The following is the tenth installment from Sacred Economics: Money, Gift, and Society in the Age of Transition, available from EVOLVER EDITIONS/North Atlantic Books. You can read the Introduction here, and visit the Sacred Economics homepage here.
As our sojourn of separation comes to an end and we reunite
with nature, our attitude of human exceptionalism from the laws of nature is
ending as well. For decades, the environmental movement has been telling us,
"We are not exempt from nature's laws." Increasingly, painfully, we are
experiencing the truth of that. A child takes from his mother, blissfully
heedless of her sacrifices and her pain; and so we have taken from earth during
the long infancy of the human species. Our money system, our economic ideology,
has for better or worse been an agent of that taking. Now, as our relationship
to earth shifts toward that of a lover, we become acutely aware of the harm we
are doing. In a romantic partnership, what you do to your partner bounces back
to you; her pain is your pain.
And so, as humanity
faces the coming-of-age ordeal of the present crises and transitions into
adulthood, a new economic system is emerging that embodies the new human
identity of the connected self living in cocreative partnership with Earth. Our
economic system and money system will no longer be agents of taking, of
exploitation, of the aggrandizement of the separate self. They will instead be
agents of giving, of creation, of service, and of abundance. The following
chapters describe the elements of this sacred economy. All of them are apparent
already, latent within the old institutions, and even being born from them. For
this is not a revolution in the classic sense, a purge, a sweeping away of the
old; it is rather a metamorphosis. The Age of Reunion has long gestated within
the institutions of Separation. Today, it is beginning to come forth.
It was an old story that was no longer true … Truth can
go out of stories, you know. What was true becomes meaningless, even a lie, because the truth has gone
into another story. The water of the spring rises in another place. –Ursula K. Le Guin
Money is inextricably woven into our civilization's defining
stories: of self, and of humanity collectively. It is part and parcel of the
ideology and mechanics of growth, the "ascent of humanity" to overlordship of
the planet; it has also played a central role in the dissolution of our bonds
to nature and community. As these stories crumble, and as their monetary
dimension crumbles apace, we have the chance to consciously imbue money with
the attributes of the new stories that will replace them: the connected self,
living in cocreative partnership with Earth. But how to imbue money with a
story?
In its
several-thousand-year history, money has gone through an ever-accelerating
evolution in its form. The first stage was commodity money — grain, oil, cattle,
metal, and many other things — that functioned as media of exchange without
possessing any fiduciary value. This stage lasted several millennia. The next
step was coinage, which added fiduciarity to the intrinsic metallic value of
silver and gold. Money consisted then of two components: a material and a
symbolic.
It was quite natural
that eventually the symbol would become detached from the metal, which is what
happened with the advent of credit money in the Middle Ages and even before. In
China, the first paper money (which was actually a kind of bank draft) was in
use by the ninth century and circulated as far as Persia.1 In the Arab world, a form of
check was in wide use around that time as well. Italian traders used bills of
exchange as early as the twelfth century, a practice that spread rapidly and
was followed in the sixteenth and seventeenth century by fractional-reserve
banking.2 This was a
major innovation, since it freed the money supply from the metal supply and
allowed it to grow organically in response to economic activity. The detachment
of money from metal was gradual. During the fractional-reserve banking era,
which lasted several centuries, bank notes were still, at least in theory,
backed by metal.
Today the era of
fractional-reserve banking is over, and money has become pure credit. This is
not widely recognized. Many authorities, including most economics textbooks and
the Federal Reserve itself,3
still maintain the pretense that reserves are a limiting factor in money
creation, but in practice they almost never are.4 Banks' real constraints on money creation are their
total capital and their ability to find willing, creditworthy borrowers — that
is, those with either uncommitted earning potential or assets to use as
collateral. In other words, social agreements govern the creation of money,
primary among them the dictum, encoded in interest, that money should go to
those who will make even more of it in the future. Today's money, as I shall
explain, is backed by growth; when, as is happening now, growth slows, the
entire financial edifice begins to crumble.
