I was going to call this post 'Money is bullshit' but decided against it because of my recent post called 'Hierarchy is bullshit'. But money, like hierarchy, as you'll see, is indeed bullshit. We think of money as being something that has real, intrinsic value, but it doesn't. It is just something we use for convenience, as a means of exchange. And just like the commodities we purchase with it, money can increase or decrease in value. Money, or its equivalent, has taken different forms in different times and in different societies, but given the financial crisis its worth looking at what money is today and how it is created.
Money, that is the paper notes and coins we use for day to day exchange, used to be backed by a commodity that had intrinsic (but variable) value - gold. This was known as the gold standard. In effect, the person issuing the money was saying - 'this note represents a certain amount of gold'. This system gave people confidence in the value of money and meant that there ought not to be more money in circulation than the value of gold to back it. The only way to increase the amount of money would be to obtain more gold. Things were not that simple however, because of wars and economic difficulties the gold standard became impossible to maintain. In the First World War Britain had to use fiat money to sustain the war effort, Britain finally left the gold standard in 1931 and other countries followed suit.
Fiat money, which is the system used globally nowadays, is money that, in effect, has a value because governments say it has - it must be accepted as a means of payment for goods and services. But where does this money come from? Well of course it is being coined and printed by governments. But new money is being created all the time from debt. This is explained simply and effectively in Paul Gringon's excellent animated video 'Money as Debt' which is essential viewing. In essence private banks are able to create money out of nothing. When you go in to a bank and ask for a £1000 loan you might expect that the bank is lending you money it has on deposit... but er.. no ... the bank is legally allowed to create that money out of nothing. A bank can lend you money it doesn't have, and charge you interest on it. Don't you just wish you could do that too?
There are a number of consequences of this debt driven system. One of the key one's is that it is unsustainable. The tendency, as you might imagine is for debt to grow over time, and with deregulation of the banks it has. But where does the money come from to pay the interest on all this debt? It comes from other debt, which in turn, has to have interest paid on it. hence the system cannot be sustained.
But what really matters about this is who really benefits from this set up? Its not difficult to guess! The fact is that we don't need this system of money. There are alternatives, for example at one time much of the money in circulation was created locally, and there is no reason why that can't happen again. In the Argentinian financial crisis millions of people used notes called creditos produced by community based organisations. All that is needed for money to have value is that people believe that it has. In practice any locally issued currency needs to be backed by goods and services otherwise it won't work. People also need to have confidence that any currency they use is well managed.
There are two key lessons here. The first is that global Capitalism is underpinned by a set of rules which work to the benefit of Capitalists and Capitalists alone. These rules, which make the Capitalist system possible, can and must be changed so that everybody benefits rather than the Capitalists. Secondly, there is nothing to stop us from creating our own monetary systems and thereby reducing the power and influence of the banks. Money, or the need to earn it is an essential mechanism for tying us into the Capitalist system. We need to create local economies backed by their own money systems in order to undermine the imperialist movement known as globalisation. As a first step, we can end the power of banks to create money from debt.
Footnote: Now we have front page confirmation of who is really running UK Plc. An article in Saturday's Guardian shows that Tesco boss Terry Leahy was instrumental in making the Monetary Policy Committee of the Bank of England give us a 1.5% interest rate cut. Thanks Terry. Not only does Tesco trouser £1 in every £8 we spend - it now sets our monetary policy. No doubt New Labour and the Tories will be thrilled - they want the country to be run by big business anyway. And you think you live in a democracy? - well you do - a Capitalist democracy, run by Capitalists like Terry, for Capitalists.