Thursday, January 20, 2011

Money Cannot Afford

There is a monetary budget and a resources budget. The latter is the more important, though the reverse of this truth is what we hear again and again, primarily because it is firmly believed money is an accurate representation of the value of resources, as well as being the best possible arbiter of how they should be distributed and deployed. In a very real sense, money is seen as wealth.

Suppose we trash the planet in pursuit of monetary wealth, and billions of us die. There are, say, 10,000 survivors huddled together in the barren rot and decay, yet they have in their immediate possession all the planet's untarnished gold and wads of dollar bills. Obviously that monetary ‘wealth’ will be of no use to them whatsoever. Seen in this simplistic way it is blindingly clear that resources represent the more important budgetary constraint. Money cannot afford, resources can.

So today, when we hear, “We can't afford it!” what is actually being said? My answer: The mechanisms or groups controlling money have determined that there is not enough money to accomplish a given objective. That there might be enough resources is not considered. Money, by virtue of its historically proven ‘excellence,’ rules.

However, I believe passionately that we are obliged to question this implied assertion, especially when we repeatedly witness across history poverty and starvation amidst abundance. So, when it is claimed there is not enough money, why isn’t there? Furthermore, under what conditions should a shortage of money be considered a problem? Simple enough questions, but answering them takes us deep into the famous rabbit hole…

The vast majority of money is today created as a debt which vanishes when repaid, though lenders keep the interest charged for further use. In theory lenders continually spend and lend their profits back into the economy, so there should never be a shortage. But as we know, theory is one thing, reality quite another. Not only is money always scarce because more is owed than exists, there are in fact times when very few new loans are being made, but banks are calling in existing debts. This imbalance leads to either a recession or depression, depending on its severity and governmental response. The amount of money being circulated then diminishes, either because there really is less in existence, or because economic uncertainty coupled with systemic addiction to growth exacerbates hoarding behaviours (see below), as people and firms struggle to weather the storm. Then we hear over and over, “We can't afford it!”

Hoarding is best thought of as a leak in the economy through which money escapes. It is not saving as conceived by the theory briefly outlined above, where savings are available to the broader economy, allowing banks to fund entrepreneurs. Hoarding takes money out of the real economy of things – usually because growth has slowed sufficiently to make normal saving unattractive – and funnels it to more exotic money-making schemes such as derivatives, commodities, currency exchanges, etc., aka The Casino. To my mind there is an inevitability to the growth of this type of ‘investment’ while society lauds financial wealth above all other types. The ‘smart’ money goes where it grows fastest, and risk is always ‘taken care of’ by some brilliant scheme or other. Hoarding of this type is therefore in the system’s make up, a system which assumes the existence of a god-like hand cleaning up our messes, as we mortals, automaton-like, maximize profit. This philosophy births vampire squids.

Silvio Gesell’s proposed ‘demurrage money’ – money with negative interest or a storage fee – is the only monetary solution I know of which systemically disincentivizes hoarding. The chances of this being implemented any time soon are vanishingly low at best, despite some quite big gun support. Hoarding therefore remains, for the foreseeable future, an inevitable consequence of money and one of the main challenges to maintaining a healthy amount of money in circulation (if such is at all possible – more later).

“We can't afford it!” means, then, there’s not enough money in the system, and so far, this ‘not enough’ is a result of hoarding, and/or the mathematics of debt-money, a money which is only available in adequate amounts during booms. (The scarcity built in to debt-money is the root of Growth as Necessity, Growth as Good.) This ‘not enough’ has not been, in living memory, a result of too few resources, though ecological disasters do happen, and wars can devastate cities, farms, etc. In the case of war, which of course has occurred in living memory, the wider planet has had enough to help struggling survivors, only the distribution mechanisms, including the money-price system, have not delivered. The nation state too – a fiction created by humans for various reasons – is a part of this problem.

