Money Matters

Introduction

(Footnotes are linked to a webpage which also contains a bibliography).

This essay is about Money and the Monetary System that functions in the background of our everyday economics. This system is a hegemony throughout the world, almost invisible. It is the water in which we swim. Capitals indicate this hegemonic system, that Jem Bendell calls money-power (i), as there are, and have been, other possible monetary systems that could serve our needs much better. The system rose to dominance during the last 3/ 4 hundred years, and is a major driver of the changes these years have brought, many now recognised as contrary to well-being and deeply unjust. It also works against our capacity to take essential action to mitigate present world crises, such as climate warming. 

I will also begin thoughts about the psychology of how, why, this Monetary System arose and persisted, as it unlikely that transition to other systems can happen without the deeper understanding that brings wider awareness. Many writers have pointed out the serious consequences of the Monetary System, but are not heard, just as the work of Rachel Carson, Schumacher and others warned of environmental dangers, but even now are unheeded by many (ii). To change the entrenched Monetary System that causes harms we require more than economic analysis of its effects. We need a gut awareness of its role, and of our role, in driving the harms, so we can bring about a needed transition.

1.Money Creation and the Monetary System

First, money which exists in our lives, as it has done in many forms for centuries, has to be created within an agreed monetary system. Well known to economists and bankers, but rarely mentioned or queried, is the fact that the Monetary System we use is one in which money is created from nothing. When first encountered, this fact seems impossibly ridiculous, but even the Bank of England agrees (iii). In an earlier age, this would have been recognised as ‘usury’, a word dictionaries now define as the charging of excessive interest. But, in earlier times usury was not about having a debate around which percentage of interest would be acceptable. It was about earning from something that had not existed before, earning without producing. Whatever it is now called, the money, newly created from nothing, is placed into the world’s economy as a form of debt. I use the single word “debt” here to encompass all of the dominant ways in which money is created because the various methods, however different in detail, each bring with them the requirement to pay back. Debt, this pot of created money, includes everyday borrowing, mortgage and credit cards etc., the capital investments needed by businesses, and governmental creation processes like bond issuing, quantitative easing, and furlough payments during pandemics. Economists know that government ‘borrowing’ is in effect governments lending to themselves via the financial industries and banking. Most of the borrowings and returns occur across many years, so that at any point in time this loaned money is in the economy, enabling our economic activities (trade, exchange, investment, tax-payment, satisfaction of needs etc.).

Before discovering ‘money creation’ about 2014, I had assumed I was competent, knowledgeable and OK with money. It had never even occurred to me that money was somehow created (iv). The ‘Oh Sh*t’ moment was when I realised there is a catch (v). Because the money is put into the system in this way, as debt, the return requirement has to be added to the amount of money used to serve other needs [supply, spend, earn, pay tax etc.]. The money created is serving two ends. Because return is required as well as servicing need, the consequence is that for any individual, group, organization or government there is never enough. There is always a scarcity, and in order to satisfy present need and also make the return in the future, it is necessary to exploit or expand in the present or borrow more, pushing the problem to the future, where more exploitation or expansion can ensue. In this vicious circle, exacerbated by the interest that loans usually require, the Monetary System requires growth to continue itself. Now institutionalised worldwide, we are caught in an unsolvable dilemma. Processes become more and more extractive, literally physically (e.g. opencast mining, fracking) and also socially (the ‘haves’ get more, the ‘have-nots’ work longer and more precariously, for less).

Unfortunately, the debt growth is exponential. Regardless of the ethics or morals of exploitation processes, there is less and less space within which we can recover a better sharing of the earth’s gifts, acknowledging that although abundant, they are finite. Extraction is a one-way process, there is no returning curve.

The contrast between the consequences of this system, in which we are mired, and other possible systems is stark. Consider for example the alternative concept of ‘honourable harvest’ described by Kimmerer, where an underlying belief is that engagement with resources (of any kind) must be regenerative, imbued with respect and thought for the future (vi).

Some of us do understand that we live in a hegemony of money where bit by bit everything is losing its intrinsic value, becoming a commodity. Many now understand that the financial pressures of neo-liberal economics are related to a sense of separatism and a dominant colonial form of thinking, ‘exceptionalism’, the effects of which further exaggerate the many problems interlinked with the climate crisis (vii). We say we will resist. But, can we see that neo-liberalism, the rule of the ‘market’, is itself a consequence of the way the money has been created? Can we see that the exigencies of daily living within this hegemony push us towards separatism, where a competitive individual self or family or nation becomes insensibly more necessary, as to live in an ordinary way we are now bound up in ‘growth’? Our resistance is trammelled.

