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Of money, heresy, and surrender
Part I: The ways of our system, an outline, from Bretton Woods to the financial slump of 2008
This is the first of a two-part study of a fundamental but neglected truth concerning the nature of money. Pushing alone against the doctrinaire cross-currents of the monetary maelstrom, anarchist reformers have since the 1920s discussed the introduction of time-dated money. The institutional and theoretical issues underpinning this revolutionary innovation, as well as the questions of its workability in the contemporary framework, will be presented in Anarchist Studies 18.1 (2010). The present article prefaces this extraordinarily important chapter of reformist thought by providing a summary historical account of the monetary system in which we live. This is done with a view to casting in relief the intimately dysfunctional and inequitable constitution of the latter and to contemplate how a blueprint for communal reform based on the principle of perishable money may correct such wrongs.
It has been the exclusive merit of the German communal/anarchist thinkers of the 1920s, namely Silvio Gesell (1864-1930) and Rudolf Steiner (1861-1925) to have conceived and articulated the genial idea of overcoming the chief obstacles strewn along the distributive chain of the economy by means of a time-sensitive money certificate. The logic supporting the concept is, in fact, straightforward: Gesell and Steiner reasoned that if it is agreed that
- money is indeed a symbolic medium–perfected with the sole aim of expediting exchange, and that
- such an exchange is between goods (and services), which perforce are (or rely on means and resources that are) perishable,
then it must logically follow that the key to a wholesome arrangement of productive factors and remunerative flows should itself be boosted by a form of money bearing an expiration date. In other words, simple economics demands that money die.
The political consequences that would arise from the implementation of such an intuition are momentous: it is clear that a reform of this sort would definitely encroach upon the privileges of the banking industry, which is the most guarded and powerful oligopoly of all. Incidentally, the legitimacy of this cartel on the one hand, and American hegemony on the other, are two of the chief tenets of orthodox western ideology: all western practitioners of the social sciences that wish to advance in the incumbent power structure know that these are never to be questioned overtly – i.e. pricked in their neuralgic nodes. Among other aspects of the question, this essay will show how these two articles of modern political faith (money and US primacy) are intimately tied, so much that, as evidenced by the recent crisis, it is nearly impossible to discuss national monetary/economic issues – European or otherwise – without making constant referrals to the role of the United States.
How then would the privileged position of banking be threatened by timedated certificates or virtual renditions thereof ? The bulk of what we call money is put into existence, not by central banks – which act as issuing appendices of this complex amalgam of private and public affairs – but by the private banking network itself through a systematic process of ‘mortgaging’ (or wealth, income, etc). In other terms, commercial banks derive their power from the license, which states grant them, to manufacture money by way of loans, a process which is itself enabled by the management of virtual ciphers (money) that never die. By race of this monetary hoard, which by definition may be withheld whenever investment prospects are not deemed promising, and by grace of their control over a vast network of payments, credit institutes have from time immemorial exacted from the body economic copious rents (interest charges), which make them the force they are. ‘Hoard’ is the key word in this case. If perishable money, which carries the anti-hoarding device in the expiration date, were injected into the productive fabric of society, it would outflank the banking network by spurring a circuit of its own – one where banks would on the one hand inevitably, and justly, surrender a sizeable measure of decisional clout to the productive sector, and on the other, no longer base their investment policies on mere interest-driven exigencies. Clearly, a growing share of business conducted outside the conventional perimeter of banking represents for the latter lost interest as well as diminished influence.
That this isn’t a quixotic theme with merely utopian aspirations is attested by the non-peripheral and serious discussion of Gesell’s reformist agenda that took place in mainstream academia during the Depression (the most famous interventions thereon being those by J. M. Keynes and Irving Fisher, which will be briefly discussed in Part II). More recently (2006), evidence of perishable money’s power of suggestion is afforded by the uneasy reaction on the part of Germany’s central bank to a flurry of regional movements intent on availing themselves of timesensitive media of payment. As will be recounted in Part II, initiatives to realise regional associations of exchange and development by means of time-dated money have been afoot for several years all over the world. These have remained to this day largely circumscribed for a variety of reasons, but the fact that they do exist, that they have made such a notable comeback along with a resurgent interest in the figures of Gesell and the economics of Steiner, is sufficient proof that there is something of abiding value and wisdom in the underlying idea.