Hoarding is the more complex of the mechanisms discussed (is implicit anyway in the first), though it can seem otherwise when we consider the complexities of finance behind debt-based money. Hoarding implies ownership, including ownership of resources such as land. Hoarding is a natural consequence of a property-based system, which assigns ownership via the laws of exchange and defines success as Owning More Than The Next Guy. It is a system which we think as natural as the air we breathe, a manifestation of Darwin’s survival of the fittest, and certainly one more modern than the sharing, hunter-gatherer lifestyle we left to our distant past, a lifestyle which, sadly, cannot produce ‘high culture’ and many other things we have grown addicted to.

If you have ownership, you have some kind of money. If you have some kind of money, you have ownership. The two are inseparable, and both arise out of scarcity. If we presume scarcity, we encourage, generally, the urge to secure for ourselves as much as we can, to the detriment of our competitors. If success in the sense described above – Owning More Than The Next Guy – strongly motivates us, we will fight to amass vastly more of the planet's resources than the average person has. In short, the competition set up by the presumption of scarcity (whether that presumption is accurate or not) leads inexorably to gross imbalances of distribution of the output of human ingenuity. Hence, with scarcity presumed, we systemically encourage our ‘alphas’ to work to the detriment of their less ambitious, or able, brothers and sisters.

If we presume scarcity and want civilization, we need a way of distributing scarce goods and services without resorting to violence and lawlessness too often. This is money’s principle job. If we presume scarcity, we say, in effect, “We can’t afford enough for everyone, and besides, there’s no such thing as ‘enough,’ since humans are insatiable.” Suffering is therefore built deep into the presumption. So, for as long as we believe that scarcity remains the true state of nature, that greed is one of our deepest drives, money will remain the most civilized way of sharing the spoils of human inventiveness. Without money, it seems, we would have chaos.

But we have a problem – we’ve become too ‘successful’ as a species. Our money system demands perpetual growth on a finite planet. We humans are now close to 7,000,000,000 and rising. Many billions are poor, but want to be rich. Billions are rich and will fight to stay that way. In the meantime we are by some measures consuming resources at a rate equal to 1.5 earths and show very few signs of caring enough about this problem to change direction. The haves and have-nots are on a collision course as we consume our way to resource-destitution. Soon resources will not be able to afford, indeed they cannot now afford the system they suffer under. It seems apocalyptic.

Over 99% of all species that ever lived are now extinct. Apocalypse is therefore a regular occurrence for life on earth, doom the likely outcome for every plant and critter. Is what is currently threatening homo sapiens sapiens an inescapable outcome of our genetic constitution and other natural factors we cannot influence, or is it cultural? My answer is culture (and even genetic behaviour is subject to belief).

Two questions arise from our predicament.

1. Is there actually enough to go around as people like Richard Buckminster Fuller and Jacque Fresco claim?
2. Are humans insatiable?

My answer to 1 is, it depends on how you design your distribution system and your cultural attitude to abundance, and to 2, it depends on how you define insatiable.

Now it may well be that money needs scarcity like water needs oxygen and hydrogen, I'm not sure, and I’m not even sure how we might find out. What I do feel certain of is that debt-driven consumerism is the wrong model generally, and currently about as helpful as a blind-drunk bull in a china shop scented with Eau d’Ovulating Cow (do cows ovulate?). To want to stop the debt train we have to believe it is headed for a cliff, but see too another train nearby, waiting to head off in another direction, a direction that makes enough sense to risk change. Sadly we’ve been made stupid enough, via education, advertising and other propaganda, to ride this debt-train to our doom, rather than try something tamer and safer, and potentially far more beneficial. Better the devil you know, eh?

Forced growth has to stop, that’s for certain. Hence debt-based money creation has to go; deep monetary reform is a necessity. This would mean no private enterprise could be in the money-creation business; it wouldn’t be a business. That on its own is a Very Big Deal, so big it might lock us into this train and power us over the edge. Those psychopathic enough to actually enjoy having enormous wealth and power (The Masters of the Universe) simply cannot care about human society. They'll drive the debt train to our collective doom, just for kicks, and enjoy every second.

