In each other we trust: coining alternatives to capitalism

by Jerome Roos on March 31, 2014

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Beyond God and state, it’s money that rules. Can we still imagine alternatives? And what role will recent innovations like Bitcoin play in the struggle?

One doesn’t need to subscribe to Gilles Deleuze’s somewhat obscurantist post-structuralism to recognize that the French philosopher made at least two extremely prescient observations. First, his hypothesis in the early 1990s that Foucault’s disciplinary society, with its schools, prisons and mental asylums, had ceased to be the paradigmatic mode of governmentality under neoliberalism and was instead giving way to a nascent “state of control.” And second, his related observation that in this emerging control society the money-form assumes renewed centrality within the reproduction of capitalist power relations. “Beyond the state,” Deleuze wrote, “it’s money that rules, money that communicates, and what we need these days isn’t a critique of Marxism, but a modern theory of money as good as Marx’s that goes on from where he left off.”

Interestingly, Deleuze tied these two observations together with the chains of debt, which he considered to be the “universal condition” of capitalist control. In his widely-cited Postscript of 1992, he wrote that “man is no longer man confined, but man in debt.” I was reminded of these prescient words when I attended the fascinating MoneyLab conference in Amsterdam last weekend. Organized by the Institute of Network Cultures, the event brought together a smattering of intellectual superstars like Saskia Sassen and Franco ‘Bifo’ Berardi, alongside a diverse and international group of scholars, artists, activists, hackers and heterodox economists, including past ROAR contributors Max Haiven and Brett Scott. The central aim of the groundbreaking interdisciplinary gathering was to explore “experiments with revenue models, payment systems and currencies against the backdrop of ongoing global economic decline.”

With panel discussions on “the monetization of everything”, “dismantling global finance”, “beyond Bitcoin”, “a critique of crowdfunding” and “designing alternatives”, the organizers of the conference set the tone right: in a world dominated by finance, a thoroughly indebted world in which money has effectively assumed the function of a universal signifier under which all aspects of social and natural life are rapidly becoming subsumed, we desperately need to start exploring radical alternatives to the capitalist money-form — not because alternative currencies are somehow a panacea, but because the state and the banks clearly aren’t going to do it for us. Despite major technological advances made in recent years, right-libertarian innovations like Bitcoin just won’t cut it. And so there is an urgent need to dissect, discuss and discover new ways of valuing work, time, nature, community and the fruits of our collective labor.

In addition to strengthening the emerging international network of scholars, hackers and activists working on a critique of finance and the development of alternative currencies, payment systems and revenue models, perhaps the most important thing about the MoneyLab conference was that it happened at all. In fact, just half a decade ago, very few people were seriously talking about money. Today, there appears to be a veritable surge in awareness (at least among intellectual and activist circles, but increasingly among the general population as well) of the nature and importance of money, and the critical role that alternative currencies and mutual credit systems could play in subverting the state-finance nexus and liberating ourselves from capitalist control.

Thanks in large part to Occupy’s critique of global finance, the publication of David Graeber’s influential Debt: The First 5,000 Years, a resurgent interest in a non-dogmatic re-reading of Marx, and the tireless (albeit not very revolutionary) advocacy of heterodox monetary reform groups like Positive Money and the New Economics Foundation, the money question finally appears to have been liberated from the suffocating scene of anti-Semitic conspiracy theorists, right-libertarian gold bugs and anarcho-capitalist “currency cranks” to which it had hitherto largely remained confined. At last, an international project is starting to take shape to research and experiment with concrete alternatives, laying the groundwork for a world in which the means of production are held in common and both the form and creation of money are subject to direct-democratic control by newly empowered communities of users.

While it would be impossible to fit the many relevant topics discussed at the conference into a single post, I want to shine a light here on what I considered to be some of the most important points raised by participants, along with some additional thoughts they helped inspire (I apologize in advance for missing out on countless other interesting observations). In the coming weeks and months we will hopefully be revisiting the money question on ROAR in greater detail. As always, we welcome contributions on the subject (contact us here).

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1. Money is debt

One broad point of consensus among participants in the MoneyLab conference was their adherence to a heterodox theory of money creation that has been referred to as the “credit theory of money.” Spearheaded in the early 20th century by British economist Alfred Mitchell-Innes and more recently popularized by anthropologist David Graeber and heterodox think tanks like Positive Money, the credit theory of money can be said to revolve around two main assertions. First, money’s historical origins lie not in its function as a medium of exchange, smoothing out the inefficiencies of barter (as Adam Smith and even Karl Marx had asserted), but rather in its function as a unit of account for various social obligations. Money, in other words, originated in debt — or, perhaps more appropriately, in the debtor-creditor relation. Money should therefore not be seen as a thing, an object or commodity, but as a social relation. In fact, it is a power relation between unequals, one that forever pitches debtors against creditors. In The Making of the Indebted Man, Maurizio Lazzarato even goes so far as to claim that the debtor-creditor relation is the fundamental class relation, and capital the “universal creditor”.

