HOW MONEY IS
CREATED, DISAPPEARS, AND WORKS,
AND THE VALUES INVOLVED IN THE PROCESS
by Paul Krumm
The extremely large number of money
exchanges that occurs each day all over the earth form a highly complex web that
is very resistant to analysis. However it must be understood that the basic
rules of money creation that govern these exchanges are quite simple, and can be
readily understood by the average layman. How money works is not complex, even
tho the web of financial exchanges can become very complex indeed.
How does money work? What values does it
reward? Let us first review how it evolved. As we follow this history we can
trace the values that are characteristic of different money systems.
Money evolved from barter, and the limits
of barter, as society grew and became anonymous, so we will start with a short
history of this evolutionary process. In barter, two traders trade equal value
of their services or commodities. There are two limitations in barter. First,
the two traders must have, and want to trade, products or services of equal
value. Second, as society grows and becomes anonymous, they must both be ready
to make the trade at the same time, as the trust of the small group no longer
exists. Currency and money developed to deal with these two limitations.
Currency came into use first. It was a
simple extension of barter. A commodity was chosen that could be divided into
pieces and held for trading at a later date. Gold and silver have more recently
been the favorite choices for currency, tho early on, livestock, grain, pieces
of fired clay, beads, and even humans were used. All these commodities proved
difficult to store and carry. Many deteriorated over time. Even gold and
silver proved to be bulky to carry for larger transactions. Another major
limitation of currency was its limited supply. As more or less trading occurred
in a growing economy, there was no convenient way to increase or decrease the
supply of currency.
Modern money developed from the trade of
goldsmithing at the end of the middle ages. At that time people began storing
their excess gold and silver with the local goldsmith for safekeeping. When
gold or silver was put in storage, a receipt was issued by the goldsmith to the
owner, as a record of ownership. The paper receipts were much easier to carry
than the gold or silver, especially for larger transactions, so they began to be
used instead of the precious metal itself.
Then the enterprising goldsmiths figured
out that they could loan out the gold they held for their customers, to third
parties. Or better yet, they could issue receipts instead of actually loaning
the gold. The next step was recognizing that they could print more receipts and
make even more loans than they held in gold. In the idea of loaning the value
of gold they did not own, but only held in trust, and the value of gold that did
not even exist, was the germ of the invention of modern money.
As long as not everyone wanted to redeem
their receipts and loans for gold at one time, this system created by the
goldsmith/bankers did facilitate trade when there was a shortage of the
commodity, gold, which was used as currency. The fact that the goldsmiths
provided an adequate money supply made possible the industrial revolution.
Meanwhile, the goldsmith/bankers had a good thing going. They were receiving
interest by loaning the gold assets that they were being paid to hold in trust
for others, and additional interest from loans based on gold that did not even
exist.
However, the system was not perfect. When
economic conditions changed or trust in this shell game waned, there were bank
runs, and people lost their money and their gold as a result. If a goldsmith
could not come up with enough gold to satisfy all claims to redeem receipts for
gold at a given time, the system broke down. Banks are the modern successors to
the goldsmiths. The way they operate is basically the same, although money can
no longer be redeemed for gold; it is now only a token or medium of exchange.1
A brief historical note on the role of
religion: The fact that Jews were not allowed to own land in most areas of
Europe in the period of the Renaissance, an agricultural era, led members of
that faith into entrepreneurial businesses. A small minority of that group got
into the goldsmithing business. Catholics were not at that time allowed to
charge interest, so these Jews found a lucrative niche in the lending of gold,
and then money with interest. They became a major force in the Industrial
Revolution as they became influential bankers, with the power to bankroll, or
not bankroll, any given entrepreneurial or governmental venture. The families
of these early Jewish bankers are still a major force in the banking business,
which is the small kernel of truth that justifies the anti-Semitic behavior of
right wing conservatives to themselves and their constituency.
So with this brief history, I will go over
the definitions of some basic terms, and then explain how money is now created
and extinguished. (Yes, Dorothy, money is created and extinguished with the
wave of a wand, or at least the wave of a pen, or the hand on computer keys.)
