Friday, March 4, 2011

A Prof. Hoermann Shmorgas

A “Prof. Hoermann Selection” translated lovingly into beautiful English by yours truly. Viel Spaß!
" Quite early in my so-called career, when I was still a research assistant, a professor said the following to me. He looked me in the eyes and said, “Herr Hoermann … You know, in a rational tax system the whole of our science [economics] would be superfluous.” I was 23, and that hit me like a bomb. [This would be around 1983.]

[T]hat is the key error in our reasoning. There is a stubborn belief, presented as is to the general public, that capital markets – and thus the people active therein – create new value, but that is exactly what does not happen. Already existing capital is feverishly sold back and forth, which can, of course, only [be profitable] for as long as new participants enter the system. Then, at some point, when there’s no one to be found to buy the paper, we say a bubble has popped. We have the expression, “bubble economy,” which describes an economy that can’t even exist without this repeatedly popping bubble. About 15 to 20 years ago we called this exact same process a pyramid scheme, which was actually, pursuant to paragraph 168 of the Austrian Penal Code, a punishable offense. Today our financial model [ … ] is therefore highly suspect and simply cannot work when an ever growing number of people live from it. That is, I can create relative prosperity for 3-5% of the population at the expense of the rest, but if more than 20% of the population, for example pensioners, want to enjoy this mechanism, then it simply can’t work any more.

It is an accepted theory that money is a motivator – and, allegedly, the same is true of the economy. It is the market that supposedly ensures every scarcity is resolved through money. But such control looks quite different [in practice]. Recently I saw in the Financial Times that, “Germany needs nurses, technicians, and teachers.” And yet what I don’t see is that qualified people, apparently so urgently needed, are offered 6000, 7000, 8000 euro monthly. Why doesn’t the market work here? And I cannot imagine that we have a shortage of bankers. Nevertheless they earn monstrous amounts. It’s true that money works as an incentive, but this money is created by a particular caste – out of thin air. These people misuse the printing press for themselves. And lawyers pen for them airy clauses so that they escape unpunished. For this lawyers may join them at the table and partake of their feast.

Money is rewarded with money. We don’t reward accomplishment in our system, we reward property. The economists Gunnar Heinsohn and Otto Steiger proved that modern money – worldwide – is not backed by value. Rather, whenever money is created an equal debt is created with it. The systemic problem arises out of the fact that the debt is loaned at interest. The money for this interest is not created. The money for the interest doesn’t exist at all.

The person recording the account transaction in some double entry bookkeeping ledger records only the value of the money, not its serial number. Yes, you have to prove you are such and such a person – you receive a password or ID – [but] the money is one moment there, then it’s gone. One moment it’s doubled, at another it comes out of a valuation, out of some mathematical model, yet another out of a company’s value. Money appears there where someone or something needs to see it, and the money-man pays the lawyer to make us believe him.

Double entry bookkeeping is a shell game invented in the middle ages. The shells are the accounts. And the real money is the pea, which could be under any one of the shells. [ … ] But now it’s really getting interesting. What happens when you turn over all the shells and find no pea? Banknotes have serial numbers, so that in earlier times we could catch bank robbers. Were we, in an electronic full-money system, to assign serial numbers to all “items” and “tokens,” as well as to all transactions and all natural people – not to artificial entities where no one knows who the real owner is – then all these systemic crimes would be physically impossible. And that is the sole reason why we don’t have such a system today – a system which would of course be better. [In the interview with, from which this section is taken, Hoermann's German does not, to my mind, express correctly the mechanics of the serial number system he describes. I have tidied it up away from the assignment of "items" and "tokens" to people and transactions present in the original text.]

You only have to look at the math to know [systemic collapse] will happen, because in the foreseeable future many nations, even big ones, will no longer be able to pay the interest on their debt. Precisely this will occur this year, 2011, which many financial mathematicians have predicted, so I am by no means alone. That is sovereign default, since when you see that you’re no longer receiving interest on your government bonds, well, then the government bonds have no more value. Then the nation is officially bankrupt.
[The MMT folks would say this is impossible because the sovereign can always spend money into the economy and as payment on debt, but I agree with Prof Hoermann that it is the value or ‘respectability’ of the bonds/currency that indicates a state’s solvency, not the legal freedom of the sovereign to spend money into existence. And there’s inflation to consider too. Besides, Hoermann’s solution is, at a deeper level, similar to MMT – a truly democratic form of it – in that it sees money as a mere ticket for measuring commitment and accomplishment in the social realm. It is, in my opinion, far preferable to the more traditional MMT solution which changes nothing except the openness with which money is spent into existence. In brief, ‘sovereign bankruptcy’ has the effect of forcing currency reform. It does not mean the nation is suddenly devoid of wealth, only the money system du jour has broken. The question at that point will be: “What now?”]

