October 16, 2010
Money is a bit like love.We spend our entire lives chasing it, yet few of us understand what it actually is. It started out, in many respects, as a fantastic idea.
Once upon a time, people used barter, instead of money, to look after many of their transactions. On market day, people walked around with whatever they had produced; the bakers took their bread, the potters brought their pottery, the brewers dragged their barrels of beer and the carpenters carried wooden spoons and chairs. They negotiated with the people they hoped would have something of value to them. This was a really great way for people to get together,but it wasn’t as efficient as it could have been.
If Mr Baker wanted some beer,he went to see Mrs Brewer. After a chat about the kids, Mr Baker would offer some bread in return for some of Mrs Brewer’s delicious beer. A lot of the time, this would be perfectly acceptable and both parties would come to a happy agreement. But – and here is where the problem began – sometimes Mrs Brewer didn’t want bread or didn’t think her neighbor was offering enough in exchange for her beer. Yet Mr Baker had nothing else to offer her. This problem has become known as ‘the double coincidence of wants’: each person in a transaction has to have something the other person wants. Perhaps Mrs Brewer had discovered her husband was gluten-intolerant and so Mr Baker had been contributing to her lesser half’s irritable bowel syndrome. Or that rather than bread, she really wanted a new spoon from Mrs Carpenter and some fresh produce from Mrs Farmer. This was all very confusing for poor Mrs Brewer.
One day, a man in an exquisite top hat and tailor-made pin-striped suit entered the small town. The people had never seen him before. This new fellow – he introduced himself as Mr Banks – went to the market and laughed as he watched the hustle and bustle as everyone chaotically mingled and tried to get what they needed for the week. Seeing Mrs Farmer unsuccessfully trying to swap her vegetables for some apples, Mr Banks pulled her aside and told her to get all the townspeople together that evening in the Town Hall, as he knew a way in which he could make their lives so much easier.
That evening, the entire community came, jostling with excitement and intrigued to know what this charismatic stranger in the top hat and beautiful suit was going to say. Mr Banks showed them ten thousand cowry shells, each stamped with his own signature, and gave one hundred shells to each of the one hundred townspeople. He told them that, instead of carrying around awkward beer barrels, loaves, pots and stools, the people could use these shells to trade for their goods. All everyone would have to do was decide how many shells their wares and produce were worth and use the little tokens to do the exchanging.‘ This makes a lot of sense’, said the people, ‘our problems have been solved!’
Mr Banks said he would return in a year and that when he did, he wanted the people to bring him one hundred and ten shells each. The ten extra shells, he said, would be a token of their appreciation for how much time he had saved them and how much easier he had made their lives. ‘That sounds fair enough but where will the ten extra shells come from?’ said the very smart Mrs Cook, as he climbed off the stage. She knew that the villagers couldn’t possibly all give back ten extra shells. ‘Don’t worry, you’ll figure it out eventually’, said Mr Banks as he walked off to the next town.
And that, by way of simple allegory, was how money came into being. What it has evolved into is far removed from such humble beginnings. The financial system has become so complicated that it almost defies explanation. Money isn’t just the notes and coins we carry in our pockets; the numbers in our bank accounts are only the start. There are futures and derivatives, government, corporate and municipal bonds, central bank reserves and the mortgage-backed securities that so famously caused the world-wide collapse of financial institutions in the 2008 credit crunch. There are so many instruments, indices and markets that even the world’s experts can’t fully understand how they interact.
Money no longer works for us. We work for it. Money has taken over the world. As a society, we worship and venerate a commodity that has no intrinsic value, to the expense of all else. What’s more, our entire notion of money is built on a system that promotes inequality, environmental destruction and disrespect for humanity.
DEGREES OF SEPARATION
By 2007, I had been involved in business in some way for nearly ten years.I had studied business and economics in Ireland for four years, followed by six years managing organic food companies in the UK. I had got into organic food after reading a book about Mahatma Gandhi during the final semester of my degree. The way this man lived his life convinced me that I wanted to attempt to put whatever knowledge and skills I had to some positive social use, instead of going into the corporate world to make as much money as I could as quickly as possible, which was my original plan. One of Gandhi’s sayings, which struck a chord with me, was ‘be the change you want to see in the world’, whether you are a ‘minority of one or a majority of millions’. The trouble was, I had absolutely no idea what that change was. Organic food seemed (and in many respects still does) to be an ethical industry, so that looked a good place to start.
After six years deeply involved in the organic food industry, I began to see it as an excellent stepping-stone to more ecologically-sound living, rather than the Holy Grail of sustainability I had once believed it. It had many of the problems rife in the conventional food industry: food flown across the world, convenience goods packed in too many layers of plastic and large corporations buying up small independent businesses. I became disillusioned and began exploring other ways to join the growing movement of people worldwide who were concerned about issues such as climate change and resource depletion and wanted to do something about them.
One evening, chatting with my good friend Dawn, we discussed some of the major issues in the world: sweatshops, environmental destruction, factory farms, resource wars, and the like. We wondered which we should dedicate our lives to tackling. Not that either of us felt we could make much difference; we were just two small fish in a hugely polluted ocean. That evening, I realized that these symptoms of global malaise were not as unrelated as I had previously thought and that the common thread of a major cause ran through them: our disconnection from what we consume. If we all had to grow our own food,we wouldn’t waste 40% of it (as is done now in the US). If we had to make our own tables and chairs, we wouldn’t throw them out the moment we changed the interior décor. If we could see the look on the face of the child who, under the eyes of an armed soldier, cuts the cloth for the garment we contemplate buying at the mall, we’d probably give it a miss. If we could see the conditions in which a pig is slaughtered, it would put most of us off our BLT. If we had to clean our own drinking water, we sure as hell wouldn’t shit in it.
