That’s about the extent of the “monetary theory” most of us are ever taught in state-run schools. Is it any surprise, then, that the vast majority of us go forth into the world taking both the existence and function of money for granted? Few workers bother to question money beyond this simple rule: YOU JUST NEED IT!

Many people spend their lives chasing dollars without ever stopping to question what it is they are chasing. After all, everybody else is doing it, better not get left behind – right? Well, before we get into rights and wrongs, why don’t we hit RESET and try to think like a visitor from Mars? Don’t know how a Martian thinks? Great! You’re catching on already. Now let’s take a fresh look at this weird Earth-stuff they call “money” …

WORDS: Boris Bell

“We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.”
- Robert H. Hemphill, 1936 (Credit Manager of Federal Reserve Bank, Atlanta, Ga.)

Imagine if you had all the money you wanted. Can you picture it? If your mind is conjuring up an image of a huge bank vault rammed full of high denomination bills then stop right there. You’re going to have to do better! I’m talking about the power to create money out of thin air and lend it at interest to anyone who wants, or can be persuaded, to “borrow” money. What would you do with such a power?

If this scenario seems far-fetched then you obviously weren’t born into a banking family. If you were then you’d know that’s what bankers do every day. You’d also most likely be aware that money today no longer represents gold and silver as it did in the old days. All it represents is debt. (For more information on this concept see ‘The Money Matrix’ – UGM007, pg. 79.) A dollar is worth … another dollar. It has no redeemable value in gold, silver or anything else that we regard as intrinsically precious. The bills we use to buy and sell are what we call “fiat currency” or “legal tender.” Fiat is Latin for “let it be done.” When applied to money, it means the only kind of money that the Law will enforce as “final payment” for a debt.

But beyond government enforcement, what is it that makes this fiat money acceptable to you and I in trade for our goods or services?  The answers is FAITH, faith that our “money” will continue to have value in trade for the things we really need or want, when we want them.

While legal tender laws ensure that national paper currency and coins MUST be accepted as payment, the value of this money is not guaranteed. Therefore one must have faith that, when you spend it, the $500 will still buy you something commensurate with the effort you put out to earn it.

Do we place our faith in the bills themselves? Sort of. Actually, we are placing our faith in the central bank of the country, as we depend on this institution for the availability of enough money to allow us to exchange our time and energies efficiently. Too much will make the money lose value: what we call “inflation.” Too little (deflation), and borrowers will be unable to pay off their debts.

Banks may not actually have the money they supposedly lend, but they do LOSE that imaginary money from their balance sheets if it is NOT repaid. That is when the money becomes real, you might say! Massive loan defaults cause massive bank losses and failures, leading to widespread economic collapse.

As future generations of taxpayers have just been saddled with forever unpayable PUBLIC debts to make up for these massive PRIVATE bank losses, one BIG question remains. The baker bakes bread. The fisherman catches fish. The farmer produces all manner of essential consumables, from artichokes to onions. So ….

WHAT DO BANKERS PRODUCE? $$$$

The answer is simple. DEBT. Lots and lots of it. Conjured up out of nothing more than our promises to repay with our REAL skills and energies. And, as debt is potentially limitless, so the supply of money is potentially limitless. The more money there is in circulation, the less it is worth, driving prices up and up. The bankers profit from the interest charged on bigger gobs of  “money” they never actually had while the resulting devaluation of the money unit robs everyone else of the VALUE of their savings.

So why are we all in debt to bankers who produce nothing? How long can bankers convince us that they are a necessary component of our survival? We are fast approaching a crisis of faith in our money – and many monetary reformers argue that the only way Earthlings can hope to live sustainably on this planet is to drastically rethink their monetary system.

So what would a world without banks and bankers look like?

Welcome to the REAL world. What, you may ask, is REAL? Well, why not start with the goods and services that we both produce and consume every day? For instance, you might be a grade ‘A’ veggie grower. Your produce is REAL. And the demand for your produce is REAL. So, can we create our own medium of exchange without being at the mercy of the banks or goldsmiths or any other “middlemen” to provide it?