I recently heard Dionne Brand, speaking of institutional racism, say we are turning into something necessary to live in this (viii). That is, in any hegemony even when we see and say we will resist, we find that this takes an ongoing effort. Like Dionne, making this effort in this place, trying to resist, we change in line with the hegemony, not in ways we might wish. This personal change can remain unseen, denied or disavowed, just as a tree grows according to the prevailing wind.

In summary, money creation now practiced worldwide is a process by which credit is issued from nothing, the ensuing debt to be returned in the future. Most money exists as debt, balanced by figures in ledgers, now digital ledgers in computers (notes and cash are a tiny proportion, about 2/3%). There is more countable money now than there was ten years ago, and much more than in 1912, even though when a loan is returned, one entry in the ledger disappears. Way back then a loaf cost one penny, now might be two hundred pennies, but it is still only one loaf, and there are more loaves as we have more people on the planet and more grain is grown. My home is the same bricks and roof, but it is worth thousands more in money than when it was built. My mind no longer knows how to make a statement, or wants to track how this happens, it only wants to skitter away from numbers and thoughts and changes and processes and dynamics I simply cannot encompass with value. In this Monetary System, so hard to understand and see, money grows, but resources, even food and shelter, become more scarce, out of reach. This topic is very uncomfortable, difficult to raise, and to stay with. It is not surprising that even standard economy theory avoids it.

We are all in the money hegemony in everyday ordinary life. The cup of coffee; the loaf of bread; the pencil with which I write; the cost of each contains a part that drives growth and exploitation elsewhere. And so I feel both helpless and ashamed and would run away … or just enjoy another cup of coffee.

2. Summary of Money History

Would finding the history help? (The owning of personal history enables living better.) Seeing how the monetary system became established in the world, how in the world’s economies we came to use this very particular and damaging form of money, might help resistance turn to flourishing. Systems understanding shows that ever-increasing detail and complexity, endlessly needing adjustment, is a sign that there is a flaw in the system. Economics tells us we have a monetary hegemony, manifestly ever more complex, that demands growth on a finite planet. I wonder if the creation and adherence to the systemic flaw lies in psychology, in the dilemmas and traumas we face in our societies, not in the discipline of economic thought. Before speculating about psychology, this is a summary in my own words of what I have learned of Monetary System history (ix):

Monetary transactions have taken many forms depending on trust in the issuer [king emperor …] the owner of the gold [cowrie shells …] etc. At one time all borrowing meant entering into relationship with the lender, which is how we still understand everyday borrowing. Everyday debt is a relation between people, holding not only trust and risk but also values like obligation, honour, truthful promise, etc. Above all, one is in a relationship to be negotiated with another.

In English Law in 1704, the Promissory Notes Act was passed allowing IOUs to be bought and sold. Any IOU would do, all it needed to say was “Promise to Pay” and it didn’t matter who was going to pay. The note is safe. The promise is guaranteed, fixed, a relationship is unnecessary. In 1844 the Bank Charter Act authorised legal tender through the Bank of England. Commercial and private banks are authorised to create money through a ‘ledger money’ arrangement with the Bank of England. Banks can now legitimately create money they don’t actually have, so long as the figures in debit/credit ledgers match up. Money is objectified, created from nothing, not from deposits previously held, nor needing to be stamped from a commodity such as metal.

This seems a useful practice. Money is just another commodity, albeit exceptional in two ways, it is a commodity that can sell itself, and only banks can make it. Banking then, as now, was international. Banking activity, creating money this way, was exported via colonisation. The practice where money is created as negotiable debt and placed into the world economy of goods, services, work and energy was used by Britain and the other European colonisers, shared and forced into dominance everywhere. In 1912 the United States passed the Federal Reserve Act authorising the same general process of money creation via debit and credit arrangements with commercial banks. Now almost all money, mostly electronic, is created in this way, from nothing, as debt. A good idea at the time? Argument and discussion about different methods of money creation, not distribution, in either economic or political conversation and writings has been largely absent since about 1920. Querying the ‘good idea’ has only recently resurfaced.

So this is the situation we are in: a hegemony of money creation that serves us all, badly. That ‘all’ includes our policy makers, bankers, and corporations. (Not ‘us’ and ‘them’.) Psychological and cultural effects have been documented: separation, exceptionalism, inequalities, the growth of financial industries, and the economic market of neo-liberal capitalism (x). Could we begin understanding why the process seems to have been welcomed as a good idea at the time, and following that, why it has been so favoured above alternatives, and tenaciously held?