Money, which developed
in parallel with technology, suffers similar flaws. Each bears a relentless
compulsion to grow: technology because of the ideology of the technological
fix, using yet more technology to remedy the problems caused by existing
technology; money because of the dynamics of interest I have described, issuing
more debt to pay the interest on existing debt. The parallel is quite exact.
Another similarity is that each has usurped domains properly belonging to other
modes of relationship. But in neither case do I advocate rolling back history.
Both technology and money have developed to their present forms, I believe, for
a purpose; credit money is the natural terminus of the evolution of money
toward pure fiduciarity, pure agreement. Having arrived there, we are free to
make that agreement purposeful. We are like an adolescent who, having developed
her physical and mental capacities through childhood play, is now ready to turn
those capacities toward their true purpose.
Some observers, seeing
the disastrous consequences of today's credit-based currencies, advocate a
return to the good old days of currencies backed by something tangible, such as
gold. They reason that commodity-backed currency would be noninflationary or
would eliminate the compulsion for endless growth. I think some of these "hard
currency" or "real money" advocates are tapping in to an atavistic desire to
return to simpler days, when things were what they were. Dividing the world
into two categories, the objectively real and the conventional, they believe
that credit-money is an illusion, a lie, that must inevitably collapse with
every bust cycle. Actually, this dichotomy is itself an illusion, a construct
that reflects deeper mythologies — such as the doctrine of objectivity in
physics — that are also breaking down in our time.
The difference between
an unbacked and backed currency is not as great as one might suppose. On the
face of it, they seem very different: a backed currency derives its value from
something real, while an unbacked currency has value only because people agree
it does. This is a false distinction: in either case, ultimately what gives
money value is the story that surrounds it, a set of social, cultural, and
legal conventions.
At this point the
"real money" or backed-currency advocate might object, "No, that's just the
point: a backed currency gets its value from the underlying commodity, not from
agreements."
Wrong!
First let us consider
the standard example of what advocates call "real money": pure gold and silver
coinage. These are valuable, they say, because the commodity they are made from
is valuable. That is the source of their value, and the markings on them are
there as a guarantee, to bestow confidence in their weight and purity. But
despite nostalgia for the real money of yore, historically much gold and silver
coinage did not fit this description, but had a value that exceeded its
commodity value (see Chapter 3). It differs from paper money by degree, not in
essence. Paper and electronic money are not a departure from metallic currency,
but an extension of it.
To further complicate
matters, what is this "commodity value"? Like money, property is a social
construct. What is it to own something? Physical possession is only ownership
if that possession is socially legitimate; with legitimacy, physical possession
isn't even necessary. After all, in today's commodity markets, most investors
never touch the things they buy. Their transactions are a set of rituals,
symbolic manipulations invested with power through shared beliefs. The fictive
nature of ownership is not a recent phenomenon. The famous money of the Yap
islanders, huge stone rings that are too heavy to move, can nonetheless change
owners quite easily when everyone agrees that so-and-so is the new owner. Gold
never needs to leave the vault to be a currency backing. In fact, it never
needs to leave the ground. Even if we did adopt a gold standard, most
transactions would still use paper or digital symbols. Only the story
conferring value upon those symbols would differ.
Moreover, the value of
commodities depends on social agreements as well. This is especially true of
gold, which, unlike other forms of genuine commodity money such as cattle or
camels, has very little utilitarian value. You can make pretty ornaments from
it, but it has very little industrial utility compared to other precious metals
such as silver or platinum. That means that the value of gold depends on
convention. That makes it an odd choice indeed for those who want money whose
value is independent of convention, money that has "real" value.
What is true for gold
is true for other commodities as well. In a society with a high degree of
division of labor like our own, the utility of most commodities depends, like
money's, on a web of social agreements. How useful to you is an iron ingot? A
barrel of crude oil? A ton of industrial-grade sodium hydroxide? A bushel of
soybeans? To varying degrees, they are valuable only in the context of vast
numbers of people performing the specific, interrelated roles that put such
things to use. In other words, commodities, like money, also have a fiduciary
value in addition to their intrinsic value-indeed, upon close examination the
distinction breaks down almost entirely.