2. Private banks create money

The second assertion of credit theorists of money — echoed by many participants at the MoneyLab conference and recently confirmed by a widely-discussed paper by the Bank of England — is that every time a bank extends a loan to a customer it actually creates money in the process. The sheer simplicity of this statement often invites incredulity. Surely private banks can’t just create money from scratch? Isn’t money created by central banks, acting on behalf of the state? The answer is yes: central banks do create money, but the money they create is either credit extended to private banks or cash — and cash nowadays only constitutes a very small percentage of the total money supply. In the US and the UK, paper money and coins constitute roughly 3% of the largest monetary aggregate (in the eurozone the amount is closer to 10%). The remaining amount is “virtual” credit-money that exists only as numbers on a screen. Most of this money came into existence through a basic accounting trick in which a bank simply credited a customer’s account and created the deposit in the process.

Mainstream skeptics often argue that this money is still technically created by central banks by extending credit to private banks which then “multiply” their deposits upwards to generate additional money. In this classical Keynesian theory of money creation, vehemently defended by Paul Krugman, central banks still control the total money supply. Recent evidence has challenged this view, however, and the Bank of England (BoE) paper — while not denying that central banks still play an important role — unambiguously states that “Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.” It is rather the other way around: private banks take the initiative by extending credit and only look to attract additional deposits after the fact. As the BoE puts it: “Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

3. Finance is not just about money

The above account clearly illustrates that finance is not just about money — or at least not about money as a thing. Banks are not simply intermediaries that match savings and investments and efficiently redistribute capital through the economy in search of the highest yields. While finance has allowed for the monetization of everything, Saskia Sassen correctly insisted in her talk that, “if you reduce finance to money, you are missing the key aspect of the plot.” Sassen rather defines finance as a capability; and not necessarily a benign capability at that. Finance is the capability of selling something you don’t have; or going back to what we said before, creating money and allocating credit without actually possessing it prior to extending the loan. This endows finance with vast structural power and enormously destructive potential: just think of the 44% of Greek households that now live below the poverty line, or the 9 million American families and the nearly half a million Spanish homeowners who have been evicted from their homes since the financial crisis began in 2008. As Sassen put it, modern finance, with its debt instruments, over-the-counter derivatives and endless innovations, is all about “enormous complexities producing simple brutality.”

4. It’s time to start “hacking” money

From this, it is clear that, to liberate ourselves from debt bondage, truly democratize society and create political and fiscal space for radically emancipatory alternatives, the public-private duopoly of money creation — what David Harvey has referred to as the state-finance nexus — urgently needs to be dismantled. The idea that this can somehow be done without taking on capitalism is a dangerous illusion. There is no such thing as a “real” productive economy that somehow exists in isolation from the “virtual” financial economy. Contemporary capitalism is thoroughly financialized in nearly every respect. To take on finance is to take on capitalism; and to take on capitalism is to take on the capitalist state. At present, we clearly do not have the tools, nor the strength, to fundamentally challenge this state-finance nexus, let alone destroy it and replace it with something else. But some of the more privileged among us do have the opportunity to start subverting global finance in playful and creative new ways.

This was the subject of Brett Scott’s talk about “hacking the future of money,” in which the South African activist argued that we need to apply a hacker ethic to the way we interact with finance: beginning by disassembling small parts, studying their internal functioning and their relationship to other parts, and then trying to tweak core components in order to explore the outcomes of such interventions. What would happen, for instance, if we took interest out of the equation? What would happen if we moved towards full reserve banking? What would happen if our currency included an automatic demurrage fee (a tax on hoarding money) that could be redistributed in the form of a basic income? Needless to say, “hacking” finance in these small ways will not be enough to undermine its structural power as such; but “opening up” money and tweaking its core components will be an essential first step in deepening our understanding of its inner workings and finding ways to subvert its destructive potential (and even wield its creative capabilities) with revolutionary intent.

5. Money is one of the keys to autonomy

Alternative currencies, while certainly not a panacea, can play an important role in building autonomy from both finance and the state. Of course complete autonomy is impossible as long as the hegemonic mode of production and the dominant money-form remain thoroughly capitalist, but that shouldn’t stop us from starting to make cracks in the facade of financial domination by developing concrete alternatives in the here-and-now. Countless experiments are already taking place around the world to develop worker-run cooperatives, autonomous healthcare clinics, solidarity economies, and so on. But as David Harvey has rightly observed, these laudable projects will ultimately be short-lived if they continue to depend on capital and/or the state for their economic survival.

