A New Money for the New Millennium

By Tim Jenkin

As we proceed into the third millennium it is only natural to wonder how different the world is today from what it was two millennia ago, and what it will be like two millennia hence.

Looking backwards the world today appears dramatically different from the one described in the Christian bible, but on closer inspection life for billions is little different from what it was during those times.

As it was two thousand years ago, the world is still divided into rich and poor, there continues to be starvation amidst plenty, ignorance alongside enlightenment and powerful nations continue to dominate weak ones. Wars, banditry, crime, poverty, squalor, plagues and epidemics continue, on ever grander scales.

As for the world in two thousand years time, if we project existing trends it is hard to imagine there being any human life at all. If humanity somehow manages to survive, life may be pretty much as it was two thousand years ago.

Many theories have attempted to explain the human condition and social experiments have been tested, but the pattern never changes: the poor remain poor, social divisions remain as entrenched as ever and as populations grow so do the social problems. On top of this new environmental and health problems mount while material demands increase and resources decline.

What is the skewer running through history that has shaped human society and prevented us finding solutions to our most fundamental social problems? Is it the inherent evilness of the human spirit; is it private ownership of the means of production; is it defective social and economic institutions; is it corrupt political systems?

There is a growing school of thought that the skewer is, yes, money - not a shortage of it but the way it works.

The way money works has largely been disregarded by historians and social commentators. Indeed, most of us treat money as one of the eternal givens: a monolithic, immutable, neutral 'substance' that we just have to live with and adjust to.

Despite its modern electronic trappings, the way our money works hasn't changed significantly in millennia. Irrespective of its form, its predominant function has been to serve as a medium of exchange.

The most primitive forms of money were commodities that happened to be more exchangeable than others. Later on precious metals became generally acceptable as they were more convenient to use. Whatever the case, money was real, a commodity on a par with others and could often be directly consumed. The exchange relationship was between buyer and seller and real value passed between the two.

Down the centuries money became increasingly abstract. With the development of banking, money also increasingly lost its intrinsic value, as money-keepers and lenders found that they could lend out precious metals deposited with them simply by issuing paper claims against them. They also discovered that they could lend out claims to a value far exceeding the actual amount of real wealth in their keep.

Today our money has no substance whatsoever. There is nothing backing it and, apart from a small quantity of coins and notes issued by the government, it does not exist in any tangible form whatsoever. Money is numbers on computers, information.

Yet we continue to treat our money as something that exists; that is real and tangible in the same way that our forebears treated their cattle and gold.

It could be said that the most fundamental characteristic of our money is that it exists, or that we treat it as if it exists. Out of this flows the entire logic of our economic system which in turn shapes our economic relationships, institutions and ways of thinking.

Money evolved chiefly to facilitate trade and acquire services. If there is to be trade involving money then, if we believe money has existence, there must be a supply of it distributed among the traders before trading can take place. The amount of trading is thus dependent on the supply and distribution of money.

A supply implies a source and a quantity. The source of all modern money is private financial institutions, which create money when they grant credit. The accounts of borrowers get credited with an amount of money, which then goes into circulation. The money that is advanced is not 'borrowed' from other accounts, for there is nothing to borrow: accounts consist of nothing but numbers in databases. Money is 'created' from nothing simply by tapping numbers on a computer keypad.

In the past the actual physical quantity of whatever was regarded as money was dependent on how much effort was put into getting or making it. The amount in circulation had a direct bearing on the amount of trading. Although these days our money has no physical quantity and is 'created' out of nothing with no effort, we continue to treat it as if it can exist in abundance or scarcity. These very notions imply an equilibrium where there exists the 'correct' amount of money.

As practically every Rand in existence is based on debt, the quantity of money in circulation is governed by the amount of borrowing. Equilibrium is when there is just the right amount of money for the economy to supply the goods and services that people can afford to buy. This has nothing whatsoever to do with the amount that would be required to meet the reasonable monetary needs of all South Africans. The shortfall, manifested in poverty and worklessness, cannot be borrowed into existence because the borrowing base (the creditworthy) is too small.

