Understanding Money

Many people are seeking to understand how the money system works and looking for answers on websites and in books. My own journey of discovery has been informed more by Mary Mellor than by anybody else. She has a refreshingly down-to-earth approach and an underlying commitment to sustainability that make her explanation particularly appealing.

Very sensibly, Mary's local Transition Towns network asked her to give a series of lectures explaining money, which were filmed and have been made available online. Mary gives four lectures: What is Money?, Money and Banking, The Financial Crisis, and The Future of Money. Mary's view of the latter is an empowering one: money should be a social resource from which we all benefit. We must end the privatisation of money and the banking monopoly.

Mary is critical of the view of money in economic theory, claiming that it is shot through with inconsistencies. It is focused on modelling rather than understanding. 'The influence on coinage on Western notions of money has misled us', she claims. Even in 1698 the amount of money held in 'tally sticks', a physical system of recording money owed between two parties, was actually larger than the amount of money held in coins. Money is a story of relationships, a story of communities, and of economic exchanges based on trust.

James Robertson, doyen of the monetary reform movement and grandfather of green economics, said about these lectures: 'Mary Mellor's understanding makes an essential contribution to anyone wanting to know more about how the money system work and what its future could and should be. I warmly recommend these films to anyone who wants to learn more and think what we should do about it.' So please find time to watch them, learn more, and begin to change the world.
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Bringing Economics Down to Earth

I have been a bit lax about posting recently because I am watching a publisher's deadline rush towards me over the horizon. The book is to be called The Bioregional Economy: Land, Liberty and the Pursuit of Happiness. This is all about bringing the economy down to earth and so I'm very pleased to share with you a presentation Mary Mellor gave recently at Schumacher College.

She focused on the distortions within standard economic theory, criticising the unreal nature of neoclassical theory, and explaining why it has resulted in a global economy that is so disembedded, a really useful concept that she uses along with other feminist economists to explain the way finance has come to dominate the real economy. This has parallels with Polanyi's writing about the 'great transformation' from earthbound to market-based economies.

Mary describes the 'destructive transcendence' which uses expropriation and profit to drive a growth-based economy that ignores human needs and devastates the planet. She also describes the nature of money creation and circulation. The whole presentation is a classic view of a gaian approach to economics and I'm proud to link to it from this blog.
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Render unto Ceasar

Now that we are officially in Advent perhaps it is inevitable that your mind turns to Jesus, or perhaps I am just trying to make up for the fact that we have a Toy Story 3 advent calendar in the house this year and I want to believe there is something more meaningful about our foremost national festival. Whatever it is, I thought I would share my growing suspicion that Jesus may have been a green economist.

Of his many quotable quotes perhaps my favourite is 'Consider the lilies of the field, how they grow; they neither toil nor spin, yet I tell you, even Solomon in all his glory was not arrayed like one of these.' This message, like John Ruskin's 'There is no wealth but life', seems redolent of the awe for life's abundance which guides a green approach to the economy. It is also a message against the Protestant work ethic and in favour of a relaxed approach to provisioning that is necessary for the sufficiency economy we are seeking to build. And the beards, long hair and sandals were an obvious clue.

But what about the harder edges of economic life? Did Jesus have anything to say about those? I am partial to the bits of the bible where Jesus ceases to be the rather effete, kindly 'new man' emblazoned on so many Sunday-school walls and really loses his rag. When he rages against the money-changers for example, or berates his friends for dropping asleep when he was in his hour of soul-searching crisis at Gethsemane.

I think Jesus might have been rather smarter about money than he has been given credit for. Remember, 'Render unto Caesar the things which are Caesar’s, and unto God the things that are God’s', Jesus's response when asked whether his followers should pay their taxes to the Roman authority. Last night we had Mary Mellor here in town and she adeptly explained why taxation and money issue are two linked roles of the state, and why Jesus was quite right to say that taxes should be paid back to the issuing authority.

As Mary explains it, you cannot start an economy unless you have something to circulate: issuance of money must precede deposit. The history of money is a history of political authorities from Croesus through Medieval kings right down to the Bank of England issuing money and then taxing it back. The problems we are facing today result from the failure to understand the role taxation plays in enabling circulation, and the privatisation of this right to issue currency (the right of 'seignorage') so that it now belongs to the banks.

Because money now originates in the private sector the public sector cannot exercise the seignorage function and so has to rely on taxation alone to fund expenditure. If the state issued money directly then taxation would be used to prevent excessive circulation and the resulting inflation, rather than being a means to acquire money for investment. Since the UK state will not widen quantitative easing to encompass this function, it can only initiate monetary circulation and enable economic exchange through going into debt itself. Osborne's ideological resistance to this basic economic fact and his determination to eliminate the deficit means that he will choke off limit monetary circulation and destroy the economy.

