Money: a veil over power
According to conventional economists, money is merely “a veil over barter”. This comment declares the mechanisms by which money is created, supplied to and circulated within the economy are of no particular macro-economic relevance. If you’ve read anything by me on this blog, you’ll already be aware I think this statement is a big fat lie! So if not “a veil over barter”, what is money’s true nature?
As the title of this post suggests, I think that “money is a veil over power” would be a much more accurate aphorism. The statement will take some explaining. The first point I wish to make is this: all economics is political economy. Politics and economics are two sides of the same coin. Economics cannot be abstracted from the reality of human political institutions.
For example, the reason that many of our products are “made in Indonesia” does not reflect some abstract mechanism of “comparative advantage” selecting optimal outcomes via global market “equilibrium”. Indonesian labour is cheap because the country’s national development was held back for decades by General Suharto’s brutal dictatorial regime, under which tens of thousands of people were massacred with the support of Western allies and virtually zero coverage through our corporate media system.
As a side remark: unlike many of today’s “neo-liberal” borrowers of his phrase “comparative advantage”, David Ricardo had the sense to apply it to a luxury good (Portuguese wine) and not to labour itself. Capital would not seek its “absolute advantage”, he argued, thanks to Adam Smith’s “Invisible hand”; if you actually read Wealth of Nations you discover this phrase refers to a tendency to favour domestic over foreign investments – it argues against “neo-liberal” tendencies!
As Noam Chomsky has commented, if the USA had pursued its “comparative advantage” (as understood in the modern sense, thought not in Ricardo’s sense) it would still be “exporting fish and fir” today! And one can read Ha-Joon Chang’s famous book on development economics, Kicking Away the Ladder, for similar examples. Instead, like all Western economies, the US developed its economy under national protectionism, only opening its markets once it was in a position to dominate other nations. The developing world could now be doing the same, living up to its name. Unfortunately the western powers have acted to systematically hold back its development. As Larry Summers, former president of the World Bank, declared at an address in India:
[Third World governments] need to realise that there is no longer such a thing as separate and distinct Indian economics. There is just economics.”
Of course, the World Bank “advises” countries like India, since they “need to realise” this “truth”. Unfortunately some national leaders are stubborn and insist upon clinging to their silly old-fashioned notions about sovereign economic development. Lacking PhDs in economics from the University of Chicago, they tend to suffer such shortcomings. In these cases, restructuring the national economy is simply made a condition for receiving further loans. First through entrapment via debt then IMF “structural adjustment” type policies, alternative sovereign economic developments are simply forbidden by the West; it is not that they are impossible according to some “laws of economics”. There is no such thing as “laws of economics”.
Now let’s come to money. There are many ways money could be created, under different political conditions. How it is created is by commercial banks for their private profit. The only way to put money in circulation is to go into debt to the banks. This means banks hold an extraordinary power over the economy. They are in effect in control over every investment decision made – if an investment is profitable to them, it will be funded, if it is not profitable to them, it will not be funded. The power to create money is the power to make many key decisions as to the future direction of society.
If the power to create money as domestic debt is the power to direct the national economy, then the power to create it as third world debt is the power to direct foreign economies. Colonialism did not end – empires simply developed more sophisticated methods of controlling other nations. Today’s empires are not nations, armies and fleets, but global networks of integrated capital exchange.
In what meaningful sense is a developing country a sovereign nation, when virtually its entire economic policy is drawn up by a clique of unaccountable IMF bureaucrats, as conditions upon repaying its debts? Colonialism is now brought to bear by economic means rather than by the sword, but the effects on developing nations are much the same – poverty, famine and disease – everywhere the conditions of war are created, minus the need for standing armies from western nations.
If not with the banks, where does the “money power” properly belong? It belongs to society at large. All members of a society should have a say in decisions affecting society as a whole, in proportion to the degree those decisions affect them as individuals. Money created for banks translates into power for banks to make many of these decisions. To instead have money as a mechanism by which that power is granted to society at large, money must be created for society at large.
I think that Positive Money’s proposals for an independent and accountable Monetary Policy Committee could accomplish this. Money is a most subtle means of exercising power and many political philosophers have missed its influence. French enlightenment philosopher Montesquieu famously articulated the “separation of powers” concept, which found its way into many political constitution, such as the US constitution. Montesquieu favoured a trias politica system of a separate “judicial”, “executive” and “legislative” powers. I think he missed a power – “monetary”. A new constitution could recognise explicitly a quadrias politica with separate judicial , executive, legislative and monetary powers as legitimate and separate functions of government.
The power of money can then be used as it should, for the people as a whole. It will no longer be used to steer the national economy in whatever direction profits the banks and to enslave the developing world in debt, driving its economies towards export of valuable resources for the profit of the banks, corporations and governments of the developed world. These exports should have repaid the debt many times over, were it not for a perverse system of accounting that grossly undervalues them, while simultaneously imposing the obligation to export even more. This obscene act of plunder by a buccaneer crew of globalised pirates has resulted in the most tragic fallout of human suffering and misery of the previous century.
It is our debt to the developing world to see things corrected during this century. Our debt to them is real and should be paid. Their debt to us is fake and can be straightforwardly cancelled. I’ll end with a quote from Michael Rowbotham’s book Goodbye America! explaining how:
“To understand how such a cancellation is possible we need only remind ourselves that modern money is almost entirely numerical – a mere book-keeping system. There is nothing of physical substance either to lend or repay. Money, debts, assets, deposits and bank reserves are all linked in the generation of money and the accountancy of banking – but these links can be severed and the rules suspended if desired.”