Only that which exists and has quantity can be distributed, and distribution is only meaningful if there is some formula according to which the quantity is distributed. As money gives its holder access to the goods and services of society, it would seem that the soundest formula for distribution is according to contribution to the production and provision of those goods and services.

In our current money system distribution has very little to do with contribution. The formula for distribution is defined by how money originates. As practically all money comes into being as credit, and credit is only granted to the 'creditworthy', it flows into the economy from the top and tends to circulate among those who already have money before some of it trickles down to those who don't.

This undemocratic system of private, debt-based and profit-inspired money creation has a multitude of serious consequences for society and our planet. Apart from structuring society into those who have a lot of money because of their access to its source, and those who have little because they don't, there is no linkage between the quantity of money created and the monetary needs of the population. Only so much money gets created as it is profitable to create, resulting in an artificial shortage of money relative to requirements. This shortage restricts and distorts the economy: only so much gets produced as there is money to buy it; only that gets produced which those with money demand. The demands of those who can't express them in money go unrecognised and unmet.

By maintaining this shortage of money the institutions that 'create' it can charge us for using it. Through the levy they place on the 'service' they provide, wealth is sucked from productive society to a parasitic class who consume it without contributing to its production. The interest that has to be paid on debt creates an even greater deficiency of money, because it can only come into existence through further debt. This spiral of debt is the engine driving the growth imperative of our economies, with disastrous consequences for society and our planet.

The economic consequences of this system are plain for all to see: indebtedness, bankruptcies, impoverishment, unemployment, and an ever-widening gap between the "haves" and "have nots". These consequences contribute to the ever-worsening social and environmental problems that beset our planet.

Trading with a money that its users believe exists, profoundly influences their attitude to the trading relationship. When one form of value (money) is exchanged for another (goods, services) the trading cycle is considered complete. Money is viewed as an artifice for effecting private transactions, not something that binds and obligates us to the rest of society.

The belief that money exists affects our attitude towards money itself. From a very early age we learn that money is something that can be collected like shells on a beach, that it can be possessed and then exchanged for the goodies out there. The casino mentality develops quickly: let me find a way of making a lot of money so that I don't have to work. By looking at money one-sidedly as a means to acquire we ignore its more important side as representing our contribution to the social product.

Our money also profoundly influences our attitude to one another. It forces us to compete to get hold of what little there is and every instance of economic contact involves the antagonistic exchange of 'matter'. Those who have found ways of acquiring great sums of money, at the same time acquire power over their fellows. Power leads to hierarchy and domination and with it status and dependence. Relationships become defined by money.

So accustomed have we become to the way our money works that we are incapable of seeing its absurdities or of imagining that it could be any way other than it is.

• We accept as natural that there can be a shortage of money, despite the fact that it requires no effort to create and for the most part consists of nothing but numbers on computers.
• We see no contradiction in the fact that often those who contribute the most have the least while those who contribute the least have the most. We find it absolutely acceptable that claims on the social product are determined solely by the quantitative possession of an exchange medium that in itself has no value.
• We see no absurdity in putting great effort into getting money so that we can acquire something or make something happen rather than putting that effort directly into acquiring the thing or making the something happen
• We also believe that nothing can happen unless there is the money to pay for it, even if all the necessary resources, tools, people, skills and will are there to make it happen. We view money as petrol: without it all economic activity comes to a halt.
• We accept as correct that lending institution should be compensated for lending money by charging interest, despite the fact that they create it out of fresh air and contribute nothing in return.
• We bat not an eyelid at the casinos, shopping malls, five-star hotels and holiday homes popping up in profusion while public amenities crumble and people live in shacks. For the former there is miraculously plenty of money while for the latter there is somehow none, despite the fact that the need for them is far greater.
• We accept the absurdity of people sitting idle while there are great needs to be satisfied, even when those people are willing to work and the resources are available.
• We believe it makes complete sense that there should be cutbacks in social services if there is no money, even if everything is there to ensure their proper functioning.
• We see nothing strange in people giving value to something that doesn't exist, the buying and selling of that nothing, and that nothing losing its value.
• We accept as absolutely the most natural thing that money should be provided by a 'higher authority' external to the everyday circuits of exchange and trade; that the trading masses cannot 'issue' their own currency.