DEFINITIONS OF BASIC TERMS
In this paper, I will not use the terms
consumer and producer. Rather I will use the word trader, to acknowledge the
fact that we are all both consumers and producers, (or dependent on someone who
is), and combine these two functions in trade--as traders. Businesses and
governments are group entity traders.
Wealth is anything valued by the
economic system. It can be traded by barter, currency or money. When
monetized, wealth becomes assets. More on this later.
Currency is a concentrated form of
wealth used in trading. Currency is some kind of commodity that has a
sufficiently universal appeal that it can be held, and traded later for whatever
good or service its owner chooses.
Money is a purely abstract
accounting concept. Pieces of paper or coins may be created to represent the
value of money, but they are only tokens that represent value, not value
itself.
At another level, money is simply
information‑‑universal executive information. Money gives its holder the power
to execute whatever plans he or she desires. It is an accounting system that
allows traders to keep track of who has bought and sold how much, and whether
each individual trader has put as much into the system s/he has taken out.
Since it is purely abstract, money can be
created in any amount deemed appropriate by its creators. How it is created and
extinguished is one of the issues I am attempting to clarify in this paper. The
social values built into its creation become basic social values of the economy
and culture of which it is a part. It is important to know what these values
are.
This set of definitions for money may fly
in the face of common knowledge about the way money works. The following
description will show how and why it is in fact valid.
HOW MONEY IS CREATED AND EXTINGUISHED
The matter of money creation is poorly
understood. There is a common misconception that banks or governments create
money. Governments only borrow money into existence from the banks. Banks can
and do manage and redistribute money and wealth. Only people and natural
resources represent potential wealth. Only people can, by their labor, produce
useful wealth, which can be traded, either 1) directly by barter, 2) thru the
use of currency, or 3) thru the creation of money. Remember, all people who buy
or sell, i.e. are producers or consumers, are traders.
Money is created when a trader makes a
commitment, by buying goods or services from other traders, to place goods or
services in the marketplace of equal value in the future.
In making purchases, traders borrow
against their future production if they do not currently have a trading
surplus. Money is created as evidence of that debt. Putting goods and services
back on the market repays the debt, and extinguishes the money. In other words,
money is borrowed into existence, and is extinguished as the loan is repaid.
The effective lender, or guarantor of a loan is all the traders who trade with
the borrower‑‑in short‑‑the community; the market.
This is how money is created, and
extinguished. The stability of a money issue, then, is only tangentially
related to any assets that might guarantee it.
The stability of a money issue is related
solely to the willingness and ability of the vast majority of the community of
traders to put goods or services on the market which have equal value to what
they consume. The stability of an economy is a function of the commitment of
traders to the rules of the system. Trust, that by and large, all members of
the market will produce as much as they consume and be able to trade what they
produce for what they want to consume, is the only ultimate guarantee of any
money issue.2
The fact that useful wealth/assets are
created by people who wish to trade has to be recognized and acknowledged by the
creators and operators of banks and monetary systems, as well as all the rest of
us. While natural resources are sources of wealth, they are not themselves
wealth until they are made useful, and brought into the market as commodities by
the labor of traders. For example, ore in the ground is not of value until it
is mined, refined, and made into a form or object by a person or group of
people, that others will trade for in the market. Even land is not useful in
economic terms until it is used in some economic way.
The appropriate function of banks, based
on this understanding of how money works, is to act as clearinghouses ‑‑clerks
or trustees ‑‑ who keep track of the transactions between traders. The Local
Exchange and Trading system, or LETSystem, developed in the Comox Valley of
British Columbia more than 20 years ago, and duplicated with variations in
communities in the US, England, Australia, new Zealand, and other countries, as
well as Canada, is one prototype example of such a basic banking system.
In the LETSystem, each trader starts with
a zero balance in their account. The expectation is that the balance should
stay near zero, tho it may vary above or below. All bank income is based
strictly on earned fees for book‑keeping services rendered, on a fee for service
basis. A small fee is charged to cover the bookkeeping expense of each
transaction.
The money of this system is simply an
exchange medium, with no secondary value. The system is functionally balanced in
its operation by the traders. The money supply automatically adjusts itself to
the number and amounts of commitments that members have made to each other. The
bank balance of anyone buying is open knowledge to the seller, who can decide
not to sell to someone who is not pulling their weight; buying more than they
are selling (borrowing from the people with whom they trade by carrying a large
negative balance).
