Blog by Steven Walsh.
I get to spend each of my days organizing and helping AMI reach its goals. Along the way, I meditate on how humans can have a better life. Here are a few thoughts on capitalism, money, and par-economics – starting with a few weeks ago trip to Wisconsin.
I was at the Wisconsin Grassroots Festival in Madison discussing monetary reform. Our lead speaker for two monetary presentations was Howard Switzer (former president of the Alliance For Just Money). Howard pointed out that you can look at the word Capitalism and break it up into “capital” and “ism.” Nowadays, capital is taken to mean “money,” and “ism” is taken to mean a “system.” He stated that at the heart of our economic system is money. Howard pointed out that at the core of that system is all too often power, greed, and exploitation. A hundred-plus years ago, “national capital “referred to a country’s resources, not money.
How we define and think of money is vital for our future survival. The monetary system is not a gift from nature but is created based on human desire, customs, and laws we create. The money system belongs to all of us, and depending on your historical point of view, we have gifted it to the bankers, or they subtly stole it.
Parity in US History
Perhaps in part because I was in a small city surrounded by farm country, I was thinking about parity for all farmers – and workers. Parity had a significant meaning during the first half of the 20th century in the United States. Parity was considered the price for raw materials that the farmer needed for the survival of their business (feel free to substitute for the farmer: the rancher, miner, fisherman/woman, etc.).
The cost of living in the United States was higher than in many other countries. Farmers in other countries could often produce grains or cattle, etc., at less cost in dollars than the American farmer. In that way, the American farmer would be at a substantial disadvantage in the market. Competition from foreign goods meant that U.S. farmers and producers of raw materials would not make enough money to meet living costs.
Starting in the 1930s and especially by the growing season of 1942, parity pricing was established in the United States so that farmers would receive at least 90% of their costs at the farm gate or the point of first sale. Also, if the farmer agreed to this program, the maximum they could receive was 110%. Most all farmers agreed to this parity pricing system, which put significant regulation into the marketplace. At the base of the U.S. economy, it allowed the people to make a decent living. Parity played an important role in getting the U.S. out of the Depression and through WWII. In the early 1950s, the traders, with supporting economists and politicians, wanted to revive the Chicago Board of Trade and other trading outlets that had gone into dormancy during the previous eleven parity years. I think this was a mistake, and today we need a new parity program suitable for the whole world.
Capitalism Squeezing the Farmer
Now, let’s look at Capitalism in the United States from the marketplace perspective as revived in the 1950s. Some of the highlights will point to why we have lost 900 farms per week on average. Starting with foreign competition, the first barge of imported soybeans arrived off the port, and the price for soybeans at the Chicago Board of Trade plunged by 30% in one day.
When a food distributor turns away from buying California avocados and buys equivalent avocados from Mexico where the cost of producing avocados is less, who gains and gets more money in their pocket (the middleman/distributor) and who gets less (the California grower)? When a U.S. President visits the President of Brazil and agrees to buy so many cattle from that country, the result most likely will be the U.S. rancher loses money.
The only way for farmers in the U.S. to make it financially with all the foreign competition has been to get big and follow the Monsanto seed and fertilizer program, even if it means denuding the farmer’s soil or going huge by squeezing in as many chickens, cattle, pigs into tight spaces and give them growth hormones and antibiotics to survive long enough and kill them as demanded by the best profit.
When we give up a system of parity and choose capitalism where the marketplace creates “price discovery,” the above practices since the 1950s for U.S. farmers to survive have led to our present-day unhealthy form of success.
However, suppose we can develop a system of parity, where the farmer knows they can get enough of a price when they sell their produce. In that case, the farmer can begin thinking about enriching the soil with more minerals for healthier produce and greater pride. The goal would not have to be to cheat the standards with the lowest quality for the highest profit to better your chances of survival.
Money as the Lifeblood of Society
Now, getting back to money and coming full circle, I believe the answer is how we think about money. If we think of money as the goal, the “object” of what we need in a capitalistic system of greed, then I feel humanity and life on Earth are in trouble. If we find ourselves in competition for want of money, then we are competing against everyone for everything we need for survival.