Some monetary reformers, e.g. Michael Rowbotham, do not seek to prevent banks from creating money as debt (see “The Grip of Death”, chapter 17). However, we’re suffering Rowbotham’s proposed set up already, and have been for decades. Governments are entitled to create their own money, debt free, and indeed do; roughly 3% of the money in existence was printed debt free. However, painful experience shows that banks have both the desire and ability to swamp government, control the debate via control of the media, and create the vast majority of money in pursuit of profit; corporations are legally bound to grow constantly in an economy which is forced to grow systemically. (A question to those who think money should still be earned from money: why should we maintain that system at all?)

But, how will it be decided how much money is best if the market is not involved? That’s not an easy question to answer. I have big sympathy for the argument levelled by those opposed to monetary reform, that only market-like processes can figure out, in an ongoing way, how much money the economy ‘needs.’ The proposal to create a fourth state pillar ‘separate’ from government, assigned with the task of managing money supply, places too much power into a single institution. A sweet theory perhaps, but we ought to be suspicious; power corrupts, absolute power corrupts absolutely. Although there can be no such thing as perfect competition, an organic system of bottom up control is far preferable to a hierarchy of top down control. Bottom up control is the essence of democracy.

That said, I am not against all forms of centralization per se. Standardized measures are important, as are rules of grammar, and much else besides. Some centralized or centralizing process is necessary to establish ground rules, without which people cannot work together, without which we would be ‘isolated’ beasts like wolverines, and none of the problems I’m discussing here would exist. Society must have some centralized aspects. The question is which, and how?

My heart desires something like an open source society guided by ground rules which enable creative collaboration across the planet, but disable concentrations of power and wealth. I fantasize that an open source money system might be possible, a globally deployable software for creating money dynamically at the moment it is needed, but which also monitors inflationary pressures, applies demurrage, and ‘runs’ the whole money-shebang transparently and dispassionately. No one would get paid to operate it. It would be a commons in the way all open source software is. And it would mean no more banks. Banking itself would be automated. Part of such a system would be a guaranteed income, since we ought to see money as our share of humanity’s ingenuity, not as reward for ‘horrible’ work. Money as ‘human ingenuity shared’ frees us to pursue our passions and contribute to society in the best way we can.

Or, something along the lines proposed by The Venus Project, where money is slowly rendered redundant by gentle pursuance of abundance as guided by planetary carrying capacity, removing ownership and exchange from the economy, and allowing open access to all goods and services the economy and environment can provide. The likelihood of this becoming the solution of choice globally is about as low as you can get, but the proposals The Venus Project has put forward are no less worthy of unprejudiced analysis for it.

In either of the two mentioned alternatives to debt-money, human ‘greed’ or ‘insatiability’ would redirect its energy towards accomplishment, excellence, mutual aid, the spreading of joy, and the never ending attempts to make things just that little bit better. Nothing wrong with that, but neither can it be perfect, nor should we even want perfection. And if my suggestions seem Utopian, that merely demonstrates how shamefully adjusted to decadence we have become, and how unwilling we are to imagine something different, which is, after all, exactly what is required.

5 comments:

Karl said...

I've seen you promoting demurrage currency on other blogs. For pity's sake, please stop! Having money that loses value over time encourages spending. Given that you believe we are using resources at an unsustainable rate, the last thing we need is to accelerate consumption.

http://www.nytimes.com/2007/02/09/business/09currency.html

“When people use the chiemgauer, the apple juice producer sells more bottles and the cheese maker sells more cheese,” Mr. Gelleri said. “In theory, this is not supposed to happen, but the fact is it does."

I've had enough of people trying to 'fix' money. Didn't money start as a record keeping tool, an account of grain stored in granaries? It's simply a primitive form of information technology. Reducing the significance of an object or activity to a single scalar value is just an absurd abstraction of reality. It's turned our economy into a popularity contest where the best known brands dominate and oligopolies are the norm. Meanwhile, the importance of enormously necessary activity, such as mothers raising children, goes completely unvalued by our monetary system.

The term 'open source money' is a meaningless one. Open source refers to the sharing of technical information. Money is a tool to perpetuate ignorance, that is, it allows an individual to obtain the results of work without having to know how the work is done or the consequences of the work.

Money's analog in the political realm is the vote, where popular people, irrespective of capability, are put into positions of power. Both currency and representative democracy can be replaced by open flows of precise and comprehensive information. Centralization is not needed. What is useful is transparency, standardization, common infrastructure, and sharing (aka your open source society).