If a community using such a system sees
that it would benefit from a project that would require a relatively large sum
of money, it can commit itself as a community to one or a group of its members,
giving them a line of credit (permission to temporarily operate with a large
negative balance) to complete the project. This is what banks do now in making
loans.
The principle of assuring that all budgets
stay balanced (all account balances remain near zero, or return to zero) must be
built into the structure of any monetary system, if it hopes to be stable over
time. It is not built into our present monetary system.
FUNCTION OF THE CURRENT ECONOMIC SYSTEM
In order too understand our present
economic system we first need to look at the relationship between government and
economics/business. It is not commonly recognized that governments, large or
small, are businesses, companies which by definition include (are "owned" by)
all the citizens of the community in which they are situated. Governments have
historically been given a number of functions (or in the case of autocratic
forms, have assumed a number of functions) that are not permitted to private
companies. These functions have included setting rules of behavior (laws) and
enforcing these rules with judges and police, providing water and sewer
services, building and maintaining roads, and education. This cannot obscure the
fact that governments are businesses, but ones with special functions, rights,
and responsibilities.
Like all companies, governments must have
income to pay for their expenses; the products and services they supply. They
do so with a combination of taxes and fees. (Taxes are assessments on all
citizens, and/or their property, used for services perceived as needed by all,
fees are charges for products or services, based on the amount of
product/service rendered.) For instance in the US, fire and police protection,
courts, education, military defense, and the building and maintenance of streets
and roads are generally considered to be universal needs for which it is
appropriate to levy taxes. Fees are charged for specific products or services
such as water and sewers.
Private businesses rely similarly on fees
(sales) and taxes (a case can be made that basic fees for utilities and
telephone services are a tax, as the same amount is charged, no matter how much
the service is used). In addition, a significant number of private firms rely
on government payments funded by taxes for income.
Private businesses that are granted a
monopoly, or which hold a virtual monopoly in a given service or industry, have
two characteristics in common with government businesses. Like government, 1)
they serve all members of the community who want their good or service, and 2)
they are the citizen's only recourse for their goods or services. A number of
industries operate as monopolies. The banking system is a notable example.
Since deregulation, there is some competition for what is offered. But what is
offered is limited and channeled by the basic values and rules built into the
structure of the industry, as determined by the laws regulating the industry,
which were written by banking interests.3
Just like the simple exchange system
described above, money in our present system is borrowed into existence, either
by the commitment of traders or governments. However in our system, money is
given intrinsic value that increases over time according to market conditions.
It is created (borrowed into existence) with a "load" or tax, called interest,
which must be paid to the institution that mediates its creation.
In our present economy, the banks‑‑which
have a government licensed monopoly to mediate the money creation process‑‑get
the credit for creating money.4 The rules of the licensing process give these
banks the right to place a charge‑‑compound interest‑‑on the process. In our
economy we have given the immediate risk in money creation to the mediator‑‑the
bank‑‑in return for compound interest. The long term risk of catastrophic
failure is still held by the market; witness the bailout of savings and loans in
the 80's with taxpayer money.
The way the process works is as follows:
A commercial bank, savings and loan, or credit union can, within limits of
reserves set by the Federal Reserve Bank, accept assets (goods or property)
pledged by a trader as collateral, set up an account which represents a portion
of the value of the assets pledged, create a sum in the trader’s account (the
wave of the wand, mentioned previously), and give the money so created to the
trader or the trader’s payee. This is how the process of converting wealth to
assets works in our present money system. The trader pledges assets, and the
bank permits the creation of money, which must be returned to the bank (the
mediator), with interest, to free the asset pledge. If in the meantime the
borrower cannot make payments, the bank takes the assets pledged.
While banks are generally credited with
the creation of money, it is still the traders who go to the bank to borrow who
are making the commitment to place goods or services on the market to repay
their debt. So, as mentioned above, traders are still the functional creators
of money, rather than the bank. As these traders place their goods and services
on the market, and repay their loans, the money they issued (borrowed) is
extinguished.