3. Speculation on Psychological Causes

Speculating on the psychology of how or why this money creation method arose in the first place, it seems to me that living with giving, borrowing, trading, supplying need, conditionally or unconditionally, will all involve attention to the yin and yang of trust and risk. There is no need for trust and its attendant risk, if we are already safe. So, if life is particularly unstable, or traumatic, we live in the territory of uncertainty, and fear of future. If something is too much to bear, and another something (somebody) that would bring reparation is absent, we are traumatised. A need for safety and certainty may be why the money creation system became fixed. In inner life, no matter how influential or important we may be, the tendency to seek safety takes priority over risk. The inability to bear too much uncertainty is prevalent in us all. Both individual exceptionalism and hegemonic culture outsource risk and uncertainty. They are AS IF, as if we will be safe, with trust a given to which one is entitled. This is different from the safety of a caring context where difficulty is followed by reparative experience. There we learn to play and risk, become adventurous, care and repair. This is an alive safety negotiated in relationships, not a safety objectified in entitlement.

I wonder if after the long reign of Elizabeth I, the 17^th century felt particularly unstable. It included the Gunpowder Plot, the execution of Charles I, the Cromwellian Republic, the Restoration, the antagonism of Protestantism and Catholicism. It was fraught with fear, violence and uncertainty. War is traumatising. Civil war destroys trust within communities. The 18^th century may have begun with an attempt to bring stability and safety that was well served by the law of 1704 establishing the Bank of England. Money is an object. Loans will be paid back and there is exception to risk. It must have seemed like a good idea at the time. In 1703 the Union of Great Britain also sought healing, but beyond Britain the 18^th century brought the Seven Years War, the French Revolution and the War of Independence in America, a century of instability. There was increase in the slave trade and colonialization, forms of exploitation that had always existed but became more entrenched (xi).

How does cultural and national trauma play out? Too much to bear, we avoid uncertainty, seek safety, strong authority. Money, seen as the promise to pay backed by legal authority, avoids risk. By the Act of 1844, the banks are safe. The British Empire flourishes. As the world map turns ‘pink’, this ‘safe’ banking system was exported. Then the Monetary System, with its inherent scarcity, pushes us, as it has pushed our ancestors, to exploit rather than relate to the world. This is a change that has happened to us, in us, all around and through us.  We do not notice the structures that de-contextualise relationships and pressure us to become individual achievers, ‘exceptions’.

4. What can we do?

First we can talk about it, we, everyone, should know of the flaw in money creation, and the damage it does. I think of the money hegemony in terms of Resmaa Manekem’s metaphor from the wrongness of slavery called ‘living in the plantation’. He said when the plantation is too strong, and direct resistance will destroy, it does not mean do nothing. Instead, he said: disappoint the plantation (xiii). In my interpretation this does not mean ignore its demands, like the tree in the prevailing wind we have to comply, and bend. What it means is disappoint its expectation that we will be diminished by enslavement. On the contrary we celebrate our humanity and creativity and open ourselves to new and alive ways of being. The plantation will die eventually from its own inconsistencies and damaging ways of functioning. When we can, we can point these out, hasten its end.

We can operate under the radar of money and reject its commodification of so much that we value. In many areas we can live in terms of gift, free exchange, mutuality of help, re-purpose, reuse, recycle, create non-commercial entertainments, and small enjoyments such as harvesting vegetables from the back garden. We can talk about free things, and the fun in them, not about how they make money or save money, nor about ‘doing without’, but simply about the joy of living in a common space under the sun. Then a life of small pleasures is a big-hearted life that creates lasting foundations for ways of being when the plantation has moved, destroyed itself or been replaced. Being lively, we will be better able to pick up pieces and communally evolve towards other forms of monetary system where money, a useful tool, does not own us (xiv).

We should also speak of the money creation damage that needs to be known about. Doing this is similar to raising climate crisis awareness, carries the same kinds of risks, and worries, such as being evangelistic, putting people off, or, being thought disruptive. It brings uncomfortable conversation and self-doubt. Psychological help is needed to move away from exceptionalism, beyond the disavowal of both seeing and not-seeing the existence of the hegemonic plantation: money is created from nothing, as debt to be returned; this is destructive. Can we explore the psychology that supports the plantation as we talk about it? Can we relate with dependence on others, sharing and owning risks? Can we find the psychology that allows this flourishing? If we can do this, we might come to know what living could be like beyond the money plantation. As Anthony Gormley has said: “each of us is a co-producer of a world, each of us is a co-producer of a possible world” (xv).