Before discussing the challenges associated with the promotion of a tool and a conception as unconventional as time-sensitive money (which is the main subject of Part II), it is appropriate to offer – as this first instalment is designed to do – a chronological sketch of the monetary environment that we inhabit: the system whose institutions we wish to modify. As shall be argued, the picture that offers itself in the west is one characterised by the imbalances engendered by conventional banking at the domestic (national) level – difficulties roughly identical for the economies of all countries which, in the post-second world war era, have become inextricably enmeshed in the tangle of America’s imperial goals. The latter aspect is the specific focus of this essay.
Presently, we have reached a situation of substantial complexity. In its essential traits, however, it amounts roughly to a modernised replica of the late Roman imperial arrangement. What we are lately dealing with is a set-up whereby the imperial centre, having dismantled its manufactures over the course of the past generation, has eventually found itself functioning as the world’s virtual marketplace. It stands willingly as the ‘number one’ globalised market venue of the world, propped by an array of service industries (e.g. commerce and transportation), led in turn by the executive strategies of the financial sector: at the basic operational level, think of the American economy as an expanded, world-wide E-bay store with its associated financial arm, Paypal, deputised to dispatch the money flows accompanying trillion dollars’ worth of transactions (financial and otherwise). The economies of the world are ‘moored’ as it were to the US market by means of the latter’s openness to their exports (China’s above all). The underlying design is subtle: in order to bind the vassal economies of the world to their global emporium, the economic capital of the empire, New York, moves to attract the savings of the world, which are subsequently disposed of to cover the budget and trade deficits. In other words, foreigners are invited to invest in the USA, which employs such capital flows to cover the cost, inter alia, of military expenditures and the (imported) commodities it no longer needs to produce; determined to impede a rapid appreciation of their currencies, the foreign vassals find themselves forced to ‘reinvest’ the dollar proceeds obtained from their export sales to the United States in American securities. Thus, banking on its dollar, which the world hoards as the chief ‘reserve currency,’ the United States has managed to harness to its financial engine the productive apparatuses of the world, which have been locked into the imperial system via the lure of appealing yields on Wall Street and the concomitant ‘concession’ to offer a wide range of goods for sale on the American marketplace. The locomotive of this massively unwholesome construction is Wall Street itself, upon whose creative finance the imperial elite of Washington DC relies in order to set the world caravan in motion. In such a setting – the so-called neo-liberal order (post 1979) – the inflation of speculative bubbles is a functional necessity. Thus far the system has experienced three such five-to-six year speculative cycles: the Volcker/Reagan stock market jolt of the 1980s (1982-87), Greenspan’s historical dot.com boom (1994-2000), and Bush Junior’s subprime mortgage-fest (2002-2007), at whose trough we now find ourselves.
From the Traditional Boom/Bust Tandem of Big Business to the 'Serial Bubble Dependency’ of the 'New Economy'
Bubbles, excess and calamity are part of the package of Western finance. And still it is worth it. The Economist
Business enterprise in a nutshell
How does the capitalist machine function under the regime of imperishable money? The answer is: by spurts, by alternate bouts of panic and elation. The banks’ interest rate always bides its time: in the pre-second world war era, roughly speaking, the banking network was wont to await a creative solution (i.e., a technological shift), snap it up when it was somewhat past its pioneering phase, and then proceed to foment the boom, thereby flooding the markets with ‘money’ by means of credit.2 Businesses were allotted credit lines, and by drafting cheques on such accounts, they could wrest resources away from their former employment by bidding up their prices. This was the typical inflationary ignition of the boom.
In time, market saturation, misalignment of economic fundamentals and gradual insolvency all contributed to narrow profitable spreads. Prices plummeted, and so did business earnings: the rate of profit would descend dangerously close to the bank rate. At last, interest would overtake the rate upon capital (profitability), and the system would be finally immobilised: the deflationary slump settled upon the markets – the rate of return of businesses had sunk below the bank rate. Banks shut off the spigots. ‘Money is tight,’ so the crowds would then say. And while unemployment rose, those business concerns that had ‘cashed in’ before the storm (generally the large financial institutions and, nowadays, private-equity concerns), would proceed to scavenge from the distressed economy deeds, shares, bonds, and real estate at slashed prices, and thereby tilt a highly concentrated distribution of wealth further in their favour. After the rummaging, they would wait. They waited for the next boom, when a ‘new technological paradigm’ would be just around the corner. The property they had amassed would form the basis (the so-called collateral, or security) for the next expansion of credit. What, then, is a most unnatural husbanding of the economic organism – its stimulation by spasms – has been up to this day construed as an inalterable fact of life by the ordinary person subjected for millennia to a traditional regime of imperishable money – immutable like the scansion of the seasons. The so-called ‘business cycle’ has now become a mainstay of western folklore.
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