Once we start viewing modern money for what it really is - information - the whole logic of our economic thinking is turned upside down. If money does not need to exist in the physical sense then there is no need for a supply of it and thus no need for a source. If there is no supply then nothing needs to be distributed and there cannot be a shortage of it. 'Money' becomes the recording of economic activity: what we contribute to the social product and what we take from it. It is purely information, a unit of account, an accounting system.

The driving principle of our economy, which is to 'make money', falls away and is replaced by the principle of contribution: what you give so you can take. There is no need for the intermediary of an exchange medium to distribute the goods and services of society: they can be distributed directly and accurately according to the single criterion of contribution. Money as we know it is not a pre-requisite for the exchange of goods and services, only the ability to give back to society what one takes from it is.

The elimination of the exchange medium reveals the true social nature of exchange in the present age. A record of a 'purchase' is at the same time a record of what the 'purchaser' is now obliged to return to society. Trade is no longer a one-to-one transaction between buyer and seller; it is a relationship between individuals and society.

For the first time in human history we are in a position to abandon the primitive concept of 'hard' money. This has been made possible by modern electronic communications and computer power, which have already eliminated the need for an exchange medium. The myth that we need a tangible, existential money is kept alive by those who benefit from it: the 'money class' who are enabled through their links to the sources of money to take from the social product a share out of all proportion with their contribution to it.

There is no reason to believe that a money system without an exchange medium could not work, for in fact that is what we already have. Except in the case of cash transactions, no exchange medium is used in the majority of transactions; only the numbers representing bank accounts are adjusted.

The great number of alternative and complementary currencies being implemented throughout the world is proof that monetary systems apart from our familiar national systems can be viable. In particular the Local Exchange and Trading Systems (LETS) have demonstrated that people can trade without 'up-front' currencies; that money doesn't need to pre-exist for people to exchange goods and services without resorting to barter.

We do not need to depend on unelected business people to create our money for us; it can be 'created' at the trading interface by buyers and sellers. This will ensure that money is 'created' for what people really want and not just for what is profitable. It will ensure that everyone who is capable of contributing to the social product can do so, not just those in the money loop labelled as employed.

The price we pay for keeping alive the notion of existential money is an economy restricted in its scope to provide only for those who have money, that systematically pumps wealth to the rich, that is driven by a growth imperative which is pushing the human race to its doom and destroying our planet; a society riven with divisions and beset with monumental, insoluble social problems.

The requirements of the 21st century economy are different from those of the First and all subsequent centuries. This is the crunch century, as most resources run out at current rates of consumption; human population reaches the limit the earth can carry and environmental destruction could take us beyond the point of no return. The problems of humanity cannot be solved with the more-of-the-same growth solutions being promoted by governments the world over, with reforms to our social and financial institutions or with appeals for us to change our behaviour and ways of thinking.

Human behaviour is influenced more than anything else by the way our money works. Greed and the pursuit of personal wealth encouraged by existential money may have been suitable for bringing humanity to where it is now, but such motives are not suitable for carrying us to the end of the fourth millennium and beyond. The notion of sustainability is utterly meaningless under our current money system, which encourages the exact opposite. The collapse of human society and the destruction of the environment, predicted by many eminent reports, are imminent unless our current money system is replaced by a new one that tames the human race. This new money system needs to be based on human effort so that no one is denied access to the social product, so that it puts a ceiling on individual claims on the social product and so that the product consists of what people really want.

The practical working of a money system without an exchange medium would not be much different to the one we have right now, and would not require a revolution to implement. 'Money' will be 'information-rich' so it can operate on multiple levels, ensuring that local economies can grow but not preventing trade with higher levels and between nations. Such a money system can be tailored to benefit all humanity and ensure that we do not join the growing list of species threatened with extinction.

August 2002