The answer is YES! And no, we’re not regressing back to the days of barter (which is notoriously cumbersome). The concept is called “self-issued credit” and it works like this:

Let’s say you’re a baker selling your bread in a marketplace. How can you trade with other stall owners if there is a sudden shortage of currency? (Perhaps due to an “economic slowdown” or “credit crunch” or whatever voguish term you prefer.) How can you continue to trade without bank-issued currency? The answer? Issue your own bread vouchers! It’s simple! Let’s say you usually expect to sell 20 loaves of bread per day based on the historical demand and your productive capacity. You can therefore safely issue yourself 20 bread vouchers and use these to buy fish from the fishmonger and meat from the butcher, etc. The fishmonger and butcher put their faith in YOU. In short, they are stating that they believe your “bread vouchers” are as good as the bread itself – the thing of real value.

Your bread vouchers can be traded again and again, for all manner of different goods and services that have nothing to do with bread, each voucher taking its own route through the marketplace until eventually being redeemed for real bread at your bakery.

Now imagine that the scheme catches on and other market traders start issuing themselves credit based on their own real goods and services. Every trader knows on a given day what their expected sales would be. Based on this, the fishmonger issues himself fish vouchers, the vegetable grower veggie vouchers, etc.

The only thing missing to hold this system together is a commonly accepted measurement unit. Just as inches are an agreed unit of distance, we need a commonly accepted unit of “value.”

“All goods must therefore be measured by some one thing … now this unit is, in truth, demand, which holds all things together.”
- Aristotle 384 BC-322 BC

At the moment, our agreed unit of value is the national currency unit: dollar, pound euro, yen, yuan, peso etc. The value of these units is not defined by reference to gold or any other commodity. The national currency unit’s value is defined and redefined constantly by the prices of real things in general.

Once we understand that money at its root is a unit for measuring the demand for real things, money can cease to be a commodity in itself, a  scarce commodity that only comes from banks. It can, instead, become the common measurement unit for promises of payment in actual production by any entity that can deliver on those promises. That would be money being created by making something in demand. Doesn’t that sound sensible? Doesn’t it even sound a little like what you might have innocently thought money was, as a child?

Today the Internet provides us with the technological infrastructure we need to create our own digital, interest-free currency based on self-issued credit. One such proposal is called “Digital Coin,” devised by Canadian artist Paul Grignon. Just like our marketplace example, corporations can issue themselves credit based on the real demand for their goods and services, rather than going to banks who pretend to lend “money.”

There already are several alternative currency systems in use such as LETS and Time Dollars – interest free, self-issued credit backed by the real goods and services of individuals and businesses. There are also many business-to-business international barter systems carrying out large-scale transactions on similar principles of self-issued credit. Digital Coin simply provides an opportunity, using emerging technologies, to extend even further and make even more versatile, intelligent and useful, systems that are already working.

“Nobody is ever stopped from building a house because of a shortage of inches. Why should the producers of real goods and services be prevented from trading because of a shortage of some numbers a bank just types in on a computer screen?”
- Paul Grignon, creator of “Digital Coin”

To find out more about Digital Coin, please visit: www.digitalcoin.info.

Douglas Rushkoff, author of

WORDS: Douglas Rushkoff

With any luck, the economy will never recover.

In a perfect world, the stock market would decline another 70 or 80 percent along with the shuttering of about that fraction of our nation’s banks. Yes, unemployment would rise as hundreds of thousands of formerly well-paid brokers and bankers lost their jobs; but at least they would no longer be extracting wealth at our expense. They would need to be fed, but that would be a lot cheaper than keeping them in the luxurious conditions they’re enjoying now. Even Bernie Madoff costs us less in jail than he does on Park Avenue.

Alas, I’m not being sarcastic. If you had spent the last decade, as I have, reviewing the way a centralized economic plan ravaged the real world over the past 500 years, you would appreciate the current financial meltdown for what it is: a comeuppance. This is the sound of the other shoe dropping; it’s what happens when the chickens come home to roost; it’s justice, equilibrium reasserting itself, and ultimately a good thing.

I started writing a book three years ago through which I hoped to help people see the artificial and ultimately dehumanizing landscape of corporatism on which we conduct so much of our lives. It’s not just that I saw the downturn coming—it’s that I feared it wouldn’t come quickly or clearly enough to help us wake up from the self-destructive fantasy of an eternally expanding economic frontier. The planet, and its people, were being taxed beyond their capacity to produce. Try arguing that to a banker whose livelihood is based on perpetuating that illusion, or to people whose retirement incomes depend on just one more generation falling for the scam. It’s like arguing to Brooklyn’s latest crop of brownstone buyers that they’ve invested in real estate at the very moment the whole market is about to tank. (I did; it wasn’t pretty.)