However as also noted above, when the loan
is originated, and the money created, an additional debt, or tax is set up as
interest on the loan, which must be paid to the bank mediating the money
creation process. Interest creation is a functional glitch in the system, one
which must be understood. When money is created in the current loan process,
money with which to pay the interest is not created. Interest owed is only set
up as a debt to the bank. No money is created to pay it with. As a result of
this bookkeeping system the principle put into circulation is insufficient to
repay the principal and interest owed. So either the trader uses money that
someone else borrowed to pay his interest, or he does not pay all the principal
and interest.
In the first case, someone else is in a
worse position to make their payments. In the second case this trader is drawn
into a downward spiral of debt. No matter how hard we try, somebody always has
to lose. Because money is not created with which to pay interest, interest can
never all be paid. Because traders have to pay out interest, they never have
enough money for all their needs. Scarcity of money drives up prices, meaning
money becomes worth less, which we call inflation.
Economic growth masks the inflation issue,
by bringing in new wealth to borrow on (monetize), creating more money with
which to pay the ever increasing interest tax load. In the current system, the
economy must continually grow so that there is sufficient money available to
keep the system operating. This system flaw caused by interest creation is the
reason why economists commonly see the need for an economics of growth, rather
than sustainable, dynamic steady state (homeostatic) economics.
Total outstanding interest and total
current interest due and payable increase exponentially over time. In other
words, as time goes on, outstanding debt becomes larger and larger with respect
to the sum of all exchanges, what we call Gross National Product ‑‑ (GNP) the
productive capacity of our nation. Because the overall interest load grows
exponentially, it inevitably grows to be a larger and larger part of GNP. As
the interest load becomes a significant portion of GNP, the system breaks down,
because an ever larger portion of money is going to pay the growing interest
load. A recession or depression is necessary in which some of the debt, and its
interest load, is wiped out thru unpayable debts and bankruptcies. Sometimes
smaller banks even fail, if too many of their clients are forced into losses and
foreclosure.5
Bankruptcies and bad debts move control of
wealth to those who control assets and the money creation process. In the long
term, inevitably all the money becomes concentrated in the hands of a very few
people who control the money creation process, and the economy and culture
disintegrate. This was one of the major factors that led to the disintegration
of the cultures of Mesopotamia, Egypt, Greece and Rome.6
The Federal government (remember, the
business owned by all the people) has often been forced to become borrower of
last resort, borrowing from the banks to bring enough money into circulation to
prevent major depression and mass foreclosures. It is called deficit spending.
But nothing has been done to prevent the systemic exponential growth of interest
and debt, which is the driving mechanism, leading to the failure. Meanwhile,
Government borrowing to create money to maintain the economy has created a
ballooning government debt.
In the early and mid 90’s there was an
increase in individual debt, largely due to the increasing use of credit cards,
taking some of the debt load off the federal government. The entry of the
former Soviet Union and China into the international market has also opened new
growth markets and, more importantly, assets to be monetized and borrowed upon
to temporarily sustain the appetite for growth of the international money
system.
In the late 90's private debt increased in
the US to the point that the Federal Government thought it was going to be able
to pay off the national debt. But as the economy has slowed down, the
government gave away its surplus, and consumer spending and debt has been
insufficient to meet the demand for an increased money supply, it is becoming
evident that Government debt is not going away, and on the contrary is
increasing again.
Those who would balance the Federal budget
and reduce the Federal deficit under the present money creation ground rules do
not recognize that their goal is simply not feasible. If the government stops
its continued borrowing and balances its budget, and private borrowing does not
take up the slack, the money supply will be so drastically shrunk that there
will not be enough money to pay interest (or principle) on outstanding private
debt, and the economy will go into a tailspin. This happened in 1836-37 after
President Andrew Jackson paid off almost all the federal debt. The ground rules
of money creation must be changed.
As noted above, our Federal Government
creates money by borrowing from the Federal Reserve Bank. The Federal Reserve
Bank is an interesting institution. Its board of governors is appointed by the
President, with confirmation by the Senate. However its stock is owned, and the
governors are paid, by the banks. Major decisions are developed by the Open
Market Committee of the Federal Reserve, with concurrence of the Board of
Governors. The Open Market Committee is chosen by the Board of Governors. The
Board of Governors consists of bankers and economists who are knowledgeable of
and favorable to banking interests, so the Federal Reserve is effectively
controlled by the banking industry.
