-called free market system would work again. It is far more the case that the multi-millennia old monetary control of individual humans and whole societies can no longer be kept upright. I believe we are in the midst of the final systemic crisis, not merely weathering some temporary storm with standard political and financial skills. We therefore desperately need other base assumptions for a global, sustainable society.

The economic sciences don't offer these base assumptions, they would in fact be a “Great Scam” and an instrument of power of our Overlords?

Franz Hoermann: Sadly, the economic sciences have often been exposed as mathematically faulty, and therefore as unscientific and a pure propaganda tool of the financial elite, by, among others, Nobel Prize winner George Stigler 50 years ago (by the way, the details on this can be read in “Debunking Economics: the naked emperor of the social sciences” by Steve Keen). All these competent rebuttals were simply suppressed or ignored. Their logical consequences were never followed through, because such would have meant the end of an entire, and very politically powerful, profession.

What could replace the present system?

Franz Hoermann: The Internet, and the innovative transaction models enabled by it, are inexorably displacing the traditional money system. In our society money is becoming, increasingly quickly, obsolete – goods and services could be distributed in totally new and innovative ways, in which possession of a standardized medium of exchange would no longer be necessary. The possibility of (almost) instantaneous contact with (almost) any person through modern communication technologies, combined with the emerging spirit of cooperation rather than competition, further combined with continuously improving production technologies targeted to environmental health, can raise human society, sustainably, to their next developmental stage: peaceful coexistence on the basis of spiritual rather than materialistic evolutionary models.

The money masters are not going to be pleased with that.

Franz Hoermann: Of course. Since societal power in free markets traditionally lies, first and foremost, with the money masters, the financial elites try desperately to sustain the appearance of the necessity of money's continued existence – in the most extreme case even by reference to the ongoing global crisis, the very crisis so visibly raising questions about money worldwide. But since money is really only about the rules of distribution of goods and services in a society, and since these rules are made far simpler and more flexible through modern technologies such as internet-based databases, as opposed to the use of metal coins feigning intrinsic value, even this threatening scenario will not deeply unsettle ever wiser communities. Flowing on from simple changes in decision making structures, these communities will reorganize their provisioning of goods and services in the most efficient, fair and flexible manner possible.

That sounds like a soft transition and is very optimistic. How might such a smooth transition look, which preconditions would have to fulfilled.

Franz Hoermann: The most important precondition for this is first an honest and taboo-free information exchange between the financial elite and the wider public. On the one hand, the fear of loss on the part of society's pyramidal tip must be understood and soothed, and on the other hand we must try to prevent the broader public from suddenly seeing the elites as con artists and liars, then erupting into violence.

It's absolutely true that many members of the (political and financial) elites could not have foreseen the so called crisis, because their very education blinded them to it, an education which has for many decades now guaranteed that these people could not recognize the absurd basis of our economic system (money is only created as unbacked debt, 'out of thin air', which must then earn the banks profit through interest, interest which is not present in the money supply).

Is it not far more likely that a “final collapse” of the ruling system would lead to chaos, violence and the collapse of most production infrastructure, and worst of all the Internet?

Franz Hoermann: That depends on how the majority experience this collapse. Will the majority experience it negatively, as a collapse, or can the crisis initiate the freer development of creativity, individuality, and spirituality? If we can show ordinary people that cooperation yields better results than competition, as well as give them more freedom to decide for themselves (e.g. time management, how we do what we do, shaping of the social and technical environment etc.), then we really can see the opportunity in this crisis, and complete the long overdue transformation of western society.

You expect the ultimate crash next year, what will happen?

Franz Hoermann: When the US-Dollar can no longer fulfill its function (the Euro too by the way), the US will break down into individual states, as did the Soviet Union. They will then try again to introduce local currencies. Should you search the Internet for long enough, you will discover that the Deutsche Bundesbank allegedly has provisions for printing a new D-Mark, which some representatives from politics and economics have already openly called for. Whether a return to the old system (state-level currencies still created as debt by private banks) would be better (which we had before the introduction of the Euro), or if we'd just be going in circles, each can decide for himself.

As we've seen, a real systemic collapse would require the insolvency of the big banks. But can't this insolvency be continually prevented by governments and central banks?