Now that the scheme we have mistaken for the real economy is collapsing under its own weight, however, it’s a whole lot easier to make these arguments. And, if anything, it’s even more important for us to come to grips with the fact that the system in peril is not a natural one, or even one that we should be attempting to revive and restore. The thing that is dying—the corporatized model of commerce—has not, nor has it ever been, supportive of the real economy. It wasn’t meant to be. And before we start lamenting its demise or, worse, spending good money after bad to resuscitate it, we had better understand what it was for, how it nearly sucked us all dry, and why we should put it out of our misery.

CHARTERED CORPORATIONS

Back in the good ol’ days—I mean as far back as the late middle ages— people just did business with each other. As traveling got easier and people got access to new resources and markets, a middle class of merchants and small businesspeople started to get wealthy. So wealthy that they threatened the power of the aristocracy. Monarchs needed to come up with a way to stabilize their own wealth before the free market unseated them.

They invented the corporate charter. By granting an exclusive charter, a king could give one of his friends in the merchant class monopoly control over a region or sector. In exchange, he’d get shares in the company. So the businessperson no longer had to worry about competition—his position at the top of the business hierarchy was locked in place, by law. And the monarch never had to worry about losing his authority; businesses with crown-guaranteed charters tend to support the crown.

But this changed the shape of business fundamentally. Instead of thriving on innovation and progress, corporate monopolies simply sought to extract wealth from the regions they controlled. They didn’t need to compete, anymore, so they just sucked resources from places and people. Meanwhile, people living and working in the real world lost the ability to generate value by or for themselves.

For example: In the 1700s, American colonists were allowed to grow corn but they weren’t allowed to do anything with it–except sell it at fixed prices to the British East India Trading Company, the corporation sanctioned by England to do business in the colonies. Colonists weren’t allowed to sell their cotton to each other or, worse, make clothes out of it. They were mandated, by law, to ship it back to England where clothes were fabricated by another chartered monopoly, then shipped back to America where they could be purchased. The American war for independence was less a revolt against England than a revolt against her chartered corporations.

The other big innovation of the early corporate era was monopoly currency. There used to be lots of different kinds of money. Local currencies, which helped regions reinvest in their own activities, and centralized currencies, for long distance transactions. Local currencies were earned into existence. A farmer would grow a bunch of grain, bring it to the grain store, and get receipts for how much grain he had deposited. The receipts could be used as money—even by people who didn’t need grain at that particular moment. Everyone knew what it was worth.

The interesting thing about local, grain-based currencies was that they lost value over time. The people at the grain store had to be paid, and a certain amount of grain was lost to rain or rodents. So every year, the money would be worth less. This encouraged people to spend it rather than save it. And they did. Late Middle Ages workers were paid more for less work time than at any point in history. Women were taller in England in that era than they are today—an indication of their relative health. People did preventative maintenance on their equipment, and invested in innovation. There was so much extra money looking for productive investment, that people built cathedrals. The great cathedrals of Europe were not paid for with money from the Vatican; they were local investments, made by small towns looking for ways to share their prosperity with future generations by creating tourist attractions.

Local currencies favored local transactions, and worked against the interests of large corporations working from far away. In order to secure their own position as well as that of their chartered monopolies, monarchs began to make local currencies illegal, and force locals to instead use “coin of the realm.” These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.

What does that do to an economy? It bankrupts it. Think of it this way: A business borrows 1000 dollars from the bank to get started. In ten years, say, it is supposed to pay back 2000 to the bank. Where does the other 1000 come from? Some other business that has borrowed 1000 from the bank. For one business to pay back what it owes, another must go bankrupt. That, or borrow yet another 1000, and so on.

An economy based on an interest-bearing centralized currency must grow to survive, and this means extracting more, producing more and consuming more. Interest-bearing currency favors the redistribution of wealth from the periphery (the people) to the center (the corporations and their owners). Just sitting on money— capital—is the most assured way of increasing wealth. By the very mechanics of the system, the rich get richer on an absolute and relative basis.

The biggest wealth generator of all was banking itself. By lending money at interest to people and businesses who had no other way to conduct transactions or make investments, banks put themselves at the center of the extraction equation. The longer the economy survived, the more money would have to be borrowed, and the more interest earned by the bank.

FINANCIAL MELTDOWN

Which is pretty much how things have worked over the past 500 years to today. So what went wrong? Nothing. The system worked exactly as it was supposed to. The problem was that after America’s post WWII expansion, there was really no longer any real growth area in the economy from which to extract wealth. We were producing and consuming about as much as we could. Almost no commercial activity was occurring outside the corporate system. There was no room left to grow. Sure, outsourcing, lay-offs, and technology created some efficiencies, but wars, rising costs of health care, and exchange rates essentially offset any gains.