One of the fundamental contradictions that autonomous and cooperative forms of production tend to run into is that they usually require some form of investment to get started and keep going. As long as worker-run cooperatives are required to turn to private banks to finance themselves, they will be subjected to the same structural exigencies as ordinary firms: they will need to achieve a surplus (i.e., generate profit) in order to be able to repay their loans plus interest, and therefore are forced to either reproduce capitalist forms of competitive market behavior or face the consequences and go out of business (the recent bankruptcy of some Mondragón cooperatives in the Basque Country is a case in point). Here, alternative currencies and mutual credit could play an important role in severing the dependence of worker-run cooperatives on private finance and the cycle of capital accumulation more generally, thereby recovering a sense of collective agency and productive autonomy.

6. Money is bound up with trust

Since money is ultimately a social relation rooted in a common understanding and a mutual recognition of our obligations towards one another, successful currencies fundamentally depend upon trust. Not coincidentally, this is also the Latin root of the word credit: credere, to believe and to trust. In this sense, the credit crisis of 2008 — of which we continue to feel the ramifications today — is properly a crisis of trust: mistrust about the ability of borrowers to repay their loans, mistrust about the real value on the balance sheets of financial institutions, mistrust about the willingness of bankers to stick to their side of the bargain, mistrust about the intentions of the state with respect to our pensions, public services, life savings, etc. This observation is not intended to “psychologize” capitalism (clearly the roots of the crisis are systemic), but rather to expose a fundamental paradox that lies at the heart of its financialized form.

After all, is it not a defining feature of Wall Street’s mafia culture that we should trust no one? Fidite nemini seems to reign supreme as the competitive capitalist’s dogma of distrust. Did not Ayn Rand espouse the virtues of egoism and denounce the evils of altruism precisely because man was supposed to trust in himself, and himself alone? In today’s hyper-individualistic society, our trust in humanity and one another is rapidly becoming displaced into a childish sense of trust in the two avatars of neoliberal governmentality: credit-money and the security state. Look at a $20 bill or flip a coin and you will find the inscription: “In God we trust.” But what God? Giorgio Agamben was entirely right when he recently remarked that “God did not die; he was transformed into money.” Isn’t it precisely because we are so uprooted from any meaningful sense of community, so deeply suspicious of the people and the world around us, that we are still willing to display unquestioning devotion to an abstract higher being that we don’t even fully understand — in this case Mammon, the deity of avarice? Money, then, is both what ties us together and what tears us apart. As the young Marx put it:

If money is the bond binding me to human life, binding society to me, connecting me with nature and man, is not money the bond of all bonds? Can it not dissolve and bind all ties? Is it not, therefore, also the universal agent of separation? It is the coin that really separates as well as the real binding agent — the chemical power of society.

Of course, the displacement of trust and faith into the money-form is nothing new. When credit-money and fractional reserve banking first emerged in proto-capitalist 15th century Florence, withering away the community of believers that sustained the power of the Church, the reactionary Dominican friar Girolamo Savonarola famously organized a “bonfire of the vanities” to protest the evil encroachment of money upon the love of God. For much the same reason, Dante reserved a special place for the miser in the fourth ring of hell, while the usurer would be forced to walk on burning earth under a rain of fire until the end of time. Thanks to capitalism, the Church lost its monopoly on “virtue”, and money rapidly became the master signifier of value. The displacement of human faith from God into money clearly reaches its apotheosis in the symbiotic development of modern finance and the nation state. As Marx observed, sovereign debt (and private trust in the willingness of government to honor this debt) played a central role in that process. “Public credit,” he wrote, “becomes the credo of capital. And with the rise of national debt-making, want of faith in the national debt takes the place of the blasphemy against the Holy Ghost, which may not be forgiven.”

7. Alternative currencies face a question of scale

The somewhat more abstract discussion above directly feeds into the next point, which was another important observation made by a number of crypto-currency critics at MoneyLab, including Franco ‘Bifo’ Berardi. One of the main challenges that alternative currencies face is the question of scale — which in turn has some very important implications for the question of trust. On the one hand, we have a proliferation of local currencies, some already quite deeply rooted in their communities, where ordinary people seek to re-appropriate and re-embed money within a different matrix of common values in order to facilitate the satisfaction of important social needs and desires. These local currencies sometimes hark back towards a somewhat romantic notion of territoriality that seeks to re-ground human relations within the material life-world of really-existing human beings, thereby counterpoising a tangible sense of human sociality to the virtual and abstract realm of credit default swaps and complex derivative contracts that characterize modern finance. One thing these local currencies have in common is that they are all principally based on trust.