Karl said...

Are you reading the P2P Foundation blog? There's a post today linking to Steve Talbott's essay 'A Taste for Number Magic'.

http://blog.p2pfoundation.net/on-the-madness-of-smithian-economics/2011/01/21

"As far as economists are concerned, $100 profit on the sale of cocaine constitutes the same "value" as $100 profit on the sale of penicillin."

Toby said...

Thank you Karl for your honesty. I'm glad to hear the objection and the appeal, which is far better than silence or simple agreement.

None of the individual components I explore in various blogs can be introduced into a consumerist society. Demurrage is of course no exception. I do not anticipate any change being healthy change until we consciously, and in very large numbers indeed, want a very different way of organizing society. I try to make this clear in my writing, but also do not want to cover all possible eventualities in every blog post, and this is especially true when I comment on other blogs. In my defense I do try to point out that demoting money is the key, the 'how' though is up for debate, and I'm offering my ideas/those of others I find worthy for that debate.

So the challenge I'm addressing is how to demote money. I do not believe we can switch it off, but I'm happy to be proved wrong on that. As far as I can tell, we have to get there somehow. We have to transition. How do we do that?

I don't agree that open source money is a meaningless term, considering that most people today know next to nothing about it. If there were a software-set which fulfilled money's role, and that software-set were open source, and 'control' of it were 'organic' and decentralized, that would be to all intents an open source money compared to today's. And that is the battle ground isn't it? To offer a better alternative and be clear about what is being replaced and how.

Otherwise I think you and I are in agreement here. The devil is in the detail though.

I will check out that article.

Karl said...

It's not my place to tell you not to talk about money, so I'm sorry that I used poorly chosen words. I simply wanted to point out a negative aspect of demurrage and express surprise that a blog dedicated to an economic system which eschews money would be talking about alternative forms of money.

The main problems with money lie in its use as a metric of 'value'. Eliminating interest on credit extended does not change this. Implementing crazy schemes to induce spending does not change this. Creating an entirely software-based currency does not change this.

FLOSS empowers the end user to make any modifications he sees fit. You cannot give this degree of freedom to users of money for obvious reasons. I maintain that the idea of open source money is nonsense.

The time you spend advocating for alternative forms of money is time you do not spend developing resources and giving away the output. This is how open source operates, and I believe, how any large-scale RBE will be built (i.e. moving resources, piece by piece, one step at a time, into a commons).

Toby said...

"You cannot give this degree of freedom to users of money for obvious reasons. I maintain that the idea of open source money is nonsense."

I'm not convinced this is true, but it might be.

Value is subjective, but that does not mean there is not a flexible way of measuring it dynamically, as we do with language, poetry, music and so on. Using our creativity we can demonstrate the degree to which we value things. I do not know for certain that this is beyond the power of some money or other. Money is a medium of exchange, but so is language.

As for producing stuff and giving it away for 'free,' while I do see that in the digital domain, and experience it with air and in some other places, the enormous preponderance of the economy is distribution of scarce goods and services for profit. When I discuss RBE or abundance with others, whether online or amongst friends, the incredulity is nigh on impenetrable. My impression is that we have to transition there with a type of money that enables this its own demise, that brings suspicious people to the idea, to the direction. It seems the best chance. And is there really 'enough' of everything? Is an abundance of everything really possible? I don't know, and I don't believe we can know.

If I am wrong on that, and a RBE can/will emerge from within the rot and decay of the current system without need for a new money type, no one will be happier than me about my wrongness. I would be delighted. My experience suggests otherwise though, and I adjust what I do according to feedback from my life. I am in full time work in a large corporation, have two daughters and bills to pay. Billions of others are like me in this regard. The momentum of that is enormous.

Rest assured, Karl, my priority is societal and environmental health. I do not believe for a second that my arguments and reasoning here are steering anybody anywhere. I'm thinking out loud and inviting debate. The Universe can do with my output what it will. And the article we are debating here offers a choice between monetary reform and a moneyless world. Whichever is the best is the best, and that's what I'm about.