The Federal Reserve Bank holds, by law, a
licensed monopoly from the Federal Government on money management, and can
"create" money, at will, without asset backing, at whatever interest rate it
deems appropriate. It attempts to manage the money supply by central control,
the function handled by individual traders in self managed systems such as the
LETSystem. Since the government does not put up any assets as collateral for
its borrowing from the Federal Reserve Bank, it is trust that the government
(i.e. all the citizens) will repay government loans and the interest on them
that keeps the money system alive.
RELATING ECONOMICS TO ECOSYSTEMS
The earth is an ecosystem, and the rules
of economics are important rules of the human factor of ecosystem operation.
One of the major lessons to be gained from ecosystem study is that the control
mechanisms of natural systems are at the individual and small group level.
Ecosystems only set limits on subsystem activities as they are incongruent with
ecosystem sustainability. Ecosystem power is not the power of setting policy
and actively managing megasystems. It is only the veto power of extinction and
system breakdown if individuals, subgroups or subsystems behave in ways that are
destructive to themselves and/or the larger system.
If a banking/monetary system hopes to
emulate natural ecosystem function, it must leave control of policy at the
individual and community levels, with only a veto function, based on criteria of
ecosystem sustainability, at larger geographic levels. As a bonus, an advantage
of local policy setting is that failures are smaller, and more easily dealt
with. Failures of large systems are generally much more difficult to deal
with. Failure of megasystems is almost invariably catastrophic. Specifically,
failure of the US, and/or world banking system would be catastrophic for all the
earth's citizens.
Communities, as well as governments, are
economic units or "businesses". So communities must also balance their imports
and exports, or they will go out of business. If more money goes out of a
community than comes in, it will wither and die. The demise of small towns in
rural America is a classic example of not heeding the balanced budget concept.
The demise of the Roman Empire is another, which has strong implications and
parallels with our current national government's fiscal position. Locally
issued money is one method of keeping tabs on the imports and exports of a
community. Some such mechanism must be put in place if the value of community,
national, and world stability is to be attained.
The organizational philosophy that drives
our government business is democracy. However a look at the organizational
chart of any bank or business corporation shows that it is the same as that of a
dictatorial government. In fact banks and business corporations are
operationally oligarchies, operated by and for those who control them; their
large investors and top managers. The values and atmosphere of dictatorship
created by these businesses has spilled over into the political business of
government, making government less democratic ‑‑ diluting democratic values.
Specifically, the decision making “value
filter” of business and banking is presently marketability for a profit for
those who control the business. A more democratic filter would be ecological
sustainability and human fulfillment. The latter filter can be built into the
function of a monetary and business system, but will require major restructuring
of banking laws, and laws governing the formation and operation of businesses.
Attempts to regulate non-democratic institutions are destined for failure. Only
by requiring that economic institutions be democratic, do we have a chance for
political democracy to continue. While this is a most politically contentious
issue, we must deal with it if our culture is to survive.
DIRECTIONS CONSISTENT WITH ECOSYSTEM
VALUES
The only way to reduce total debt and the
federal debt is to recognize the instability of our money system, and change it
in such a way that there is no load on the creation of money; that money
managers work on a competitive fee for service basis, on earned income only, and
that the money supply is self regulated at the local level by traders who are
aware of the balances of other traders, including government and business
entities, with whom they trade.
To understand why this is necessary we
must bring up another value issue. A portion of the interest charged by the
bank is used to pay its operating expenses. This portion is functionally earned
income. The remainder is paid as profit to the bank owners. This portion is
functionally unearned income. In the case of traders lending to each other, the
principal is not created, however interest is charged, and often with a large
portion of interest being functionally unearned income. Thus interest creation
constitutes an energy transfer system from those who produce to those who
control money, which complicates economics both politically and morally.
The unearned portion of interest is a
“tax” on borrowing, paid to the lender. As such, a secondary function of money
creation--and all borrowing under the present rules--is that of a private social
security or welfare system, funded by the “tax” (interest) on traders who have a
negative balance in their accounts, and paid to those who have positive balances
and those who mediate the money creation process.