It is clear, however, that local currencies will never be able to challenge — let alone replace — globalized finance capital as such. At most, local currencies will develop into significant complementary currencies that can be added to a wide-ranging mix of monetary instruments. If we are to devise some kind of alternative to global capitalism, however, we will have to start thinking either on a much larger territorial scale (i.e., globally) or transcend territoriality altogether by developing non-local currencies (whereby non-locality refers to a concept in quantum physics according to which two objects, separated in space and with no perceivable intermediary between them, can nonetheless stand in direct contact with one another). The latter is the realm of crypto-currencies like Bitcoin: a peer-to-peer digital currency that can put a Kenyan farmer in direct contact with her customers, and an American college student or Wall Street banker in direct contact with their drug dealer, without any intermediation by a bank or state. The peer-to-peer technology behind Bitcoin is quite revolutionary in this respect. What we are witnessing is a very exciting proof of concept: we can actually create money without the need for states or banks!

8. Cryptography (alone) won’t set us free

But, as Bifo importantly stressed in his talk, the principle of automation that lies behind crypto-currencies like Bitcoin hides a great risk: by explicitly rejecting the need for trust among the community of users as a fundamental feature of its technological design (a distributed public ledger called the “blockchain”), Bitcoin threatens to remove the last residues of our social bonds from the money-form, thus transforming it into the ultimate agent of separation. Precisely because it is decentralized and non-local, Bitcoin cannot operate on the basis of a trust principle as local currencies do. Instead, it is designed on the basis of the same Randian principle that animates bankster culture: fidite nemeni, trust no one! Now that we have been so thoroughly abandoned by God, finance and the state, an anonymous army of cyber-libertarians proposes a new icon to worship: cryptography. And so our faith becomes displaced into the sophisticated source code behind the new forms of digital money.

Money, then, becomes automated. Once programmed and set free, the currency is supposed to live a life of its own. Of course critics can “fork off” from the source code and create their own alternatives, but the principle remains the same: anonymous cryptography replaces trust as the measure of our sociality, thus removing the last-remaining bit of humanity from the equation. Bitcoin therefore does not solve capitalism’s crisis of trust; it merely radicalizes it by insisting that nothing and no one can be trusted — only code. One member on the Bitcoin Talk Forum instructed his fellow enthusiasts thus: “Don’t trust the exchanges, don’t trust online wallet services, don’t trust your anti-virus software, and don’t trust anybody online.” While he was entirely right, it should be clear that this deepened sense of social paranoia is nothing but capitalist schizophrenia on steroids. There is absolutely nothing liberatory about the automation of distrust. A society in which people have completely ceased to trust one another is simply the perfection of Ayn Rand’s egoist dystopia — a nightmarish manifestation of a hyper-individualistic worldview gone haywire.

As my friend Rutger Kaput, a philosopher at Oxford University, pointed out to me after the conference, in times of universal deceit, simply trusting in one another actually becomes a revolutionary act. To be sure, romantic longing for the local communities of old will not derail the inexorable slide into financial dictatorship. But a world without trust is not a world worth living in. As Quinn DuPont convincingly argued in his talk, cryptography may have an important role to play in the struggle against the control state. But if we start fetishizing it, believing it can somehow replace trust as the glue of our social bonds, we will only end up deepening our sense of alienation from our fellow human beings. After all, without trust, what is to become of our sense of common purpose? The fundamental contradiction that Marx observed, between money as the ultimate social bond and the universal agent of separation, will only be further amplified. Bifo was therefore right to argue that, in the automation of distrust through cryptography, neoliberalism finally finds its avatar — its perfected manifestation.

9. Bitcoin is NOT a revolutionary currency

To this, we must add the observation — rightly repeated at MoneyLab — that, aside from the moral problems that come with its amoral technological design, there is also a crucial issue with Bitcoin’s monetary design, which is essentially conservative in nature. In fact, Satoshi Nakamoto, the mysterious Bitcoin founder, was clearly influenced by orthodox monetary theories and right-libertarian economic ideas, not least those of arch-neoliberal Friedrich Hayek, who was already calling for the “denationalization of money” back in the 1970s. Most importantly, Bitcoin is effectively designed to function like gold: it is created exogenously, through a complex algorithmic process of “mining”, and circulates as a commodity. New coins come into existence at a predetermined rate and with a set cap on the total money supply. This means that, when the amount of users and transactions within the Bitcoin system begin to expand, the money supply won’t be able to keep pace — eventually producing deflation. The fact that Bitcoin are infinitely divisible shows that Nakamoto was acutely aware of this fact and deliberately coded deflation into the system. (Deflation is a decrease in the general price level of goods and services, and was the scourge of the gold standard that destroyed millions of lives during the Great Depression.)

