Considerations on the monetary system

I grew up in a family where discussing money was considered to be in bad taste and lowbrow. There was of course an understanding that money is necessary but the overarching goal of one’s life was supposed to be characterized by the attainment of ideological goals and the pursuit of intellectual endeavor.  Openly discussing how to make money and the pursuit of brands was for the hoi polloi and the arrivistes; people that should not be frequented.

This past week then I had the opportunity to spend some time with two rather intellectual friends whom I do not get to see half as much as I should. My friends are my age. They are modern and do not necessarily despise brands. They are well read, they both work in artistically creative fields and they are both successful. Discussing money and how to make money beyond making ends meet is not taboo.

And yet, despite not being averse to discussing money or seeking to increase their income, like my parents, my friends do not understand what money is and how it works.

This is not new to me. If you read the introduction to this blog, I already bemoan ignorance of the monetary system on the part of most everyone including professionals in the fields of finance and economics.

Most everyone believes money just is. And despite most being aware of the ability of the central bank to print money, few understand that money must be and is managed and printing money is but one of the manifestations of the management of money thus the manipulation of society.

At this point, it is worth considering what role money plays in society. Could we live without money? The answer is that although we could definitely live without money, we would have to be ready to return to barter; a much more cumbersome economic system where the expansion of the economy and the development of society would depend entirely on a perpetual series of coincidence of wants.

Money plays a vital role in exchange thus in social development. The role of money is so vital in fact that whether we like it or not, money is THE ultimate driver of all human choices; choices that are political, economic and social thus choices that are made at individual level as much as at state level.

Intellectuals the world over would do well to make the study of money their primary intellectual pursuit so as to better understand the forces that drive a society towards efficiency, expansion and wealth or towards frivolity, consumption and indenture. People that embrace those intellectual ideals pertaining to the undesirability of the excessive accumulation of wealth, social equality, the protection of the environment, the prevention of abject poverty, equal opportunity education and tutti quanti should imperatively get to grips with the monetary system and the nature of money. Greens the world over should make the study of money a priority. Not economics, not social science or politics but money; what it is and how it does what it does and how it can or how it should be managed  so as to understand the dynamics that drive things like excessive consumption and pollution and how it is all related to the depletion of natural resources.

In human, social and economic development, nothing comes upstream of money. The choice of monetary system dictates and shapes our entire lives. Everything else evolves within the monetary system and is necessarily a potential proximate cause. The monetary system is THE ultimate cause and driver of all our choices. It is the logic inherent in the monetary system that drives all other choices, because money is the construct that allows humans to interact.

Today, an understanding of money is sorely missing. People are happy to discuss Marxism and Capitalism, they are happy to discuss tax rates and subsidies, they are happy to discuss the desirability of constantly lowering interest rates or not, but nobody discusses money. Money just is and whether the central bank prints more of it or not, money is taken for granted as, indeed, the fact that prices always rise. And even though people hear that the central bank prints more money and even though some may understand that printing more money results in rising prices, few understand the reason why a central bank prints money.

And this is the point at which in people’s mind money assumes a duality that has no reason of being. Essentially, people have difficulty equating how money is managed at state level and how it is managed at individual level. Of course, it doesn’t help that some politicians perpetuate the idea that the state is not bound by the same laws of arithmetic as the rest of society. Even less does it help that some politicians wish to inculcate the idea in the electorate that the state can create its own reality.

It is safe to assume nobody wants to return to barter. But since we have established that money is vital to our socio-economic development, the question arises as to why such a vital component of our lives should be the exclusive preserve of a restricted number of unelected officials to manipulate as they see fit. Worse still, why do we collectively feel it appropriate that in our ostensibly open societies predicated on democratic principles neither the choice nor the management of the monetary system should be put to the people?

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6 Responses to “Considerations on the monetary system”

  1. Manor Mouse Says:

    “What you are then left with therefore is… a war to mobilize the masses and focus their attention on some ostensible foreign evil… ”

    Or aliens.

    I absolutely agree with you, but I just don’t see how an alternative system could have been sold to the people in the past, when DBFM offered such prosperity to ordinary people. That it was an unsustainable Ponzi scheme was just a theory to be worried about in the future. People lived entire lifetimes without the scheme collapsing, so they could be forgiven for thinking that DBFM was a fully working ‘evidence-based’ policy. Any other scheme would undoubtedly have made the average person worse off, financially, so people would always have voted for DBFM even if given the choice of alternatives.

    • guidoamm Says:

      I cannot agree with you. I observed my family’s quality of life gradually being eroded from the mid 60s onwards despite working more and harder just to try and stay in place. We never understood the desirability of making use of debt; but after a decade of trying to accumulate savings in order to buy an apartment, in the late 70s my parents were forced to take out a loan because despite working longer hours they were unable to save enough to make the purchase outright.

      Repaying the loan over the following ten years took a tall on the entire family.