Franz Hoermann: That's not entirely correct. There are two conditions, which, when they strike at once, can and will initiate systemic collapse. First, the states' or currency zones' money supplies must visibly come only from central banks, through the buying of bonds, the so called monetization of debt. The FED has been practicing this actually for a long time now, totally unabashed, and behind the scenes the ECB is already embarked on the same course.

This shakes the faith in the affected currencies so deeply and finally, that it can only be restored (if at all) through a consequent currency reform. The second condition lies in the inability of the indebted nations to make any more interest payments. This situation will arrive, viewed mathematically, in 2011, in the large indebted nations. When no more interest can be earned, and the central banks keep on printing money for government bonds, then the entire world will recognize those bonds as worthless, and simultaneously also money itself – this is precisely the situation central banks have wanted to avoid for decades, but they have nevertheless got themselves exactly there!"


That's my translation, word for word as it seems best to me.

Another thing I want quickly to mention from the magazine is 'Give and Take Centers' ("Gib und Nimm Zentrale"), shops where you go in and take what you want for free. You also deposit there what you no longer need. There are 3 of them in Berlin, and 50 in Germany. I had no idea, but think it is a wonderful idea, and embodies the nature of the gift as a flow from person to person, place to place.

I shall be writing more on this in due course.

16 comments:

MwaH said...

Hi Toby!

It's great to see that you've come to the same conclusion - that "the system" is so deeply flawed, so irretrievably rotten, the only way forward is to redefine the way humanity operates on planet earth as a species capable of civilization.

You remember my comment over at Naked Capitalism some time ago?
An essential part of the money problem is that money not only acts as a direct reward mechanism, but as a (psychological) self-enhancement mechanism as well: up in the high ranks of corporate leadership (or billionaire country, for that matter), money has long lost its direct exchange-value and rather functions as a kind of score, allowing for a direct comparison between the “players” and their peers.

The game they’re playing is the one everyone plays, the game of raising one’s self-worth, quelling one’s anxiety in the face of life and one’s own mortality and aggrandizing one’s self-esteem. Pity is they’re using the source stuff itself for that purpose, removing it from its original role as a mere medium of exchange, and turning it into something they never can have enough of. Because let’s face it: There are only so many cars, mansions, and yachts you can reasonably buy and use, only so many suits you can wear, and only so many banquets you can feast on. After all, “enough is as good as a feast”, as the saying goes. Unfortunately, taking into account money’s changed role as a signifier of score, they never can have enough, as the score never gets settled and the “game” goes on and on. So they continue to rob and rip off and will always do so, until they or we find a different way to quiet their existential
Angst.

Of course, we could also just throw the thugs in jail. But whoever moves up the ranks to replace them probably won’t be any better. And we might be able to instigate a new set of rules, like the one Sam Pizzigati (www.greedandgood.org) advocates, or any different one – but still, until we get a change in consciousness and in handling the basics of our human existence, the temptation to highjack any reward system for our personal needs of (a false) security and self-aggrandizement will always be there.

Back then, I didn't kow of Eisenstein yet, so no reference to him. But I'm curious where his thoughts will further take him...

I've been busy questioning a lot of things for the last few years. It's a daring thing to do, for the more questions you ask, the less you really know and can still take for certain. But you begin to realize what's wrong, and that the narrative you're told (and been telling yourself up to that point) is in fact a big, iredescent lie. We and a lot of oter people find ourselves at this very point right now. I still don't know exactly where this whole thing (or I as a person or we as humanity, for that matter) is going to go, but I'm really excited to find out. Together.

Keep your deep thoughts coming,
best regards.

MwaH said...

By the way: the (in my opinion) most interesting and fruitful interview with Franz Hoermann can be found here, at the webpage of the Austrian newspaper "Der Standard".

Toby said...

Hi Frank,

that's a great comment, but I don't remember reading it before (though my memory is very poor!). And thanks for the link to the Hoermann interview. This is a great quote:

"Der Staat verschuldet sich bei den Banken, um die Zinsen der Schulden, die er bei den Banken hat, zu begleichen oder um die Banken zu retten, bei denen er selber Schulden hat. Da versteht ja keiner mehr, wer eigentlich bei wem Schulden hat und was Schulden eigentlich sind."

