Dysfunction of the money-system underpins the problems of the world’s multiple converging crises. Discuss.
Might that assertion be taking an ideological position, encouraged by the echo chambers of like-minded twitterati? This piece is an attempt to tease out the nature of the underlying connection, and in doing so describe some of the attack surfaces that are available to those bent on change.
From an environmental perspective the most damaging money-system dysfunction is the misallocation of credit. Commercial banks have been given the responsibility of deciding who should receive loans – for capital investment, mortgages and asset purchases for example – and the privilege of charging interest on those loans. They are largely unconstrained in this process – while there are theoretical constraints, in practice their main concern is making sure they get their full whack of interest due over the term of the loan. They therefore generally prefer lending secured against an asset that they can repossess if necessary than against the uncertain (and difficult to assess – at least for today’s disconnected and centralised account managers) future productive capability of entrepreneurial projects. This is borne out by figures for productive investment which tend to show lending for productive use at about 15%.
The first consequence of this preference is that the banks find themselves in an unholy alliance with asset owners, with a joint interest in ever rising asset prices and a reluctance to moderate activity in asset markets lest their loans lose collateral value. They all know in their hearts that this will eventually mean painful busts. But they also know that when the time comes they will be bailed out by the government, that many of their more savvy and comfortably-connected friends will have disposed of their assets ahead of the peak, and that the greater part of the associated pain will be experienced by less well connected ‘outsiders’. There is no real sanction on the banks or their senior management from buying into this toxic cycle. So we should not be surprised when it repeats. They operate in any case with a sort of herd mentality, and taking a heterodox stance would fail the wine-bar peer-reviews. There is no way that this cycle can avoid the progressive concentration of wealth. (In passing we might note that this in turn puts a misplaced emphasis on philanthropy and volunteerism as means to address society’s ills.)
The second consequence is an effective de-prioritising of projects that either cannot, by their nature, make a profit, or find it difficult to make an adequate money-denominated case. Into this category we can put odds and ends like climate change, pollution and non-elite elder care and education. This would matter less if nation states filled the void and invested in these ‘market failures’, but in general they are avoiding their responsibilities. The wind, if anything, is blowing in the other direction. The concepts of natural capital and social capital are being used to monetise valuables that are inherently of a non-monetary dimension, in the cause of extending markets; politicians feel powerless compared to multinationals and seek reward via the revolving door; national accounts are mistakenly treated like household accounts. Governments appear to have no ability or confidence to establish national priorities, and are reluctant to spend strategically into circulation. Instead they hide behind the banks as assessors of priority. The commercial banks have by default become proxies for our overall strategic priorities, a role for which they are unsuited. The market is a perfect device for all the things we don’t need. For the stuff of life – its quality and long term sustainability – we need to make other arrangements.
It is tempting to see this as a part of an overall democratic deficit. The governance of a money-system should be in the hands of its users. We have effectively subcontracted control to government who have outsourced it to banks. There are only two options if we want the first-use of money-as-credit to have more positive environmental results: either we convince government to take back control and implement an environment-nourishing allocation of credit and direct spending; or we create alternative means of exchange and sources of credit with inbuilt environmental preferences.
In the first category we can note the tendency of generic initiatives like Positive Money, QE for People, Green Investment Banks and Public Banking to adopt environmental values. The danger here is that in doing so they might fragment. All such value-based initiatives face the same competitive issue with mainstream money – with mainstream money all transactions are equal – there is no quality, only quantity.
In the second category we can see some glimmers of potential in two sub-categories – mutual credit networks usually with local economic focus (e.g. Sardex), and value-based digital currencies (where crypto ICOs are adopting value-statements as part of their differentiation to would-be investors).
Whether these potential lines of action have enough time to produce environmental benefits before our mainstream systems trigger collapse is arguable. Perhaps the thinking is too complicated – applying qualitative aspects to an already over complex financialised quantitative foundation. Maybe we have to wait until society undergoes a forced simplification before we can rediscover the centrality of non-monetary relations. Maybe dissociating with toxic activity – walking away from the pain – will be more effective than the power of ideas. You are awake – so what?
Image source: https://www.freeimages.com/photo/property-market-1223813 Author: James White