But while ordinary workers suffer from deflation, which aggravates unemployment and puts downward pressure on salaries, it’s actually a boon for the wealthy. After all, if you hold a large amount of savings, the purchasing power of your money appreciates with every day that the general price level falls. This means that deflation incentivizes hoarding by materially rewarding the accumulation of money. With deflation, the rich get richer by doing absolutely nothing. Rather than throwing their money into circulation, as the worker would do when buying her basic necessities or as the “productive” capitalist would do when procuring machinery, raw material and labor power, the hoarder will hold on to his gold or Bitcoins as long as possible. Deflationary monetary regimes like Bitcoin and the gold standard therefore feed into an ever greater concentration of wealth and power. No surprise, then, that Bitcoin features its very own ultra-wealthy elite. As of July 12, 2011, 97% of Bitcoin accounts contained less than 10 bitcoins, while just 78 entities were hoarding over 10,000 each. Stanislas Jourdan asked the right question in response to this data: how would such a highly concentrated and deflationary form of money ever help the Greeks?

10. Crowdfunding is NOT the “anarchist welfare state”

Hearing some of the speakers at MoneyLab, another danger I think we need to beware of is the romanticization of crowdfunding as a revolutionary revenue model that will somehow set artists and other creatives free from the stifling necessity of grant-applications and private gifts and loans. One speaker, a self-declared “crowdfunding consultant”, kept talking about “crowdfunding your dreams,” while another referred to Kickstarter as “the anarchist welfare state”. The danger here is that we end up idealizing necessities and mistaking them for solutions. In the age of austerity, where grants and subsidies are increasingly being cut and the money that’s still allocated tends to become more and more concentrated in projects with greater perceived market value and name recognition, crowdfunding is often the only option left for creative projects that — despite possibly being valuable — simply do not possess any obvious exchange value, and hence cannot compete for scarce subsidies or investments.

Another risk is that, by narrowly emphasizing the crowdfunding success stories, we end up reproducing certain ideological mechanisms that sustain the hegemonic definition of success as an entrepreneurial virtue — obscuring the exploitation intervening in the process. Is the idealized vision of “crowdfunding your dreams” not a brilliant way of reinventing the American Dream for the emerging creative class? A quick glance at the IndieGoGo website reveals the sad reality behind crowdfunding: on the front page, we are presented with numerous successful projects, unwittingly generating a creeping expectation among prospective crowdfunders that “if they can do it, we can do it too.” However, scroll a little further into the different campaign categories and you will see numerous projects that will never even come close to making their target. Insofar as these projects generate any revenue at all, they are effectively raising money for the platform and perk fulfillment agencies. At rock bottom, those who do not possess marketing skills and access to large and wealthy networks are marginalized anew. The “anarchist welfare state”, then, is not really all that egalitarian — and the surplus it generates ultimately ends up in the private pockets of the platform owners.

Besides, it turns out that the “crowd” in crowdfunding often doesn’t really exist. The vast majority of Kickstarter’s revenue comes not from the “big hits” (which merely help draw attention to their brand, serving as a sort of marketing ploy) but from the massive amount of smaller projects. These small projects, in turn, depend crucially on family and friends to reach their set targets. What this means is that the so-called “anarchist welfare state” is in fact community support transformed into a source of profit for the crowdfunding platforms. The mutual aid of your family and friends ends up being conscripted into the process of capital accumulation. Crowdfunding, in a word, exploits a necessity (for creatives to find new ways of raising funds in the age of austerity) in order to enclose a common solution (mutual aid) and turn it into a commodity. Where the traditional welfare state retreats, the community steps in, and a private company subsequently manages to wring profit from our altruism.

11. It’s crucial not to fetishize money!

The observations above therefore seem to point in the same direction: while coining alternatives to the capitalist money-form will be key to building autonomy from the state-finance nexus and regaining control over our lives, there is a grave risk that our professed solutions end up being conscripted into the logic of the present monetary and financial system and turned into yet another source of speculation, appropriation and accumulation. It is therefore absolutely crucial not to fetishize alternative currencies and revenue models. Building autonomy and challenging the state-finance nexus requires a multidimensional struggle that targets all levels of capitalist social relations. If we fail to reclaim the means of production, bring democracy into the workplace, organize ourselves at the national and global level, develop new models of decision-making, rebuild trust in our communities and beyond, find ways to defend ourselves from state repression, etc., alternative currencies will ultimately be little more than an impotent expression of an admirable but ultimately harmless desire for social change. Our long-term political project is to break the power of capital and radically democratize society from below. If we lose sight of this broader horizon in which the quest for monetary alternatives is ultimately embedded, we are doomed to fail.

12. The real challenge is to redefine value

While in the coming years the money question is likely to assume central importance in the emerging anti-capitalist movement, we should also be extremely careful not to fall into the messiah syndrome that sometimes characterizes recent “converts” to the cause. Upon first realizing that money is created by private banks, and that interest-bearing debt continuously feeds the need for economic expansion at the heart of the capitalist system, many people have a eureka moment — I’ve figured it out! Money is the root of all evil! Let’s create an alternative currency and change the world! — that temporarily blinds them to the other fundamental contradictions of the system (a theme taken on by David Harvey in his forthcoming book). It cannot be emphasized enough that money is just an element (a core element to be sure, but just an element) in a process of valuation and a mode of production and accumulation that is extremely complex and that cannot simply be reduced to its constituent parts. For one, a crucial challenge — one that forever lurks behind money’s superficial forms — is the one raised by Max Haiven in his presentation and his new book, Crises of Imagination, Crises of Power: we now need to start collectively re-imagining and materially re-defining not only what value actually is, but also what it is that we value.