"The state borrows money from the bank to pay the interest on [earlier] debts it has at that bank, to balance or rescue the bank at which it has it debts. Here no one can understand who is indebted to whom and what debt really is."

That is wonderful. The absurd circularity of the system exposed in one convoluted sentence. I hope this explanation of the current monetary system finds its way to as many ears as possible. I shall learn it off by heart!

I've been of the opinion that deep deep deep revolution is needed for some time. The process of formulating it, grounding it in a feasible and logical story takes time though, and many discussions. Nothing will be left untouched by this revolution. The way the world can look seems as utopia, viewed from the decadence we are now drowning in. If we get our act together we can do wonderful things on this beautiful planet. If we can get our act together.

Toby said...

A gem from the unabridged interview (translation below):

"Wenn dieses System verbesserungsfähig wäre, dann wäre dies innerhalb der letzten 80 Jahre schon längst geschehen. Ein zentrales Problem sehen wir ja schon an der absurden Kapitalmarkttheorie selbst.
Angeblich besitzen am "vollkommenen Kapitalmarkt" alle Marktteilnehmer die gleichen Informationen und Zukunftserwartungen. Wäre so etwas in der Realität wirklich möglich, dann besäßen auch alle Güter auf diesem Markt für alle exakt den gleichen Wert bzw. Preis. Das würde aber bedeuten, dass überhaupt keine Transaktionen mehr stattfänden, da keine Gewinne mehr möglich sind, denn bei gleichem Informationsstand und gleicher Zukunftserwartung stimmen Preis und Wert für alle Marktteilnehmer überein, sie können weder durch Kauf noch durch Verkauf Gewinne erzielen, sondern verlieren nur noch die Transaktionskosten."

[My translation:]
"Were this system improvable, such would already have happened over the last 80 years. Instead we see a core problem in the absurdity of capital market theory.

In this theory all participants in a free market possess the same information and future expectations. Were this actually to happen in real life, all participants would value all goods in this market in the same way, that is, assign the same price. But that would mean no transactions whatsoever would take place since no profits would be possible. With identical information and future expectations price and value are judged identically by all market participants. In those conditions, neither through buying nor selling can anyone make a profit, rather there are only losses due to transaction costs."

Professor Hoermann goes on to argue that the Internet is causing such freedom of information to happen, is birthing for the first time in history the very conditions capital market theory assumes as the foundation of economic activity. But, this has a negative impact on the ability of buyers and sellers to make a profit! Efficiency, as Peter Joseph points out, is the enemy of profit.

As the faux dream of libertarians and free marketeers comes 'true,' so the flaw in the theory is exposed, and so the elite's grip on the system is loosened.

Interesting times, dripping with dramatic irony. Shakespeare would have been proud.

MwaH said...

I have some problems with the comment system - my comments seem too long and do not get published. I'll try a two-parts-approach:

(Part 1)

"If we can get our act together" - I completely agree with that one. When looking on the systemic crises (plural intended), it is very easy to comprehend their nature as a purely "mechanical" thing, i.e. something that can be fixed from the outside, via the implementation of some amendments or "bug fixes", like a demurrage to the money system, for example. All those "outer" approaches are very important and indispensable; yet they are not the full story, and will, on their own, not yield the desired results. For equally important to an outer change is an inner change that we as humans must undergo in order to really and profoundly change the way we live on and interact with ourselves, nature, and planet earth.

Thus, there are two journeys we will have to venture out on - one in the outer realm of systems and human relations, and one in the inner realm of our fears, desires and belief systems. "Das Sein Bestimmt das Bewusstsein", as Marx put it, "the way of being (or living) determines consciousness (or the way of thinking)", and vice versa. Working on only one will most probably result in failure, as it already has on so many occasions in humanity's past. (Just think of all those revolutions, good-intended attempts on changing the status quo, that almost all, inevitably, led to the erection of systems as suppressive and exploitative as the ones they were supposed to replace - because man stayed the same, and the same kind of men as the ones ousted from power took over the helm...)

MwaH said...

I still seem to have problems posting to your blog. Anything held up in your comments filter?

Kind wishes.

Toby said...