The operation of the system systematically
increases positive balances and bank assets at the expense of those who have
negative balances. These ground rules make the economic playing field tilted
in favor of those who create money or have built up positive money balances, and
against those with negative account balances. The greater the balance, or money
creating potential, the greater the tilt. Generally, the productive sector is
where negative balances are held, so the monetary system systematically taxes
the productive sector and moves this money to the non‑productive sector living
on the interest tax.
While we quite rightly value savings, to
pay interest on savings and investments is a practice that must be questioned.
However in taking such action we must
concurrently deal with the issue of a safety net for those who depend on the tax
derived from the present money system. We need to ask anew questions about our
system of social security, welfare, and insurance. At present we have two
welfare systems, one public, the other private. The interest paid on the use of
money constitutes a vast privately operated and controlled welfare system.
Anyone can, by controlling a quantity of money or wealth, or by becoming an
owner of a bank, provide themselves with unearned income, without work, and
without diminishing their assets.
When interest is removed as an aspect of
the definition of money creation, these people will be limited in their spending
ability to the assets they have accumulated and products or services they
currently produce. Especially in the case of retired lower and middle class
savers, this would have a serious adverse effect on their living standard. An
alternate retirement income system for current savers/investors is a legitimate
issue that must be dealt with in any transition to a non‑taxing monetary
system. On the other hand, because governments (and productive businesses) will
have no interest load to pay, enormous amounts of money will become available
for such human centered problems.
Every community and country will have to
deal with how it wishes to work out the social welfare issue, within the
confines of community sustainability. There is no right answer for all
communities and cultures.
There are a number of possible ways to
deal with this issue. One would be to offer open ended reverse mortgages (based
on capital value only). Another would be to expand the public tax based social
security network. A third would be to offer retirement income insurance. A
fourth would be to expect every family or community to take care of its own (as
was done by all cultures before anonymity and individuality became the norm).
Some mix of savings (private welfare, utilizing principal, rather than
interest), public taxation (social security), private taxation (retirement
insurance), and/or self care, can, I believe, be agreed upon. The insurance
industry will be as fundamentally effected as the banking industry, and will
require major restructuring.
The values that drive our basic money and
economic institutions, must be studied publicly, and made consistent with our
democratic political values if we wish to continue as a democratic culture. As
a part of this analysis, all sources of private unearned income must be analyzed
for their effect on the economy. They must all be recognized as taxes on the
transactions of which they are a part. In addition, we must recognize, as a
practical matter, that as long as the present system continues, money will
migrate to whatever person or institution maximizes unearned income,
concentrating ownership in the hands of those who already control quantities of
it, an anti‑democratic function.
That unearned income is an income
redistribution mechanism is a reality. That this redistribution is unhealthy
for our economy is a value judgment, based on a knowledge of its antidemocratic
effects. If we do not make such value judgments consciously, we make them
without conscious thought by continuing with the status quo. The results are
becoming disastrous. Democracy cannot survive under the present conditions.
Our economy cannot survive either.
A major step in dealing with the present
reality is to acknowledge that the present system systematically redistributes
money, based on possession of money and/or control of the money creation
process.
There is reason to be upbeat in terms of
approaching those who control the present system with respect to the necessity
for positive change. Members of the wealthy elite value stability, and they can
be shown that the present system is inherently unstable, and that it is in their
best interest to promote change to a more stable system for them, their children
and grandchildren. They, and we all, have two options; change or economic
chaos. The status quo is not long for this world.
What do you and I want? What can we do to
work for an economic and monetary system that is more representative of
democratic values?
Recommendations - Conclusions
We need to move (very carefully and
deliberately) toward a time when at least three aspects of our economy are based
on sustainable - and democratic - values. The first is a conversion to the
creation of money on a fee for service basis, rather than with the current
interest load. This will get rid of the present situation where there is never
enough money in the creative sector because of the constant money migration to
the finance sector inherent in interest-based money.
Freeing the productive sector to be
productive, and be paid fully for its productivity has the potential to unleash
a great deal of economic creativity. An additional advantage of fee for service
money is that the economy is not forced to constantly grow in order to remain
viable. Also with the recognition that traders - citizens - create money, and
are the appropriate arbiters of who should be allowed to create how much money,
will come a recognition of community responsibility in determining the
directions of community development.