Let us think more
deeply about what it means for money to be backed. Superficially it is
straightforward. To take the example of the U.S. dollar before 1972, it meant,
"You can take a dollar to the Federal Reserve and redeem it for one-thirtieth
(or whatever it was) of an ounce of gold." But this simple picture is fraught
with complications. For most users of dollars, even if it were permitted, it
was not practically feasible to go to the nearest Federal Reserve vault. As far
as I know, the gold was hardly ever physically transported even for balance of
payment settlements among banks. The banks' gold was kept in the Federal
Reserve banks; their ownership of it was a matter of entries in record-books,
and not of physical possession. The system would have worked even if no gold
were physically present. No one except foreign banks ever actually exchanged
dollars for gold. Why would anyone when it was dollars, and not gold, that were
used as money? We think that dollars (in the gold standard era) were valuable
because they could be exchanged for gold, but is the opposite perhaps not
truer, that gold was valuable because it could be converted into dollars?
We tend to assume that
in a backed paper or electronic money system, the backing is the real money and
the paper only its representation. In fact, it is the paper that is the real
money. Its association with gold was a projection of meaning, almost a magical
formula, that gave us permission to believe in the story of value. The story
creates value. In fact, it was never possible for everyone to redeem their
paper money for gold. If too many people tried, the central bank could (and
often did) simply declare that it would no longer redeem it.5 The supposed hard fact of the
paper's convertibility to X amount of gold is a construct, a convenient
fiction, that depends on a web of social agreements and shared perceptions.
Similarly, before the
United States abrogated the Bretton-Woods agreement in the early 1970s, world
currencies were pegged to the U.S. dollar, which was in turn pegged to gold. If
a country accumulated reserves of U.S. dollars, it could redeem them by having
the Federal Reserve ship it a few tons of gold. This was not such a big problem
right after WorldWar II, but by the late 1960s nearly all the U.S. gold reserve
had been shipped overseas, threatening the Fed with bankruptcy. So, the United
States simply announced it would no longer redeem dollars for gold within the
international banking system, just as it had ceased to do so domestically some
four decades earlier, revealing the gold standard as a convenient fiction.
The proclamation that
money is backed is little different from any other ritual incantation in that
it derives its power from collective human belief. However true this was of
gold, it is truer still of more recent, more sophisticated backed-currency
proposals, such as Bernard Lietaer's terra currency, and recent proposals for
revised IMF Special Drawing Rights, to be backed by a commodity basket
reflecting overall economic activity. There is merit in this approach; indeed
it is a step in the direction I envision in this book. But this backing is
obviously a fiction: no one is ever going to exchange their terras for actual,
physical delivery — on their doorstep — of the prescribed combination of oil,
grain, carbon credits, pork bellies, iron ingots, and whatever else is on the
list. No single person ever needs any of these things in his personal
possession. Their value is collective, existing only within a vast web of
economic relationships. But this is OK! Actual, practical redeemability is not
necessary to qualify something as a backed currency. Yes, the redeemability is
a fiction, a story, but stories have power. All money is a story. We have no
alternative to creating money within a matrix of stories. Nothing I have
written disqualifies backed currencies. But if we are to choose a backed
currency, let us be clear about the reasons. It is not to make the money "real"
in a way that unbacked currencies are not. It is to imbue money with the story
of value that we want to create.
The story of backing
can be used to limit and guide the creation of money. Today, we limit that
right to banks and guide it by the profit motive-money goes to those who will
make more of it. Properly and historically speaking, though, the issue of money
is a special, sacred function, not to be relinquished lightly. Money bears the
magical power of the sign and embodies the agreement of an entire society. Part
of a society's soul lives within it, and the power to create it should be
guarded as jealously as a shaman guards his medicine pouch. In the wrong hands,
its power can be used to enslave. Can we deny that that has happened today? Can
we deny that people and whole nations have become thralls of the moneylenders?