Here, at last, we reach the terrain of politics: How can we arrive at common decisions on what is to be valued? Do we value personal bonds or do we value anonymity? Do we value community or do we value individuality? Is there a way to bridge these apparent opposites or dissolve their inherent contradictions, or will they forever be in conflict? What do we value about ourselves? What do we value about others? What do we value in nature, in work, in leisure? And how can we embed these values — both moral and economic — in the very money-form? Ultimately, if we are talking about creating a radically different society, the question of value will have to somehow be detached from money. Exchange value is one thing; use value, as Marx pointed out, is quite another (not even mentioning the cultural, aesthetic and ecological importance of non-use value). Would it be possible to organize society on the basis of use (and non-use) value, rather than exchange values? What would such a society look like? How do we get there? Would we even be able to trust in each other’s good intentions and our sense of common purpose as we squabble and fight over the possible answers?

At this point, nobody knows — but at least we have finally started asking the right questions. In a thoroughly monetized world in which human beings have ceased to count for anything, that, at least, has got to count for something.

Jerome Roos studied International Political Economy at Sciences Po Paris and the London School of Economics and is currently a PhD candidate at the European University Institute. He is the founding editor of ROAR Magazine.

{ 16 comments… read them below or add one }

B Comenius April 1, 2014 at 04:50

All of capitalism started with this debt system. It was a system that arbitraged the exchange rates between silver and gold at two ends of trading routes between Asia and Europe. They needed manufactured goods to trade for commodities. They played one end off the other, much as today. The relationship between industrialist and exploited wage earner has only ever been one component part of this evil system. The industrialist was in debt to the merchant-banker who financed him and also traded his goods on the other side of the world. Diddo the slave plantation “owner” in the century before him. David Harvey is right. This system needs dismantling. It needed dismantling in the 19th century, too!

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Benedict@Large April 1, 2014 at 05:43

This has all been superseded by MMT (which actually preceded it.) Graeber, BTW, agrees.

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B Comenius April 1, 2014 at 18:47

MMT will in turn be superceded. That is the nature of human knowledge. One thing builds on another for better and better results. There are plenty of great new leads here for totally new approaches for our generation. MMT need to get off their debt trip! Very destructive. Just plays right into the hands of the status quo. Fortunately, there is new inspiration out there!

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Scott Baker April 1, 2014 at 08:47

A very thorough and well-written critique!
There’s one thing I wish the author had added, however: the use of money as a moral (or moralizing) tool.
For example, it’s now well-known, from economists like Michael Hudson to even the capitalist bastion of the IMF, that austerity does not work, that it actually starves and impoverishes the countries (or people individually) it is imposed upon. In other words, it is more costly in the long run to withdraw money from the system than to supply it, at least where the multiplier is >1 (see my article on Social Security, for example: http://www.opednews.com/articles/Asking-How-to-pay-for-Soc-by-Scott-Baker-Banking_Social-Security_Social-Security_Social-Security-Cuts-140330-949.html).
Yet, that is exactly what the banks and governmental institutions continue to do, and continue to get away with. So counter-productive is this policy, even to the collectors of the debt, that there must be another explanation other than short-sighted selfishness.
If, as the author asserts, Mammon is the new God, then it seems Mammon has a wrath for the “sin of profligacy” (real or imagined), at least as great as for any of the traditional 7 biblical sins. It seems debt peonage and enforced money starvation has replaced the self-flagellation of the ancient Christian monks. It has come to be regarded as “what’s good for our souls” regardless of the economic consequences. In that sense we have come full circle, back to the old time religion, but with a new name: Mammon.

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painlord2k April 1, 2014 at 12:14

<>

The BoE is just run by incompetents or simply try to blame someone else for what it did.

When a bank extend some credit (make a loan) it do not create money, just create credit. There are no additional paper notes created, nor coins.
When the loans is repaid, the credit disappear, but no paper note or coin is destroyed in the process.
If banks was able to print their own money alone, there would not be bank run. But there are.

Just for this I can say the OP is misinformed and misinforming the readers.

There is no challenge to “redefine value”. There is no definition of value as value is subjective and unique for every human beings.

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Jerome Roos April 1, 2014 at 12:43

Sadly, this is a very ill-informed comment.