[We have to] let this system run over the edge and inform the public. And I’m not doing that alone, I’m networked, you are networked, the world is increasingly so. Our approach is: Violence is no solution. In our book [The End of Money] we say: We seek no scapegoats. Because this is a mass-deception phenomenon, we know before we begin that the justice system could not cope. Prosecute all the criminals and accomplices, process all that data? Impossible! We have to change the rules. We don’t have to punish the elite, we don’t have to know them or make them known. We only have to take their toy away.

The so-called powerful, as you call them, don’t actually have any power at all, rather they are making themselves, by perpetuating the current system, an enemy of all society, and risk more and more, therefore, their own safety. [ … The] way the money system has been misused, for centuries, can now be read in the better literature in the Internet. That is to say, it is no longer a secret. Even politicians will at some point have to admit that we have a flawed construct. Actually, many of these so-called powerful people already actively support systemic change. [ … ] These people cannot, or do not want to, out themselves. Behind the scenes however systemic change is being busily prepared and pushed forward. One thing is clear: in a society in which all people do well, the elite do better too. This is a critical point. The general prosperity which they then can rightly enjoy will not be poisoned by envy and mistrust.

Actually money can only be created out of thin air, but it should be based on accomplishment, not created as debt. That is, it should be present in society as direct reward for accomplishment, not circulated as debt to be paid back with interest, which cannot work. [ … ] Here the Internet comes to our rescue. [ … ] For example, since 2006 we have at our disposal a Swiss software application that can do exactly what we want. It can easily handle over 9 billion accounts for individuals, and provide them with their own line of credit based on societal contribution and accomplishment.

We need multiple, independent “accounting circuits” (Rechnungskreisen) in the form of specialized, electronic vouchers. To cover people’s basic needs, such as shelter, energy, food, etc., all nations should take an inventory of all available resources and human needs. We would then divide these resources per person, such that everyone is cared for up to some basic standard of living. Here we must all work together to prevent a slide back into a profit-oriented exchange system. Society has to care, without ifs and buts, for all children, all old people, the sick and the infirm, as well as provide everyone with a basic standard of living, regardless of their societal contribution.

There are multiple Internet-based payment systems capable of replacing the existing money system [today]. “Money” will no longer be a medium of exchange, rather it will be created as an immediate form of reward (points) for socially motivated activity. This is also the only chance today’s elite has of escaping unscathed. In every other scenario it will end badly for them. And they know this.

No one can buy us. What we are sketching here is nothing other than an offer of societal intermediacy. A conciliatory proposal. "
[All emphases mine.]

All quotes here are taken from interviews with various online news outfits, hence it is spoken German, not written. I have tried to capture that feel. Prof. Hoermann's new book, "The End of Money", will be with me at the end of March (according to Amazon). As of that point I will be able to develop a fuller sense of what the Professor is proposing. This collection is meant only to whet the appetite.

For German speakers here's the professor's website. I just today (23.03.2011) received an 'OK' from Professor Hoermann, that my translation is accurate. He corrected my guessed interpretation of "Rechnungskreisen" from "billing circuits" to "accounting circuits."


Rupert said...

Happy birthday bro.

Toby said...

Happying away here, happying away...

MwaH said...

Looks like I'm a little behind the date, but I'm running late with everything these days, so Happy Birthday, dear Toby!

A wonderful post that makes me want to read Hörmann in the original. But that will have to wait a little as well, as I have to finish some work of my own first.

Speaking of work, I've let you wait for quite some time now regarding the feedback you asked for. I'm working on it! Mainly, I'm working on getting to read it thoroughly, but always feel I shpould first just finish something else, and... well, I assume you know the vicious circle of good intentions. :-/

Anyway, I'll let you hear from me soon -
all the best, F.

P.S.: I especially like this one:
We have to change the rules. We don’t have to punish the elite, we don’t have to know them or make them known. We only have to take their toy away. :-)

By the way, a competent translation, as far as I can judge that. Well done!

Toby said...

Good to hear from you ManwithaHorn, and good to hear you're at work, at least in some manner. I hope you're concentrating on your own work and writing, since I'm looking forward to reading the rest of the story. So knuckle down, old boy! Your audience is waiting.