Differently, we can think of money as the lifeblood of society. It must get around to everyone participating in the world’s economic system. In this sense, we are participating on spaceship Earth, and where on Earth would we not want to see enough lifeblood? In this sense, money is not an object to be accumulated and concentrated on for acquiring but something that needs to be passed around with sufficient buying power so everyone can have a decent life.
If we can think of money not as an object for hoarding but as something necessary for everyone to have a decent life, then we can focus on a healthy humanity on a healthy Earth.
Stephen Zarlenga would often talk about there being good markets and bad markets. I’m wondering what we need to do now to create a good marketplace for our future that includes limits to growth on the Earth, environmental degradation that gets cleaned up, and people, their children, having many opportunities to engage productively in this world.
(A thank you to Randy Cook for pushing me to think about the dangers of money being treated as an object.)
With respect Steve, when you talk about money as the “life-blood” of the economy or as “something necessary” you are still stuck in the paradigm of money as an object or commodity. Money is sort of that but it is a tool to measure value like a tape measure is a tool to measure size. It measures the value of assets, liabilities and equity.
We have given the financial sector the power to control the creation of assets and their corresponding liabilities and resulting equity. Money measures the value of those. When the farmer borrows money at the bank, what s/he is doing is signing a liability and asset statement that requires the transfer of assets generated by their work and nature in the market. There it will then exchanged for money that can then be used to redeem their liabilities at the bank nullifying the liabilities and, if anything is left over, to measure the value of the resulting equity.
In the process the bank created the money it loaned to the farmer and then cancelled or destroyed that money when the liabilities were redeemed.
When we think of money as a commodity we lose sight of its temporary nature and its role to measure the value of the accumulation of assets or capital goods offset by liabilities. It leads to the idea of hoarding and thus the money supply. That then seems to lead to loanable funds theory and the notion that money is a store of value. That leads us to imagine that the quantity of money (instead the amount of spending) can be described as M0 or M1 or whatever.
Money is more like the water running through creeks and rivers towards lakes and oceans. We cannot measure that with any accuracy because it is constantly flowing and moving around, evaporating and taking on different forms (vapour, Ice, liquid). Money has a hierarchy with fiat at the top, and points in merchant marketing schemes or local currencies of lower status. Pound notes, Euros, loonies in Canada, Real in Brazil, etc. are other forms of money just like we can measure size in the Imperial or metric systems.
What these different forms of money have in common is their ability to measure value in the cultural milieu in which they are found.
Anybody can create money but the trick is to get others to accept it as a measure of the value of assets, liabilities and equity to allow for transactions of those entities to take place. Government regulations are the determining factor — the greatest of which is their power of taxation. That is what gives money its power. The power to redeem debt obligations or reduce liabilities. The American currency has a phrase on it — namely — “This note is legal tender for all debts public or private.”
I liked that you used a farm metaphor or example because a late friend, Professor John McMurtry, who wrote four books talked about the mediating function of money. It was part of what he called a life-money-life-money-life sequence evident in traditional farmer’s markets. Today’s financial market-driven economy has replaced thinking about it in those terms with a money-life-money-money-money sequence of the financial sector.
In other words by pushing up the values of the shares representing companies without any corresponding investment in new capital machinery or equipment or for innovative products, we are speculating rather than investing. Speculation is not true investment as I think about it. But it may well be the root of inflation and the higher priced farm products.
Inflation is defined as too much money chasing too few goods. Bill Krehm in his book Price in a Mixed Economy and the sequel Babel’s Tower began to examine price components of goods and what are often additional albeit ignored services (education, heath care, regulations, taxes, etc) to their price levels. Actual increased values contributing to price increases. Seatbelts and environmental equipment in cars come to mind.
When I buy a house and then sell it several years later for more than I paid without making any improvements, that is a result of a speculation factor that demand will drive up the price — namely inflation. If I were to put an addition on the house and sell it at a higher price than I paid, the increased value is for more goods and services creating an offset. Thus it is not inflationary. But it is said by economists when higher prices are prevalent across the economy, we have inflation meaning to them that the value of money has declined. In fact the value of the assets being measured is higher and we are using the same fiat currency we used to measure its previous value. But since no improvements have been made, the value is now an inflated value.