Not only do we
naturally associate money with the sacred, but whatever we use for money tends
to become sacred: "Where your treasure is, there will be your heart
also" (Matthew 6:21). Thus it was that people came to worship gold. Of course,
they did not profess to worship it, but actions speak louder than words. It was
gold they coveted, gold they sacrificed for, gold they revered, gold that they
invested with a supernatural power and a special holy status. The same happens
to cattle in cattle-trading cultures and to wheat or olive oil in cultures
where these were used as commodity-money. They took on a sacred status, set
apart from other commodities.
The last hundred years
have increasingly been an era of unbacked currency, and also an era where
nothing is sacred. As I said in the introduction, if anything is sacred today
it is money itself. For it is money that has the properties we associate with
the disembodied divinity of dualism: ubiquity, abstraction, nonmateriality, yet
the ability to intercede in material affairs to create or to destroy. To remove
divinity completely from materiality is, again, to hold nothing sacred-nothing
real, nothing tangible. Yet the absence of the sacred is an illusion: as many
have pointed out, science has become the new religion, complete with its story
of cosmogenesis, its mysterious explanations of the workings of the world
couched in arcane language, its priests and their interpreters, its hierarchy,
its initiation rituals (the PhD defense, for example), its system of values,
and much more. Similarly, the apparent absence of backing is an illusion too.
Credit-money is (via a different kind of social agreement than explicitly
backed currencies, but an agreement nonetheless) backed by the entirety of an
economy's goods and services and, more deeply, by growth.6 Created as interest-bearing
debt, its sustained value depends on the endless expansion of the realm of
goods and services. Whatever backs money becomes sacred: accordingly, growth
has occupied a sacred status for many centuries. In various guises of the story
of Ascent-progress, harnessing natural forces, conquering final frontiers,
mastering nature — we have carried out a holy crusade to be fruitful and
multiply. But growth is sacred to us no longer.
This book will
describe a concrete way to back money with the things that are becoming sacred
to us today. And what are those? We can see what they are through people's
altruistic efforts to create and preserve them. The money of the future will be
backed by the things we want to nurture, create, and preserve: by undeveloped
land, clean water and air, great works of art and architecture, biodiversity
and the genetic commons, unused development rights, unused carbon credits,
uncollected patent royalties, relationships not converted into services, and
natural resources not converted into goods. Even, indeed, by gold still in the
ground.
Not only does
association with money (and therefore with abstract "value") elevate a thing to
a sacred status, it also impels us to create more and more of it. Gold's
association with money encourages the continued (and very environmentally
destructive) effort to mine more gold. To dig holes in the ground and fill them
back up again is the epitome of wasted work, yet that is essentially what gold
mining does. At huge effort, we dig gold ore out of the ground, transport it,
refine it, and eventually put it into other holes in the ground called vaults.
This effort, and the scarcity of gold, is one (very haphazard) way to regulate
the money supply, but why not regulate it through purposeful social and
political agreements, or through some more organic process, and save all that
hole digging?
The above-mentioned
problem with gold extends to other commodities. In places where cattle serve as
money, they take on a value beyond the utility of their milk and meat, with the
result that people maintain herds larger than they really need. As with gold
mining, this wastes human labor and burdens the environment. I am afraid that
any commodity-based money will have the same effect. If it is oil, then an incentive
will be created to pump more oil — the amount needed for fuel, plus an additional
amount for money. Generalized, the principle is, "The use of any thing for
money will increase the supply of that thing."