The other biblical story about currency was Jesus's outburst in the temple, when he attacked the money-changers. Here he was rather less on-message, since temple money might be seen as skin to a local currency. It was exchanged for the national currency but could only be spent within the temple precincts, much as the Stroud Pound can only be spent in Stroud. However, Jesus's objection seems to have been to the inflated prices that were charged for what the temple traders were selling - mainly animals doomed to unpleasant, sacrificial deaths - so as long as pounds sterling and Stroud Pounds are exchanged one-for-one we should stay on the right side of doctrine. Somehow, though, the thought of the advent of Jesus to the Stroud Pound stall, upturning our tables and throwing a wobbly in the middle of town is a peversely appealing one. Tweet

For local readers

Mary Mellor is coming to Stroud on 2nd December to talk about what went wrong with the money system and how we could redesign a system where money works for us and belongs to us. For local blog followers this will be a useful opportunity to learn and feel empowered.

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Follow the money

Any intelligent observer who was paying attention must have learned since 2008 that the money system is the trick that facilitates the control of the global economy in the interests of a tiny but powerful minority. So when any proposals are made to change the way that money-banking system works we should pay great attention.

On Tuesday Mervyn King, the Governer of the Bank of England and therefore the man responsible for both banking in the UK, monetary policy and the pound sterling itself, gave a speech in New York (aka Capitalism Inc. HQ) where he said explicitly that 'Of all the many ways of organising banking, the worst is the one we have today.' (Full text available here.) This is the clearest indication yet that capitalism is in the course of a major adaptation: the key to who will gain and who will lose will be in the design of the money system that will emerge.

King's central point in terms of critique seems to be similar to that made by my good friend Mary Mellor in her book The Future of Money, namely that it is simply unfair that a system so unstable as that of fractional reserve banking should be guaranteed by the public so that, in the now familiar cliche, the losses are socialised while the profits are privatised.

According to Robert Peston's summary of the speech, King argued that the hastily agreed Basel III accords are insufficient guarantee for publics who still stand behind their banks. For those do not spend their time watching the pin-stripes, Basel is the place where international bankers go to decide amongst themselves what is the least they can agree to tinker with their business model to keep the world's politicians happy (again: note the location).

What Mervyn King was arguing for, in the heart of the banking beast, was the abolition of banking as we know it. He proposed two alternative models. The first is already the subject of wide debate and would require a complete separation of retail and investment banking. The second is more interesting and known as 'limited purpose banking'. It works on the insurance model inherent within mutual approaches to finance and, as far as I can understand, leads to a situation where we really are ‘all in it together’, since the risks between capital and personal investments are pooled, with businesses and households sharing risks, but within different kinds of 'banks', operating with different degrees of risk.

Mervyn King places his hope in the Independent Commission on Banking, whose members are all well-steeped in the capitalist money and banking system, and are sure to recommend an adaptation that does nothing to change the status quo in terms of the sharing of economic power within global capital. Perhaps it is time to launch our own People's Commission on Banking in response. This could propose that the creation of money should be in the public, not the private sector, thus solving all King's problems at a stroke. I propose Mary Mellor for Chair. Tweet

Rational choice?

The rise, and now fall, of David Laws genuinely merits the over-used journalistic adjective meteoric. The man had moved from relative obscurity to the position of Lord High Executioner in a matter of weeks. His story seems to have the mark of a mystery play; his character is the rational economic man.

In the past month, much has been made of David Laws's double-first in economics from Cambridge. This has been touted as a reassuring indication of brilliance: here is a man who understands the workings of the market and can therefore save us from our financial travails. His rise to prominence in the Liberal Democrats was the result of his persuading them to leave behind their days of beards-and-sandals economics and wholeheartedly embrace the market, through the publication of the Orange Book.

I always ask my students why they chose to study economics. Over the years I have found that they are often vulnerable, shy, and socially dislocated. In the iron laws of the market they find a sense of security. Learning to read the movement of finance markets or the mathematical formulae of a regression equation brings power to those who have often felt powerless. In the rational economic man they see an icon to aspire to: a role model of elegance and control.

The ecofeminists detest the rational economic man. As Mary Mellor writes:

'Economic man is fit, mobile, able-bodied, unencumbered by domestic or other responsibilities. The goods he consumes appear to him as finished products or services and disappear from his view on disposal or dismissal. He has no responsibility for the life-cycle of those goods or services any more than he questions the source of the air he breathes or the disposal of his excreta.'

Rational economic man is ashamed of his own embarrassing body, his sexual idiosyncrasies, his dependence on women, his need for rest and sleep. These are interpreted as weakness, rather than humanity, and must be hidden ever deeper within a shaved and moisturised skin, a sharp and expensive suit. Once they are revealed he has become, in the words of today's headline, 'a broken man'.

Yet it is this very dislocation of our identity from our physical existence that is writ large in the way our economy is dislocated from nature. As we hide our weakness and our illnesses, so we deny the planet's need for rest. The superficial manifestation of the late-capitalist world is impressive, but behind the facade the earth itself, and the indigenous peoples who still live close to it, are slowly dying.

The loss of David Laws from the Treasury is a mixed blessing. His competence in understanding the crisis we are in was a counterbalance to the crass ignorance of Boy George, although both, as wealthy men, have faced a problem of credibility when trying to persuade us to live on less. Did he make a rational choice to deny his need for love, to conceal his lover, to deceive the world about the sexuality that made him ashamed? The door has been left open for him to return, but before he does, in the style of a true mystery play, he must learn the lessons of his own humanity, and the greater wisdom that the earth teaches. Tweet