A second requirement for sustainability is
to stabilize the value of the monetary unit. The basic engine of the economy is
that traders are willing to spend their time and effort producing products
and/or services for others in return for the services and products produced by
the time and effort of others. So a unit of time and effort is the logical
choice for the unit of economic value. The hour is the standard measuring unit
of time. The hour of effort is therefore a logical choice for the monetary
unit. It is already used by some alternative money systems. The hour gives
both the buyer and seller an intuitive measure of the worth - the value - of a
transaction. And an hour never changes in size. It is therefore not prone to
inflation.
There will inevitably be some variation in
the value of an hour’s work based on effort, skill, education, special
abilities, cost of equipment, and the hazardous or undesirable nature of some
tasks, among other things. On the other hand, it is doubtful that the great
discrepancies that occur today would continue under a more democratic economic
system. As an example, the special status of those whose task is coordination
of activities (management in current terms) will probably become much less, as
business is democratized, and coordination becomes more diffuse. It will be
interesting to watch what happens in monopoly businesses, such as medicine,
where the number of practitioners is presently limited by the medical education
system to maintain a high income level for those practitioners.
A third sustainability value is that the
stewardship responsibility of ownership of any asset must be seen as at least as
important as the right to exploit that asset. Again, how to codify this
rights/responsibility equation in the case of the ownership of assets must be
worked out at the community and country levels, within the limits of ecosystem
and community viability. Small scale experiments and innovations can be watched
and analyzed by other communities to see if they apply to their situation.
The value of ones unlimited right to the
use of personal property is deeply ingrained in our culture. Some will say that
land and resources have value without man's labor and that therefore some
aspects of the above definitions and theories of money are misplaced or
invalid. This brings up a basic value question. Bluntly, the question reduces
to "Does the Earth belong to us?" or "Do we belong to the earth?" In the first
case, the earth is appropriately divided up and used for the satisfaction of the
owner of each portion. In the second case, the earth is a gift or legacy to be
respected and used but preserved in the process for future generations and
times.
This question can be answered either way.
I can only give my reasoning for taking the stand I take; that we belong to the
earth. There are at least two basic kinds of arguments, one practical, the
other philosophical.
The practical argument is that the idea of
dividing up the earth is no longer serving the survival of the earth or our
species. Anyone who persists in believing that the earth belongs to us must
deal with the fact that this belief has been the value base for money and
economic systems that have led to the downfall of all the major western
cultures. (See again 6) It has led to an ethic in which the removal of
resources from the earth has become a personal right of the owner of that piece
of the earth, with no thought as to the social or ecological ramifications of
that removal either now or for succeeding generations. This ethic has led, in
all the major historic western cultures, to degradation of air and water and
erosion and salt buildup in the soil, to a point where these resources could no
longer support a healthy human population, leading to the demise of the string
of world cultures listed earlier here. All these cultures broke down as a
result of this environmental stress, coupled with the unrest created when wealth
was concentrated, and the majority of citizens had only debt, and no stake in
the future of the culture.
The philosophical argument is one of
anthropocentrism ‑‑ the idea that humans are the end all and be all of creation,
and that we have power and dominion over that creation. This idea is
increasingly being questioned as we see how small a part of the created universe
we are. This small planet called Earth, circling an average star, which is only
one of a billion stars that make up one of a billion galaxies isn't the control
center of the universe. It is hard to imagine us little creatures, living on
the thin solid shell of this molten glob, as the “end all” of the scheme of the
whole cosmos, or the power that controls it all -- or even our own planet.
Following the value that we belong to the
Earth will require rethinking the rules of ownership, stewardship,
responsibility, and control. As earth citizens we need to consider the Lockean
proviso which states that everyone has a right to take of the earth so long as
there is enough and as good left for the others (and I would add both now and in
the future to accentuate ecosystem sustainability over time) and the Papal
proviso that a person has a right to own only that which s/he personally uses.
Since some individuals, communities and
regions are blessed with more than their share of earth and/or personal assets,
there is also a need to consider how, in at least some voluntary way, those who
are blessed with more, have a stewardship and sharing responsibility toward
those whose ecosystems and social systems are less blessed. Such aid must be
given with great respect toward the integrity of the individuals, the social
systems and the ecosystems that receive them, as well as those which give.