"good-intended attempts on changing the status quo, that almost all, inevitably, led to the erection of systems as suppressive and exploitative as the ones they were supposed to replace - because man stayed the same, and the same kind of men as the ones ousted from power took over the helm...)"

This dynamic is on my mind a lot. It is the truism that the road to hell is paved with good intentions, and it lies too behind Smith's original impulse to posit the invisible hand. Repeated failures of do-gooders down the millennia lead 'wise' conservative types (with a small "c") to say, "Whatever you do, don't meddle!" I sympathize with that cautionary hesitancy.

However, life is not circular on one track, stuck on one single lane turning round and round repeating into infinity. It progresses, spirals. Once there were no humans, once there was no life on planet earth, once there was no earth, and so on. The earth orbits the sun, yes, but the sun is orbiting the center of the Milky Way galaxy we are a part of, as it orbits other galaxies, and so on. We are always somewhere new, we have never been in the same place twice. Change is the only constant.

For me the Internet is the wild card. It gives us a deep chance to learn from history collectively, being about, at its core, egalitarianism. And, because I believe that consciousness (without being able to say exactly what that is) is the ground of all being, or that matter is what we see of spirit, because I likewise believe Universe, or 'All That Is,' is One made Many, or Many as One, I also believe that humanity's role is, as is everything else's, bound up in this blind experiment of ever-increasing and unfolding wisdom or knowledge about wisdom and knowledge, creativity, and everything else.

But yes, I wholeheartedly agree that the inner component of this is as important as what we think of as structural change to the system. However, being an 'Everything is One' kindofa guy, I also believe the systemic changes required can only come about if we change our outlook, desires, ambitions, set of goals, etc. Otherwise, we'll squander this exciting opportunity and slip off evolution's ladder to join the other 'has beens.'

(cont.)

Toby said...

I apologize for failing to notice that you are Frank Powers; I didn't connect MwaH + Frank with our old exchange... We had a short email exchange a while back, tried to hook up but didn't manage it somehow. Perhaps we should try again? I have a holiday from the 16th Dec till the 27th, incl.

I'm not sure what's wrong with blogger, I often get "Request too large" error messages myself. Another Internet friend of mine with an Open ID cannot post here, though I've set that to be permitted. The software is not perfect. I shall take another look to see if I can identify any problem, but hold little hope.

MwaH said...

Thanks for caring. I'll give it another try with Parte Deux:

Charles Eisenstein, as far as I know, is very aware of this quandary; so were a number of other prominent thinkers like Erich Fromm, Tich Nath Han, hell, even Gandhi could be adde to this list, not to mention the Buddha or Jesus. As long as man holds on to his dysfunctional, illusionary understanding of himself, we will most likely only be able to reproduce the same unjustices over and over again. At the same time, some things on the outside have to be changed nevertheless, to inspire and support such an inner change in taking place. God knwos, we really do live in interesting times.

For a brief overview of the psychological condition of modern man, I warmly recommend Erich Fromm's "Haben oder Sein" ("To Have or To Be"), a timeless, seminal exploration into our habits of thought, our fears and believe systems. And, finally, the original comments on naked capitalism (the ones I referred to earlier) are here.

Let's see if this works...

Toby said...

I went to the NC post via a google search, read it, then remembered the whole story. It's been a bad year, had a lot on my plate, my mood up and down like the Assyrian Empire, father of two school kids, full time job, injuries, hospital stay, car stolen, on and on. 2010 will soon be over. 2011 will be of course be excellent. (Ha. Ha. Ha.)

I found your 'disappeared' posts; they were interpreted as junk mail by blogger. I have no idea why. I can re-post them if you wish, indeed was about to make that very offer then saw your latest comment, so now there's no point I guess? I'm happy to re-post them should you want it, it would just be a couple of mouse-clicks.

Meanwhile, I've been reading some of your stuff, and find it very interesting. I find your writing elegant and evocative, crisp, yet juicy, if you follow me. And from the content, it seems we have plenty in common, certainly philosophically...

MwaH said...

