Problems with Money

Problems with Money: The Widow’s Cruse:

“Now there cried a certain woman of the wives of the sons of the prophets unto

Elisha, saying, Thy servant my husband is dead; and thou knowest that thy servant did fear the Lord: and the creditor is come to take unto him my two sons to be bondmen.

And Elisha said unto her, what shall I do for thee? Tell me, what hast thou in the house? And she said, Thine handmaid hath not any thing in the house, save a pot of oil.

Then he said, Go, Borrow thee vessels abroad of all thy neighbours, even empty vessels; borrow not a few.

And when thou art come in, thou shalt shut the door upon thee and upon thy sons, and shalt pour out into all those vessels, and thou shalt set aside that which is full.

So she went from him, and shut the door upon her and upon her sons, who brought the vessels to her; and she poured out.

And it came to pass, when the vessels were full, that she said unto her son, Bring me yet a vessel. And he said unto her, there is not a vessel more. And the oil stayed.

Then she came and told the man of God. And he said, Go, sell the oil, and pay thy debt, and live thou land thy children of the rest.” II Kings, Ch. 4, verses 1-7, King James Version, Jewish and Christian Book of the Dead

“Workers consume what they earn, capitalists earn what they consume.”

M. Kalecki

The Widow’s Cruse owes its name to the miraculous act of Elisha in saving the Widow’s sons from enslavement by her creditors. Kalecki’s quote demonstrates the modern usage of the concept, i.e. that no matter what they do the holders of capital will maintain their monopoly and dominance of those who work for their bread. Whether one agrees with the basic concept, that the domination of capital is inevitable and permanent in laissez-faire markets, everyone must recognize the conflict between money’s two main functions, medium of exchange and source of credit for investment. The conflict between an honest, neutral medium of exchange and ready funds for investment has been decided. We have chosen to favor the ready funds for investment to the detriment of whole societies, if not the whole world.

Modern money has several problems that must be addressed. While I can’t actually claim that the structure of modern money was the product of some long design process in which the forces of darkness have seized control of our medium of exchange, the result is the same. The kindest interpretation of our path to the current situation is that a series of historical accidents have brought us here. This allows us to look at the individual problems and their solutions with calm resolve, but make no mistake; taken together the flaws in the structure of the modern monetary mechanism constitute an almost inescapable Leviathan.

Problem One: Fractional Reserve Credit

The most egregious problem is the credit extended by commercial banks and other credit issuers. Commonly known as fractional reserve credit, this allows the banks to loan the same money, over and over, or as economist Abba Lerner puts it, “It is precisely the special quality of banks, or rather of the banking system, that in such an expansion is quite peculiarly favored by being able largely to count on retaining possession of what it sells and thus have it available for still further expansion.” That is they loan and re-loan the same money, over and over.

French economist Maurice Allais goes further

“The ‘miracles’ performed by credit are fundamentally comparable to the ‘miracles’ an association of counterfeiters could perform for its benefit by lending its forged banknotes in return for interest. In both cases, the stimulus to the economy would be the same, and the only difference is who benefits.”

Allais identified “six fundamental objections to the system of fractional reserve banking: (1) the creation and destruction of money by private banks; (2) sensitivity of the credit mechanism to short-term economic fluctuations; (3) the basic instability engendered by borrowing short and lending long; (4) the distortion of income distribution by the creation of ‘false claims’; (5) the impossibility of control over the credit system; and (6) nonexistence of efficient control of the aggregate money supply.”

The ability of capital to dip into the Widow’s Cruse and use the returns to enslave rather than liberate is the heart of the problem. Jesus of Nazareth understood it better than anyone when he told us that, “He who has will get more, he who has little will have the little he has taken away.”

Problem Two: Technical Innovation

Buckminster Fuller best identified this human process as ephemeralization, the act of doing more with less. The almost universal conception is that ephemeralization is good for people, that is, that technological innovation benefits humanity. Unfortunately this is not true; the utility of innovation falls to money, not people. Every time someone invents something that increases “efficiency”, it is money that is made more efficient. Combine this with the Widow’s Cruse and our own ingenuity becomes our enemy.

Problem Three: Money Can Go on Strike

The next major problem with money is that it can be withheld for speculative purposes. That is, if the operators of the money mechanism operate it in a manner that money can hold its value over time, funds can essentially go on strike. If for some reason, those in control of the money mechanism do not like the situation at hand, money can be withheld until whatever competition money has perceived has dried up, and starved. The ability to destroy or withhold money is just as powerful and subject to abuse as the ability to create it.

Problem Four: Money Is a Flawed Measurement

Great efforts have been made and much written about comparing prices over time. Representative baskets of goods, constant dollars, price indexes have all taken their turn to try to make dollars, francs, yen, etc. comparable over time. The basic problem with all indexes is that money is already an index. No one is willing to face the problem of garbage in, garbage out. If the data of prices in dollars is bad data to begin with, no amount of massaging will make it better. Unless the entire sum of money is specifically defined and known to the general public one cannot say any thing about prices in different times. When commercial banks flood one area with money and starve another, price has no objective base. Unless one has the ability to compare what a defined fraction of the entire stock of money has done, no comparison can be made on a scientifically supportable basis.

Problem Five: Money feeds back on itself.

The principal factor in determining whether one is capable of attracting money,(i.e. making money in the free market) is how much money one has, or doesn’t have, as the case may be. Nothing stinks worse in our world than being broke, and nothing smells better than being flush. What now passes for competition and markets is really nothing more than occasional civil wars between economic royalty and the palace retainers who operate their companies. Money is what money says it is, and we must all live with the definition that money now speaks.