More on money as illusion, and its effects

Went along to see Thomas Greco speak last night.

His schtick is similar to the Money Masters type view of the economy – the systemic flaws are to do with the nature of the money system, with money being an illusion with no basis untethered to things that actually exist, but having power to create real effects; and heavily critical of the role of central banks – but without the conspiracy angle, so more mainstream palatable, if the crowd was anything to go by.

A couple of his definitions interested me, or made things clearer; namely, inflation as the improper issuance of money into the economy – any issuance that expands money without expanding goods and services (Money creation via interest is one example of this.) And that inflation, under a central bank system, will lead either to rising prices or recession. Something has to give.

Unfortunately I had to leave before he really got going on alternative currencies and how they work, which is his specialty area, but he is well worth checking out if you want to more about this stuff: http://www.reinventingmoney.com/.

Years ago, when I first started reading about economics, I realised that if most people understood how the economy worked, it would stop working the next day. That has become more specific over time. Now I think people fundamentally do not understand the money system, what money is, or how it works. In particular, the credit which funds the banks is our collective credit, but we can only access it through banks at great cost, and this is kind of … stupid.

We can echo again Henry Ford:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

Alternatives exist. (For example, Solari circles.) But I would like to know more. So this is a place holder for me to remind me. Because economic democracy is vital to political democracy, and rebuilding the economy is vital to building our future.

8 Responses to “More on money as illusion, and its effects”

  1.   Rich
    April 15th, 2009 | 2:45 pm

    But banks don’t make more money, on average, than other large intermediary businesses, like supermarkets or media businesses. If they did, people would sell all their shares in every other industry and buy bank shares.

    (ANZ, 2006 – AUD3.6bln profits on AUD49bln market value = 7.3%
    Woolworths, 2006 – AUD1.0bln profits on AUD22bln market value = 4.5%
    Apple, 2007 – USD3.5bln profits on USD105bln market value = 3.3%)

    (Unless you believe that banks make vast hidden profits which are paid to their secret shareholders, or something).

    If we don’t want to have commercial banks, then logically we should remove all forms of large scale capitalism and have large enterprises run as cooperatives. I tend to think that would be a good idea, but I know others don’t.

  2.   Rich
    April 15th, 2009 | 6:59 pm

    Also, that Solari circles thing looks to me like for (in their example) 11 weeks out of 12, the circle owes you $100, while for one week, you owe it $1100. So basically, you’re no better off, unless you use your sudden wealth for financially reckless activity, like convincing a bank you have more income than you really do (useful, but not sensible).

    Then they suggest high-risk activity, like lending to people in financial strife, or unproven new business. That sounds even worse!

  3.   ian
    April 17th, 2009 | 5:06 am

    Billy! Its been a while since I had a look here, anyway… I assume you have checked out Michael Albert and ParEcon… interesting thoughts on how we can be involved in decisions that effect us.

  4.   Administrator
    April 17th, 2009 | 4:39 pm

    Ian: Parecon was one of the key concepts that fed into FTB in my first novel, Eidolon.

  5.   Administrator
    April 17th, 2009 | 4:47 pm

    Rich: the “better off” side of Solari thinking is in terms of building community resilience – it is a collective better off, in that everyone involved is freed from an unnecessary middleman in gaining credit, plus interacting with their community in a different way. There is an implicitly different focus to the entire thing, rather than individual profit.

    Also, your reading of the numbers above seems entirely backwards…

    I’m not sure of the relevance of your comments about banks to anything I posted. But I agree with moving to cooperative rather than capitalist models.

  6.   Rich
    April 19th, 2009 | 3:41 pm

    I’ll try and be clearer. You said:

    In particular, the credit which funds the banks is our collective credit, but we can only access it through banks at great cost, and this is kind of … stupid.

    If the banking system were really extracting huge amoungs of unjustified money from the public, they’d presumably be making profits way larger than something like a supermarket chain – they don’t.

    A bank does three things to ‘earn” its money:
    1. provides people with surplus cash with a mechanism to store and access that cash, as well as paying interest.
    2. spreads the risks around, including the risk that borrowers will default and the risk that depositors will withdraw money that has been lent for an extended term. This is what they have been failing at, and in many cases the government is now doing this job.
    3. provides people who want loans with the ability to borrow for an agreed period

    All three of these cost money – 1&3 require lots of people, buildings and computers, while 2 is more of an insurance margin. I can’t think of another system that provides the flexibility people want without these costs. I do align to the view that function (2) should be provided by government, so that banks are acting as service agents for the central bank rather than managing credit themselves.

    Abolishing fractional reserve banking altogether though, would involve changing society completely so people no longer needed to borrow large somes of money for housing.

  7.   Administrator
    April 20th, 2009 | 12:34 pm

    By stupid I am refering to taking out enormous loans such as mortgages and ending up paying back several times the value of the loan due to interest payments. The money we are borrowing, is, in effect, that of our community; our community, depending how you define it, has a different interest in our lives than extortion, thus a better way of achieving our desired ends seems possible.

  8.   Rich
    April 21st, 2009 | 1:31 pm

    I agree. It’s a consequence of regarding houses as a store of value rather than a place to live. As a result an average house now costs 4 times average wages, so for people to “buy” houses, they need to take on an unsustainably large loan. That loan can only really be paid if the property prices keep rising, which (as it now has) eventually falls apart.

    One cure would be for most property to be owned by the community and rented out.