Humans are not fundamentally destructive; I know of very few people who want to cause suffering. But most of us don’t have the faintest idea that our daily shopping habits are so destructive. Trouble is, most of us will never see these horrific processes or know the people who produce our goods, let alone have to produce them ourselves. We see some evidence through news media or on the internet but these have little effect; their impact is seriously reduced by the emotional filters of a fiber optic cable.
Coming to this conclusion, I wanted to find out what enabled this extreme disconnection from what we consume. The answer was, in the end, quite simple. The moment the tool called ‘money’ came into existence, everything changed. It seemed like a great idea at its conception, and 99.9% of the world’s population still believe it is. The problem is what money has become and what it has enabled us to do. It enables us to be completely disconnected from what we consume and from the people who make the products we use. The degrees of separation between the consumer and the consumed have increased massively since the rise of money and, through the complexity of today’s financial systems, are greater than ever. Marketing campaigns are specifically designed to hide this reality from us; and with billions of dollars behind them, they’re very successful at it.
In our modern financial system, most money is created as debt by private banks.Imagine there is only one bank. Mr Smith, who up to now has kept his money under the bed, decides to deposit his life savings, 100 shells, in this bank. Naturally, the bank wants to make a profit, so decides to lend out a proportion of Mr Smith’s shells, let’s say 90 of them, keeping ten in their coffers in case Mr Smith wants to make a small withdrawal. Another gentleman, Mr Jones, needs a loan. He goes to the bank and is delighted to be given Mr Smith’s 90 shells, which he’ll eventually have to pay back with interest. Mr Jones takes the shells and elects to spend them on bread, bought from Mrs Baker. At the close of the day, Mrs Baker takes her newly-acquired 90 shells to the bank. Do you see what’s happened? Originally, Mr Smith deposited 100 shells in the bank. Now, in addition to Mr Smith’s 100 shells, the bank has Mrs Baker’s 90 shells. One hundred shells has become 190. Money has been created. What’s more, the bank can now lend out a proportion of Mrs Baker’s deposit! The process can start again.
Of course, the physical number of shells hasn’t changed. If both Mr Smith and Mrs Brown wanted their shells back at the same time, the bank would have a problem. However, this rarely happens and if it did, the bank would have shells from other depositors to use. The problems start when the bank lends out 90% of all their depositors’ shells. The result is that of all the shells in all the bank accounts of this fictional world, only 10% exist! If all the depositors wanted more than 10% of the total amount of shells at the same time, the bank would collapse (a bank run) and people would realize that the bank was creating imaginary money.
This system may seem ridiculous but it is what happens today, every day, in every country of the world. Instead of one bank, there are thousands. Instead of shells, we have the world’s myriad currencies. But the principle is the same: most money is created by private banks’ lending.Our most precious commodity doesn’t represent anything of value and the figures in your bank account are mostly someone else’s debt, which itself is funded indirectly by another person’s debt, and so on. Neither are bank runs fictional. Recent bank crises, from Northern Rock in the UK to Fannie Mae in the US, show the inherent instability that comes from basing our financial system on an imaginary resource. The edifice is built on pretence and, as shown by 2009’s bank bail-outs across the world, tax payers inevitably have to subsidize with billions to keep the pretence alive when the system implodes.
DEBT FORCING COMPETITION, NOT
In the current financial system, if deposits stay in banks,the banks make no interest and therefore no money. Therefore, banks have a huge incentive to find borrowers by whatever means possible. Whether by advertising, offering artificially low interest rates, or encouraging rampant consumerism, banks share an interest in lending out almost all of their deposits. The credit this creates is, in my opinion, responsible for much of the environmental destruction of the planet, as it allows us to live well beyond our means. Every time a bank issues a human with a credit note, the Earth and its future generations receive a corresponding debit note.
It seems we can’t get enough of it. According to the US Census Bureau, there are now almost 1.5 billion credit cards in the US; the US has more than four times as many ‘flexible friends’ as people. The average household debt (excluding mortgages) is $17,510 and to compound the situation, at the time of writing the US’s national debt is growing by an astonishing $4.5 billion every second. Payback time, in both economic and ecological terms, will inevitably come. While all this money creation is great for the economy, it is not so good for the people that the economy was originally intended to serve. An estimated 77 million Americans struggle to pay for their medical bills, with credit card debts averaging $5,000 per household. Every year, almost 1.5 million people are declared bankrupt or insolvent, and approximately one million houses are repossessed.
In the end, the process of money creation inevitably means the rich get richer and the poor get poorer. Banks lend out money that, by any objective measure, they didn’t have in the first place and at every stage, accrue interest and keep the right to repossess real assets if loans are not repaid. Is there any wonder that huge inequality exists in the world?
Let’s return to our little town. In the past, at times such as harvest,it was common practice for the people to often help each other out on an informal, non-exchange basis and the people there co-operated a lot more than they do today. This co-operation provided them with their primary sense of security; indeed, a culture of collaboration still exists in parts of the world where money is deemed less important. However, the pursuit of money and humans’ insatiable desire for it has encouraged us to compete against each other in a bid to get ever more. In our little town, competition replaced the co-operation that once prevailed. Nobody helped their neighbors bring in the harvest for free any more.This new competitive spirit was partly responsible for many of the town’s problems, from feelings of isolation to a rise in suicide, mental illness, and anti-social behavior. It has also contributed to environmental problems, such as the depletion of resources and the climate chaos that currently go hand-in-hand with relentless economic growth.