In other words we fail to separate out speculative increases in pricing from innovative and improvement costs.
Back to your farmer example. We have not broken down the differential in prices for beef, grains etc. across the countries. The differential is likely due to the differences in the complexities of govt and private services in those countries. Those differences must be priced into the products’ selling prices. When we allow goods from other countries to enter our markets at a lower price we are in effect putting pressure on regulators to race to the bottom by reducing/removing regulations, labour wages and safety regulations so that we are more competitive with those countries and their differential factors for pricing — mostly labour including their benefits such as social security but also profit margins. Think of the East Palestine rail disaster for the latter.
But there are other price differentials in farm products including weather, irrigation, water, rainfall, etc. All of which are varying variables.
The bottom line is that the economy is a complex chaotic system with constantly changing values of its assets, liabilities and equities but which economists wrongly believe operate in equilibrium. Govt and private spending must reflect that but fails to do so leading to many bad ideas about how to solve problems.
It is very easy in any discussion of money to sidetracked and confused. We start talking about the money system we have when it is not composed of real money, instead it is phony system of bank credit. This bank-created debt-money system is the only game in town though, so we refer to it as money when it is not. It is a direct descendent of the money as a commodity system. The Federal Reserve has told us that this began with goldsmiths that would take in people’s gold on deposit and issue them receipts or notes for the gold. People liked the convenience of using the paper receipts with others in town, in lieu of toting around their sack of gold and merchants were happy to accept the notes or receipts. The goldsmiths soon found that they could issue as receipts or loans vastly more than they had the gold to honor the receipts. Thus the birth of fractional reserve lending with the banks of the time issuing roughly 10 times the receipts or banknotes that they had to back the receipts in their vaults. The only word to adequately describe this type of system is fraud.
The first money systems were in the Fertile Crescent and consisted of state/temple run accounting systems in which money was represented as various commodities. Early Greek and Roman systems of fiat money used state issued iron and bronze fiat money that had no commodity value. It value was derived from it being a legal or fiat creation of the state. Adam Smith in his 1776 A Wealth of Nations through us all for a loop when he falsely said that the first money systems evolved from early barter systems, because there is no evidence that any societies used early barter systems. Instead all early money systems originated with state issued money.
Monetary Reform as proposed by the NEED Act put into Congress in 2011 and shunned by both Congress and the professional economics community would give us a system of publicly created money and make the private creation of money by banks or anyone else illegal.
I love Steven’s use of the term lifeblood to describe money. Money is the one thing we all need to simply survive in modern society. So it replicates the flow of blood throughout a living body, delivering what is needed to all parts of a body. Within the bank-created debt-money system, what should be our lifeblood is nothing more than deliverance of debt slavery to our people and our government. The publicly created money of the NEED Act allows us to break free of the fraudulent bank-created debt-money system. Both people and planet are in desperate need of publicly created money.
Money Creation 101, Change Our Money – Change Our Planet will be released on Amazon this spring.
When WE talk about money as the “life-blood” of the economy or as “something necessary” we are NOT stuck in the paradigm of money as an object or commodity, as the current system is, but rather a new paradigm that views money as “a system of social power” which, like our blood circulatory system, is supposed to deliver life supporting nutrients to every part of the body. This is why it is important that it be a transparent public system dedicated to fulfilling the Constitutional mandate as originally intended, the distributive mechanism for society, for as Frederick Soddy pointed out “To allow it to become a source of revenue to private issuers is to create, first, a secret and illicit arm of the government and, last, a rival power strong enough ultimately to overthrow all other forms of government.” This is where we are and why we seek to change the system. Money is the “leverage point” in the economic system, the point where a small change can change the entire system.
LOVE AMI’s new website!
I appreciate your thoughts, insights, work and dedication to turning the monetary system around from one that is siphoning off the wealth of the productive elements of society, and the priceless gifts of nature to one which serves all. I am in the process of rewriting my old “Reinventing Money” paper and will include a link to this website. I’ve learned so much from you and AMI. I am also deeply concerned with the current trajectory of digitized currency, designed to harvest data and shape human behavior, the impending technocratic slavery lurking on the horizon. The need has never been greater to raise awareness of the problems with our debt based system and the need for genuine reform. Keep up the good work!