      I cannot agree that this monetary system “offered” prosperity for the people. People were and still are largely ignorant that a monetary system exists let alone that it has repercussions on their every day life. Study of the monetary system has been deliberately eliminated from the curriculum and gradually, if predictably, faded from public discussion. Money just is

      I was having a glass of wine with friends last night and someone I did not know joined us. She turned out to be a senior UN officer working within UNDP for Iraqi reconstruction. Articulate and urbane though she was, her discourse was predictably peppered with nostrums of which “I am passionate about community development” was the more striking. An avowed right winger, she readily recognized that UNDP is considered one of the more corrupt UN agencies but, she claimed, she doesn’t care where the funds come from or where they go because for as long as programs get funding, people like her are still doing good work… because she is passionate you see…. and she is eventually plans to join the World Bank or the IMF…

      Quite aside from the fact that wittingly or not her “passion” is only a means to her ambitions, if this UN officer understood the monetary system, she would also probably realize that the funding she receives (including her salary) is created by policies that foster far more poverty and destitution than what she can counter with the sums she receives.

      So, it is my opinion that if this monetary system offers anything, it offers ignorance and the deliberate enslavement of society.

      Moreover, you should not make the mistake to think that the system offers prosperity for the most part of its life cycle and that the hardship it brings about towards its logical end is a small price to pay for the previous comfort it offered. No such thing. Debt based fiat money offers immediate monetary gain to the monetary authority and its acolytes; monetary gain that is multiplied ten fold by fractional reserve banking. But as the system evolves, monetary gain is supplemented by an appropriation of the productive capital of society.

      DBFM is not a victimless crime. Victims don’t realize they are victims till it is too late.

      • Manor Mouse Says:

        Well I don’t disagree with a word you have written, but I still don’t believe that you could persuade the average X Factor viewer (high definition on a 42″ flat screen bought on tick, but hey, he could get run over by a bus tomorrow) that a better system could exist even if you tried. If the UK government were to announce a referendum on setting up a new monetary system tomorrow, what would be the main points of the anti-DBFM manifesto?

        I know that the bankers benefit disproportionately from the current system, but I think the average Westerner benefits from it too (but at the point we are at, maybe not his children or grandchildren!). I simply see it as having been the near-optimum system for extracting the Earth’s resources as fast as they possibly can be, and splurging them on a fairly democratic feast of excess (most people seem to be able to afford a secondhand car and the aforementioned huge telly, even if it is done with borrowed money). The anti-DBFM manifesto would have to persuade people that they couldn’t have those things, for their own good. Or at least that they would have to wait for them.

        In my woolly mind, DBFM and constant (wasteful) ‘economic growth’ are inextricably linked. The anti-DBFM campaign would have to explain that although growth was going to be lower, it would be better and perhaps more ‘sustainable’. Would most voters go for it? The opposition would counter that the only way out of our current predicament and the people’s debts, is rapid growth, and DBFM is the best way to achieve it. It would be very interesting to see where today’s pro- and anti-austerity commentators would stand on this, because I think their natural sympathies would lie with the opposite of what they are saying now.

        • guidoamm Says:

          We will never know till the choice and management of money is submitted to civic institutions and the people for ratification.

          Regardless; even though the people may not or are not supposed to know better, fiduciary duty should ensure that politicians act in the interest of the people which includes long term sustainability. But the electoral process precludes long term sustainability because it is inherently and necessarily expedient in nature.

          The obvious solution is that “politician” should not exist as a profession. Civil servants should be like rugby players. Civil servants should have day jobs and only serve mandatory and time determined stints in government.

  2. Manor Mouse Says:

    I can’t help but think that you may be crediting the people with too much intelligence! In fact, it seems as though the most brilliant brains on the planet don’t know how the monetary system works, never mind the average X Factor viewer.

    But I am very interested in this idea: if the monetary system had been run on the lines you hint at for, say, the last 100 years, what state would the world be in, right now?

    • guidoamm Says:

      The road not taken…
      A fiat monetary system based on a fixed amount of money or a value based monetary system cannot and do not guarantee perpetual prosperity. But the desirability of these systems is predicated on their inherent honesty.

      A monetary system predicated on deliberate and unrestrained money creation is necessarily and inherently skewed to favor the entity that creates the currency and the entities that gravitate around it. The asymmetric nature of this monetary system therefore fosters, nay, guarantees corruption. In turn, corruption cannot be and is not a productive endeavor. Corruption is necessarily self serving thus wasteful. As the monetary authority resists adopting a different monetary system and as it progressively applies bigger and bigger band aids on the underlying problem, eventually the diminishing marginal utility of money will bring things to a head as happened in 1929, in 1970 and again today.

      Over the past 100 years since the inception of this iteration of DBFM, each crisis has been postponed by creating a larger backlog of debt. But, once again, credit and fiscal patches have decreasing effect on the system so that options to postpone the natural resolution to this present crisis are few and well defined. Out of the three options currently available (because credit, money, and fiscal have lost traction) I believe (and it is entirely my belief) that a world war will be chosen over the other two solutions of voluntary debt write off or the introduction of a common currency across all members to the floating exchange rate mechanism. Of the three options available, debt write off would be the more ethical but it would punish by and large the monetary authority and its acolytes. The introduction of a global currency in the time frame useful to our purposes would require a degree of authoritarian diktats to make the most ardent Marxist/Fascit spin in their grave – and anyway, even a global currency is only a temporary solution requiring still expanding credit and money supply. What you are then left with therefore is… a war to mobilize the masses and focus their attention on some ostensible foreign evil…

      I don’t see any other solution to those three mentioned above. Maybe someone could chime in with an opinion on alternative solutions?

      And, by the way. I can virtually guarantee that after a world war, government under the guidance of banks would still enforce DBFM.

      Can you bleat? Because we should all learn to… a war is dialed in…

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