“When a bank extend some credit … it do not [sic] create money, just create credit. There are no additional paper notes created, nor coins.” Did you actually read the paragraph? In the UK, only 3% of the total money supply (in the largest monetary aggregate) constitutes coins or paper money. The rest is “digital” money that exists only on bank accounts. This is the type of money we are talking about; and this is the money that is created whenever a bank credits a customer’s account and creates the deposit in the process. Private banks don’t “print” money like central banks do, and no one ever said that. They do create electronic deposit money, however, which turns out to be the vast majority of today’s money supply.

The reason that there are bank runs is precisely because banks often end up creating too much of this deposit money and fail or refuse to attract adequate capital reserves in order to stem the panic once customers start withdrawing their deposits. This only confirms one of the central arguments of the piece, which is that money ultimately needs to be backed by trust in order to function properly. Clearly, there is no good reason to trust speculative bankers with our money these days (if there ever has been). And so we need to devise other ways to restore trust without passing through such untrustworthy financial intermediaries.

As for value, it’s clear that it has both an (inter-)subjective component and an objective manifestation: I may value a sense of community, a beautiful forest and a good cup of coffee, but someone else might value individualism, despise nature and prefer tea. Those are subjective values. Still, these subjective values are being conscripted into an objective logic through the process of valuation that is inherent in capitalism and that manifests itself quantitatively in the money-form. Hence the need to redefine value by detaching it from the exchange value expressed in money, and hence the need to start collectively deliberating on what it is that we actually value (irrespective of what money tells us to value), and therefore what functions and purposes we want our future monetary system to fulfill.

Should money exist purely as a means of conspicuous consumption and self-enrichment? Or should it exist as a tool for redistributing wealth and empowering communities? Is it even possible to prioritize use values through monetary instruments to begin with? These are questions about (inter-)subjective values with crucial objective implications. Every human being is unique — but if we don’t come together to discuss our personal preferences in common, we risk a situation in which the decision on what to value will be made FOR us, rather than BY us.

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painlord2k April 1, 2014 at 16:11

“The rest is “digital” money that exists only on bank accounts. This is the type of money we are talking about; and this is the money that is created whenever a bank credits a customer’s account and creates the deposit in the process. Private banks don’t “print” money like central banks do, and no one ever said that. They do create electronic deposit money, however, which turns out to be the vast majority of today’s money supply.”
**–

There is no difference between a coin made of base metal, a paper note or an electronic recording at the central bank in a fiat system.
They all correspond to an entry in the Central bank balance sheet.

A bank can not create new money, because it can lend only what it have already in the balance sheet.
If I deposit a sum, they will credit me with the sum i deposited. Then they can lend a part of it to someone else. Then they have a credit and a debit on their balance sheet and less money

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Jerome Roos April 1, 2014 at 16:44

You clearly adhere to an archaic and discredited view of money creation. Just take a look at what the BoE, ECB and private bankers themselves have to say on the matter — that should suffice.

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B Comenius April 1, 2014 at 20:49

Money needs to be backed by something other than anything that can be controlled by bankers, merchants, corporations, or anyone else who may work both ends of a long secretive supply chain trading route from anywhere to the other side of the world! Buying into the precious metal as money storyline really screwed us up! It provided all these opportunities for deflations and money shortages which is how everything in private property and the commons got gobbled up. A money form based on human relationships, creative capacity, and trust cannot be controlled by someone outside our communities and society with diametrically opposed interests.

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Steven Frans April 3, 2014 at 22:42

“This only confirms one of the central arguments of the piece, which is that money ultimately needs to be backed by trust in order to function properly. ” I think orthodox marxists would say that under capital’s rule money must be a commidity with universal equivalent capacities, i.e. gold as a (potential) materialization of objective value (abstract human labour.) In our over-financialized world trust indeed came to play a major role but I think the orthodox marxist view still holds in final analysis (e.g. the run for gold following the 2008 crisis.)
And this of course is not to say that the social relations that capital creates are purely material/objective (that tina: that we need gold, the market, commodity production, … to make the world go round), capital needs a morality (Graeber?) to justify the alienation it engenders.

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JanStephen Cavanaugh April 1, 2014 at 15:50

In the spirit of your writings …

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Michael Kenny April 1, 2014 at 18:13

Very interesting. The role of the young is to have new ideas, not just to re-hash their grandfathers’ ideas. A lot of it sounds very woolly, but just about everything we take for granted was regarded as screwball when it was first proposed. Money as we know it wasn’t imposed, ready made, on society. It has eveoved into what it is for very sound, logical reasons. As human civilisation advances, some of those reasons will become unsound and illogical, and money will therefore evolve in accordance with these changes.

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Lance Brofman April 1, 2014 at 22:56

“..In free-market capitalism, capital generates income for the owners of the capital which in turn is used to create additional capital. This is very good. Sometimes, it can be actually too good. As capital continues to accumulate, its owners find it more and more difficult to deploy it efficiently. The business sector generally must interact with the household sector by selling goods and services or lending to them. When capital accumulates too rapidly, the productive capacity of the business sector can outpace the ability of the household sector to absorb the increasing production.