The alternatives before us are basic
change or failure to survive. The quicker we recognize this basic equation, the
easier it will be to make the transition. The longer we take, the more limited
and difficult will our choices be. What can I do, and what can you do to make
the transition? Check and read the following bibliography for ideas, and have
at it!
Bibliography:
Blain, Robert, Toward World Cooperative
Community, with a Proposal for a World Monetary System published by Southern
Illinois University at Edwardsville (out of print) and Making Money a More
Accurate Measure of Value available from the author at the Department of
Sociology and Social Work, Southern Illinois University at Edwardsville,
Edwardsville, Illinois, 62026 Blain is the only author I Have read whose
proposals are totally consistent with his analysis.
Greco, Thomas, Money and Debt, and New
Money for Healthy Communities, published by the author, P. O. Box 42663, Tucson,
AZ 85733, ISBN #: 0‑9625208‑1‑0 and 0‑9625208‑2‑9 Greco proposes money backed
by commodities.
Greider, William, Secrets of the
Temple-How the Federal Reserve Runs the Country, Simon and Shuster, New York,
ISBN#: 0 671 47989 X
Jaikaran, Jacques M.D., Debt Virus,
Glenbridge Publishing, Ltd., Lakewood CO., ISBN # 0‑944435‑13‑0. Jaikaran
proposes that the government should issue non-interest bearing money to pay for
its activities, but leaves in place the present system for private traders.
Kennedy, Margrit, Interest and Inflation
Free Money, Permakultur Publikationen, Ginsterweg 5, D‑ 307 Steyerberg, West
Germany, ISBN #: 3‑9802184‑0‑6;
Lietaer, Bernard, The Future of Money,
Century, The Random House Group Limited, London, England, 2001, ISBN #:0 7126
8399 2 Most contemporary analysis. Lietaer, an insider in the banking
business, has a very astute analysis of the difficulties in the present system,
but promotes alternative money systems as complementary to the present system,
rather than a replacement. This may be an appropriate transitional tactic, but
must be seen as such. He also promotes money that gets worth less with time, a
strategy that may be of value in some circumstances. Visit his web site,
http://www.transaction.net/ to learn more. http://www.transaction.net/money/community/
has his comparison of various money systems.
Linton, Michael, and Angus Soutar,
LETSystems, www.gmlets.u‑net.com/ Web site of LETSystems, with information on
how they work, and on forming your own.
Mullins, Eustice, The Secrets of the
Federal Reserve, John McLaughlin; ISBN: 0965649210
E. C. Reigel, Flight from Inflation, the
Monetary Alternative The Heather Foundation, Box 48, San Pedro, CA, 1978, ISBN
#: 0‑900300‑8‑5; Written about fifty years ago, but still very relevant. Like
many others, he promoted government issue of non-interest bearing money, but
left private traders with the present banking system.
NOTES
1. For longer
descriptions of the history of money, see E. C. Reigel, Margrit Kennedy, Jacques
Jaikaran, and Bernard Lietaer.
2. For a longer
descriptions of how money is created, see Bernard Lietaer, Robert Blain, Thomas
Greco, Margrit Kennedy, and Jacques Jaikaran,
3. See Eustice Mullins,
and William Greider
4. The basic difference
between a bank and a savings and loan institution used to be this power of money
creation. Since bank deregulation, savings and loan institutions and credit
unions can also create money.
5. See especially E. C.
Reigel, Margrit Kennedy and J. Jaikaran.
6. “When ancient Egypt
fell, only 4 percent of the population held all the wealth.
When the Babylonian civilization
collapsed, only 3 percent of the people owned all the wealth. When ancient
Persia was destroyed, 2 percent of the people owned all the wealth.
When ancient Greece sank into ruin, only
0.5 percent of the people held all the wealth.
When the Roman Empire collapsed into ruin,
only about two thousand people owned all the wealth in the known civilized
world, and this debacle ushered in the period of history known as the Dark
Ages.” Quoted from page 24 of Jaikaran.
In the present system, money begets money,
and stuff begets stuff. They become ends in themselves. In a hopeful future
system, money and stuff serve the humans who use them, and have no intrinsic
value other than their usefulness, and the pleasure their use gives. P.K.
Contact the Author@
Paul Krumm