Chapter 11 draws on
this principle to create a money system to increase the supply of things we
agree are positive goods for humanity and the planet. What if money were
"backed" by clean water, unpolluted air, healthy ecosystems, and the cultural
commons? Is there a way to encourage the creation of more and more of these in
the same way that the social agreement of gold's value drives us to mine more
and more of it? Just as the monetization of gold causes us to covet it and seek
to produce more of it, and to relinquish it only to meet a real, pressing need,
so also might the use of these things for money cause us to create more of
them, to create a more beautiful planet, and to sacrifice them only for a
well-considered reason, only in response to a real need, only to create
something as valuable as what has been destroyed. We destroy many things today
for the sake of money, but we do not willingly destroy money itself. And so it
shall be.
The question of
currency backing leads us to broader and more essential questions: Who gets to
create money, and by what process? What limits should govern the amount of its
creation? What are the agreements that money embodies? More generally, what is
the story of value that we impart to money?
Since the days of
ancient Greece, money has always embodied an agreement. Usually, though, the
agreement has been an unintentional one. People believed gold was valuable,
rarely stopping to think that this value was conventional. Later, fiat paper
currencies were obviously conventional, yet as far as I know no one ever
designed their issue with a specific social purpose in mind beyond providing a
medium of exchange. Never has it been asked, "What story of the world are we
creating, and what kind of money will embody and reinforce that story?" No one
decided to create a fractional-reserve banking system with the conscious
purpose of impelling the expansion of the human realm. Today, for the first
time, we have the opportunity to infuse some consciousness into our choice of
money. It is time to ask ourselves what collective story we wish to enact upon
this earth, and to choose a money system aligned with that story.
In the rest of this
book I will draw the broad outlines of a money system embodying humanity's
emerging new relationship to ourselves and to the earth, a money system that reflects
and nourishes the things that are becoming sacred to us. I will also offer
ideas on how to get there from here, on both a collective and a personal level.
This sacred economy will bear the following characteristics:
It will restore the mentality of the gift to our vocations
and economic life.
It will reverse the money-induced homogenization and
depersonalization of society.
It will be an extension of the ecosystem, not a violation of
it.
It will promote local economies and revive community.
It will encourage initiative and reward entrepreneurship.
It will be consistent with zero growth, yet foster the
continued development of our uniquely human gifts.
It will promote an equitable distribution of wealth.
It will promote a new materialism that treats the world as
sacred.
It will be aligned with political egalitarianism and people
power and will not induce more centralized control.
It will restore lost realms of natural, social, cultural,
and spiritual capital.
And, most importantly, it is something that we can start
creating right now!
The next few chapters
will present and synthesize various themes of the new Story of Value that will
define a future money system. Weaving them together, a picture will emerge of
an economy that is very different from what we know today.
1. Temple, The Genius of China, 117, 119.
2. Vallely, "How Islamic Inventors Changed the World."
3. See, for example, the Chicago Federal Reserve's
publication "Modern Money Mechanics," which is widely available on the
internet.
4. If a bank's margin reserves are insufficient to meet
requirements, it simply borrows the necessary cash from the Fed or the money
markets. If there is a system-wide insufficiency of reserves, then the Fed
expands the monetary base through open-market operations. That is why M0 growth
typically lags behind M1 and M2 by many months-the opposite of what one would
expect from the multiplier effect if we lived in a fractional reserve system
(see Keen, "The Roving Cavaliers of Credit"). That is also why recent "quantitative
easing" by the Fed and other central banks has done little to increase the
money supply.
5. This in fact happened many times; during the Great
Depression it happened in nearly every country. Holders of currency demanded
gold from banks and ultimately central banks, which eventually said no. In the
United States in the 1930s it actually became illegal under Roosevelt's
Executive Order 6102 to hold more than a small amount of gold. Yet the dollars
whose value supposedly depended on gold did not become worthless.
6. Look at it this way: bank-issued credit is backed by the
collateral on the loan or, in the case of unsecured loans, by the future
earnings of the borrower. Economy-wide then, the sum total of all credit-money
issued is backed by the sum total of all existing and future goods and services
in the economy and, therefore, by the promise of growth. Another way to see it
is that without growth, the default rate will rise, and the money supply will
shrink.
Image by Wandering Magpie, courtesy of Creative Commons license.