The capitalists, or if you prefer, job creators use their increasing wealth and income to reinvest, thus increasing the productive capacity of the business they own. They also lend their accumulated wealth to other businesses as well as other entities after they have exhausted opportunities within the business they own. As they seek to deploy ever more capital, excess factories, housing and shopping centers are built and more and more dubious loans are made. This is overinvestment. As one banker described the events leading up to 2008 – First the banks lent all they could to those who could pay them back and then they started to lend to those could not pay them back. As cash poured into banks in ever increasing amounts, caution was thrown to the wind. For a while consumers can use credit to buy more goods and services than their incomes can sustain. Ultimately, the overinvestment results in a financial crisis that causes unemployment, reductions in factory utilization and bankruptcies all of which reduce the value of investments.

If the economy was suffering from accumulated chronic underinvestment, shifting income from the non-rich to the rich would make sense. Underinvestment would mean there was a shortage of shopping centers, hotels, housing and factories were operating at 100% of capacity but still not able to produce as many cars and other goods as people needed. It might not seem fair, but the quickest way to build up capital is to take income away from the middle class who have a high propensity to consume and give to the rich who have a propensity to save (and invest). Except for periods in the 1950s and 1960s and possibly the 1990s when tax rates on the rich just happened to be high enough to prevent overinvestment, the economy has generally suffered from periodic overinvestment cycles.

It is not just a coincidence that tax cuts for the rich have preceded both the 1929 and 2007 depressions. The Revenue acts of 1926 and 1928 worked exactly as the Republican Congresses that pushed them through promised. The dramatic reductions in taxes on the upper income brackets and estates of the wealthy did indeed result in increased savings and investment. However, overinvestment (by 1929 there were over 600 automobile manufacturing companies in the USA) caused the depression that made the rich, and most everyone else, ultimately much poorer.

Since 1969 there has been a tremendous shift in the tax burdens away from the rich and onto the middle class. Corporate income tax receipts, whose incidence falls entirely on the owners of corporations, were 4% of GDP then and are now less than 1%. During that same period, payroll tax rates as percent of GDP have increased dramatically. The overinvestment problem caused by the reduction in taxes on the wealthy is exacerbated by the increased tax burden on the middle class. While overinvestment creates more factories, housing and shopping centers; higher payroll taxes reduces the purchasing power of middle-class consumers…”
http://seekingalpha.com/article/1543642

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W. April 6, 2014 at 21:00

Hey, how about reading Marx’s theory of value, and Marx’s theory of interest capital (3rd book) in order to understand that money is NOT “just an element (a core element to be sure, but just an element) in a process of valuation and a mode of production and accumulation” but money is capital itself, all the more so in the last 40 years? Maybe M. Heinrich’s book (here: http://digamo.free.fr/heinrich.pdf, or here: http://libcom.org/library/introduction-three-volumes-karl-marxs-capital) would be very useful in order to understand that class struggle will have to abolish money and value and not redefine them in order to reach what you call “real autonomy” or what I call “communism”.

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@mikeriddell62 April 16, 2014 at 09:50

About bloody time we debated the need for a new valuation system. Bravo Jerome.
Btw, I’ve posted my comments on the valuation system over on the P2p website, but for now want to give a little bit of hope around how community currencies have the potential to become a universally accepted IOU and thus complement the money system by counterbalancing its negative effects.
If a currency is earned into existence for contribution to the common good then its generation would in effect begin to heal the world’s wounds. Yes?
If such a currency existed, it might become sought after by financial speculators. It’s hard to see why not when Bitcoin’s value went through the roof.
So as long as the payments infrastructure existed to enable the currency to be exchanged (and the Bitcoin infrastructure that was soon invested in by the New York VC’s gives us some hope that that’s possible) then what we would end up with is a system that values and incentivises contribution to the common good simply because a currency exchange enabled the trade to take place (from community credits into $, or other such goods and services as a marketplace would soon emerge to facilitate such transactions given that the community currency quantifies social impact, social value and corporate social responsibility).
Of course, the trick to all of this is to ensure that issuance of the currency is tightly regulated, otherwise everyone would print their own money.
I’m happy to elaborate on that if anyone reading this is interested – I will see if i can subscribe to alerts from this posting site but if not you can contact me through @mikeriddell62.
And before you think I’m some sort of nutter, the software to enable all of this to happen is actually built and being tested right now in Manchester which also happens to be the home of free market economics and social justice.
Now,

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JB April 21, 2014 at 18:03

Even The US Government Will Abandon The Dollar
By Jeff Berwick, published on April 16, 2014
http://i-uv.com/even-the-us-government-will-abandon-the-dollar/

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