Making matters worse, all that capital that the wealthy had accumulated needed markets—even fake markets— in which to be invested. There was a ton of money out there—just nowhere to put it. Nothing on which to speculate.

The dot.com boom seemed to offer the promise of a new market, but it fizzled almost as quickly as it rose. So speculators turned instead to real assets, like corn, oil, even real estate. They started investing speculatively on the things that real people need to stay alive. What real people didn’t understand was that there is no way to compete against speculators. Speculators aren’t buying homes in which to live—they are buying houses to fl ip. Speculators aren’t buying corn to eat or oil to burn, but bushels to hoard and tankers to park off shore until prices rise. The fact that the speculative economy for cash and commodities accounts for over 95% of economic transactions, while people actually using money and consuming commodities constitute less than 5% tells us something important. Real supply and demand have almost nothing to do with prices. We do not live in an economy, we live in a Ponzi scheme.

Luckily for us, the banks, and the speculators depending on them, made a bad wager: they bet on our continuing capacity to provide a reality on which to base their highly leveraged schemes. We just couldn’t do it. They put us between a rock and a hard place. With George W’s help, they sold us on the notion of home ownership as a prerequisite to the American dream. And they created a number of loan products which made it look as if we could actually afford over-priced homes. The banking industry spent hundreds of millions of dollars lobbying for laws making bankruptcy difficult or impossible for average people to accomplish—while simultaneously selling average people loans that they would never be able to pay back.

The banks didn’t really care, anyway, since they never meant to keep these loans. They simply provided the cash to mortgage companies, who then packaged the loans. In return for putting up the original cash, the banks also won the right to underwrite the sale of those mortgage packages to investors—investors like pension funds, retirement funds, or you and me. Get it? The banks get all the interest, but we put up all the money. Our retirement accounts and pension funds invest in the very mortgages that we can’t pay back. The bank collects any interest, playing both sides of the equation but responsible for neither.

And when the whole scheme begins to break down, what do we do? We try to bail out the very banks that created the mess, under the premise that we need these banks in order for business to come back, since only banks can lend the capital required for businesses to flourish.

YES, IT IS WRONG

President Obama may be smarter than most of us, but he’s still attempting to rescue the very institutions that robbed us in the first place. He’s not a socialist, as conservatives may be arguing, but he is a corporatist. Using future tax dollars to fund government job programs is one thing. Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor.

As painful as it might be to watch, and as irritating as it might be to those with shrinking retirement savings, the collapse of the centralized corporate economy is ultimately a good thing. It makes room for a real economy to rise up in its place. And while it may be temporarily uncomfortable for the rich, and even temporarily devastating for the poor, it may be the fastest and least violent way to dismantle a system set in place for the benefit of 14th Century monarchs who have long since left this earth.

If the corporate supermarket chain’s debt structure renders it incapable of stocking its shelves this spring, this may be the wake-up call that consumers need to finally subscribe to a Community Supported Agriculture farmer. If the former associate fund analyst at Lehman realizes that he is unable to get a job not just because his industry is contracting but because his work day creates no real value for anyone at all, he will be forced to learn how to do something that does. If an urban elite parent realizes he can no longer pay private school tuition for his kids, maybe he’ll consider donating to public school the time he would have spent earning that tuition.

In short, the less we are able to depend on business-as-usual to provide for our basic needs, the more we will be forced to provide them for ourselves and one another. Sometimes we’ll do this for free, because we like each other, or live in the same community. Sometimes we’ll exchange services or favors. Sometimes we’ll use one of the alternative, local currencies coming into use across the country as Central bank-issued currencies become too hard to get without a corporate job.

Deprived of centralized banks and corporations, we’ll be forced to do things again. And in the process, we’ll find out that these institutions were not our benefactors at all. They were never meant to be. They were invented to mediate transactions between people, and extract the value that would have passed between us. Far from making commerce or industry more efficient, they served to turn the real world into a set of speculative assets, and real people into debtors.

The current financial crisis is the best opportunity we have had in a very long time for a bloodless revolution against the faceless fascism under which we have been living, unaware, for much too long. Let us seize the day.

Douglas Rushkoff is the author of Life Inc: How the World Became a Corporation and How to Take It Back, published by Random House.