@Tobi

I've got far too many nicks, been around the internet for too long already... ;) Personally, I prefer the Frank Powers-persona, as it carries the same initials as my RL-identity, but Blogger aka Google has its own mind about identity-management - and so, when posting on Blogger, I am "the Man with a Horn", a different role from my days as a student and (more important) musician way back.
So yes, you're right: the internet is one hell of a wildcard, in any respect. :)

However, life is not circular on one track, stuck on one single lane turning round and round repeating into infinity. It progresses, spirals.
(...)
For me the Internet is the wild card. It gives us a deep chance to learn from history collectively, being about, at its core, egalitarianism. And, because I believe that consciousness (without being able to say exactly what that is) is the ground of all being, or that matter is what we see of spirit, because I likewise believe Universe, or 'All That Is,' is One made Many, or Many as One, I also believe that humanity's role is, as is everything else's, bound up in this blind experiment of ever-increasing and unfolding wisdom or knowledge about wisdom and knowledge, creativity, and everything else.


After thinking about these sentences for quite some time, I think you are right, in particular about the role of humanity. I'd like to point out something related: In our current narrative, we perceive of ourselves as Agents of our fate (with a capital A), both as individuals and as humanity. We define our future, we will either save it or destroy it, our actions alone are the ones of significance. Perhaps we might be required to take a big step back, show some humility and let some sort of continued evolution run its course... That's not to say that individual action was not necessary; indeed I think it will be essential for heralding a new and better age (for what could be worse than what we've already been through, as humanity?). But actions alone might not suffice, and the heralds of change should acknowledge that and, at the same time, stop to fear the worst, a fear that already is in all their hearts, and just do their best, despite of the chances - for it might be that other forces are on their side, our side, as well...
a faint hope, I admit - but often it is the best sort of hope I can muster, and I thought I found it reflected in your comment as well.

As for "the lost comments": I think they're already covered within the ones that managed to get through - if you should notice some unique insights (I do not think so), be welcome to re-post them; if not, just let them rest in peace.

And yes, we already wanted to hook up once. Perhaps it wasn't the right time then. We shall try again! Next week (or the week after) sounds good. :)

Toby said...

"Perhaps we might be required to take a big step back, show some humility and let some sort of continued evolution run its course... That's not to say that individual action was not necessary; indeed I think it will be essential for heralding a new and better age (for what could be worse than what we've already been through, as humanity?). But actions alone might not suffice, and the heralds of change should acknowledge that and, at the same time, stop to fear the worst, a fear that already is in all their hearts, and just do their best, despite of the chances"

I couldn't agree more. We are agents of our unknowable destiny, but as a fraction or component of the web of life which is the universe. Other processes are in the soup with us, stirring it up, so to speak, swirling us this way and that. If success were assured, there would be no risk, if there were no risk of ultimate failure, there would be no point experimenting and no genuine creativity. Tragedy and death are essential, nature's best inventions. So humility and humble hope are called for right now, absolutely.

I'll mail you with some hook-up time possibilities...

Ross said...

Thanks for this. Just a correction on the translation. Where it says:

"the US will break down into individual states, as will the Soviet Union."

I'm sure that should be the European Union, not the Soviet Union.

Toby said...

Thanks Ross! What a slip up from me! Actually, he says "Sowjetunion" but "seinerzeit" -- "in its time". So I changed "will" to "did."

Ferrsai said...

This blog is a beacon of hope for our uncertain future. The thoughts and the general mood from this blog and those who have commented are both very positive.

It is good to know that there are many others that are looking toward the future with cooperation in mind. I believe one of the most difficult challenges we have ahead of us is reversing the indoctrination of so many individuals. It seems insurmountable, yet if folks, like the OP, that possess a talent for words can spread the message in the right way I believe it can be done.

I'm just about 30 years old. I've had some discussions with my parents about these issues. They seem to agree verbally, one can tell they are still stuck in the obsolete ways.

It is an exciting time to be here on this world. Perhaps when these new ways began to actualize more people, like my parents, will be able to believe and embrace our future.

Good luck to all of you in the coming years, the future is now.

Toby said...

Thanks for the generous comment Ferrsai. And I agree, we can as a species get through the coming troubles, but time will tell if we actually do!

By the way, if you find this article interesting, you might also find Professor Hörmann's latest interview interesting:

http://thdrussell.blogspot.de/2013/05/the-root-of-our-problems-is-neither.html