"High-concept paper offerings" (reminds me of "edible foodlike substances...") really represent the tip of the iceberg. The larger, submerged base is made of money, the principle instrument that financial institutions and corporations use in their effort to create a consumer culture. Later in the above-mentioned article Dr. Daly lists the factors that allowed financial assets to become so disconnected from real assets, and the first point in this list is especially interesting: "...the fact that we have fiat money, not commodity money". Currency systems created by fiat work when the authority issuing the currency (government) guarantees the value of the currency although it's value is not referenced by any commodity. The idea is to ground the value of money to what is produced in that country, but this connection has deteriorated over time. So, paradoxically the connection between the value of money and real assets has weakened and at the same time high-concept paper offerings and money itself have became confused with real economy and real wealth. To understand this confusion, it is necessary to briefly explore the nature of money.
Over the past century the purpose, use, issuance and meaning of money have undergone a profound transformation that has allowed it to be used towards the construction and maintenance of the globalization process. Without delving too deep into the evolution of the concept of money, let it suffice to state that money served humanity principally as a means of exchange until the globalizing, and especially the speculative, process gave it new roles to play.
For many years money was generally issued by local banks at rates necessary to facilitate exchange. However, "…with problems caused by over-issuance and speculation, governments stepped in to regulate the issuing of money, creating the first central banks and issuing money … by printing it, selling government bonds to commercial banks and the public, [and] by borrowing it from the bank at interest. Thus, in order to ensure an expanding money supply, money is issued as interest-bearing debt."
As time passed, governments discovered that a particular difficulty with this system existed because "at any given moment in time, the total amount of debt in a conventional money system always exceeds the total amount of money available in the system. The money needed to pay the interest over these loans can only come from some other similar circuits, i.e. money issued by some other borrower. If that happens, the second borrower will not be able to earn back enough money to pay his debt. In order to prevent economic stagnation, the money supply must be continuously expanded: there is need of a perpetual borrower that can never go bankrupt despite the fact that he never pays his debt. Since the 1950s, governments have assumed this role. In order to stay above this debt, economic growth must exceed the growth of debt. However, in reality the global economy is not catching up with the exponential growth of interest bearing debt."
Scarcity is then a central component of the current economic system. This brings up several issues each of which merits attention. Scarcity of money has a double effect. First, it motivates people to work harder to earn money out of fear of falling into poverty. This is a key source of society’s deterioration as people are driven towards a profit motive and are frequently forced to work for unsatisfying and often socially and ecologically destructive jobs. Second, since money is put into circulation by creating principal, but not the interest owed on the principal, people and corporations must compete to obtain the scarce money to pay the interest. If the total money supply does not increase at least by the amount owed on interest, some necessarily go further into debt and even bankrupt. However, because interest is calculated to expand exponentially, it is at odds with the impossibility of producing and consuming goods or services at an exponentially growing rate.
Both commodity backed and fiat currencies are used as a store of value. "Using currency as a store of value, to generate interest or for expected profits at a later time" encourages hoarding and therefore competition. While money is stored "others cannot use it as a medium of exchange, which works against the interests of the economy" as fewer transactions can take place causing a downturn in the economy. Of course, when signs of recession appear, more money is issued or interest rates are lowered, enabling more transactions to take place. This give and take of the money supply keeps people fluctuating with the system, a perpetual scarcity-abundance, boom-bust uncertainty. "Providing incentives to ensure that the medium of exchange does not also incorporate the store of value function would therefore automatically dampen this boom-bust tendency of the current system."
Giving money the function of a store of value also motivates people to search for short-term profits at the expense of long-term growth, creating conflicting moral and economic incentives. "Consider as metaphor, for example, the life of a tree (or any other living resource). Because of interest, the net present value of any income far away in the future is negligible. So, it literally pays to cut down a tree and put the proceeds in a savings account instead of letting it grow for another decade or century. Similarly, the only types of trees worth planting commercially are the fastest-growing varieties such as pine. (Nobody plants redwoods for commercial reasons.) So even when we plant trees, we are systematically losing biodiversity."
As we have recently been reminded, another detrimental use of money is speculation. Over the last five or six decades money increasingly developed into a tool for speculative profit until it became the dominant use for money. "Today more than 95% of all currency transactions are motivated by speculation; less than 5% are for trades of goods and services." Able to generate spectacular profits within increasingly short periods of time, money acquired a new purpose: to merely reproduce itself. Investors search for schemes that will offer the largest profits within the shortest amount of time, essentially blind to real human needs and ecological concerns.
In the meantime, money has become confused with wealth. "Wealth is something that has real value in meeting our needs and fulfilling our wants. Modern money is only a number on a piece of paper or an electronic trace in a computer that by social convention gives its holder a claim on real wealth. In our confusion we concentrate on the money to the neglect of those things that actually sustain a good life." Even those who understand the difference between money and wealth are often forced to participate in unsatisfying or damaging means of acquiring money in order to maintain a dignified style of life.
For these reasons, and I am sure there are many more, we have put ourselves in the particularly malevolent quandary of needing to produce and consume as fast as our debt multiplies or invent "high-concept paper offerings" that dupe people into believing that real wealth is being produced. It all adds up to a negative sum game that as more people and businesses lose we slowly conclude that this system is making losers of all of us.
To round out this post on a more positive note, many people are realizing that national currencies "have been designed for specific purposes only, and cannot fulfill certain social objectives (such as fostering trade and cooperation, or ecological sustainability). Some currencies already operational today or being proposed for the future are designed to fulfill such objectives, and operate best when they are used in tandem with the national currencies." Because these complimentary currencies do not bear interest, they
- "promote longer-term planning by encouraging participants to invest in productive assets rather than hoarding currency; and
- encourage trade and cooperation, because the money is in sufficient supply."
These new currencies open exciting possibilities for a healthy economy in which poverty is no longer seen as an inevitable and is rather viewed as the anomaly it really is.