Originally published online March 15, 2009
“Final Bell” by Arik Roper
(UPDATE: “Hack Money, Hack Banking” by Douglas Rushkoff, the March 20 follow-up to “Let It Die,” is available here.)
LET IT DIE
by Douglas Rushkoff
March 15, 2009
With any luck, the economy will never recover.
In a perfect world, the stock market would decline another 70 or 80 percent along with the shuttering of about that fraction of our nation’s banks. Yes, unemployment would rise as hundreds of thousands of formerly well-paid brokers and bankers lost their jobs; but at least they would no longer be extracting wealth at our expense. They would need to be fed, but that would be a lot cheaper than keeping them in the luxurious conditions they’re enjoying now. Even Bernie Madoff costs us less in jail than he does on Park Avenue.
Alas, I’m not being sarcastic. If you had spent the last decade, as I have, reviewing the way a centralized economic plan ravaged the real world over the past 500 years, you would appreciate the current financial meltdown for what it is: a comeuppance. This is the sound of the other shoe dropping; it’s what happens when the chickens come home to roost; it’s justice, equilibrium reasserting itself, and ultimately a good thing.
I started writing a book three years ago through which I hoped to help people see the artificial and ultimately dehumanizing landscape of corporatism on which we conduct so much of our lives. It’s not just that I saw the downturn coming—it’s that I feared it wouldn’t come quickly or clearly enough to help us wake up from the self-destructive fantasy of an eternally expanding economic frontier. The planet, and its people, were being taxed beyond their capacity to produce. Try arguing that to a banker whose livelihood is based on perpetuating that illusion, or to people whose retirement incomes depend on just one more generation falling for the scam. It’s like arguing to Brooklyn’s latest crop of brownstone buyers that they’ve invested in real estate at the very moment the whole market is about to tank. (I did; it wasn’t pretty.)
Now that the scheme we have mistaken for the real economy is collapsing under its own weight, however, it’s a whole lot easier to make these arguments. And, if anything, it’s even more important for us to come to grips with the fact that the system in peril is not a natural one, or even one that we should be attempting to revive and restore. The thing that is dying—the corporatized model of commerce—has not, nor has it ever been, supportive of the real economy. It wasn’t meant to be. And before we start lamenting its demise or, worse, spending good money after bad to resuscitate it, we had better understand what it was for, how it nearly sucked us all dry, and why we should put it out of our misery.
Chartered Corporations
Back in the good ol’ days—I mean as far back as the late middle ages—people just did business with each other. As traveling got easier and people got access to new resources and markets, a middle class of merchants and small businesspeople started to get wealthy. So wealthy that they threatened the power of the aristocracy. Monarchs needed to come up with a way to stabilize their own wealth before the free market unseated them.
They invented the corporate charter. By granting an exclusive charter, a king could give one of his friends in the merchant class monopoly control over a region or sector. In exchange, he’d get shares in the company. So the businessperson no longer had to worry about competition—his position at the top of the business hierarchy was locked in place, by law. And the monarch never had to worry about losing his authority; businesses with crown-guaranteed charters tend to support the crown.
But this changed the shape of business fundamentally. Instead of thriving on innovation and progress, corporate monopolies simply sought to extract wealth from the regions they controlled. They didn’t need to compete, anymore, so they just sucked resources from places and people. Meanwhile, people living and working in the real world lost the ability to generate value by or for themselves.
For example: In the 1700s, American colonists were allowed to grow corn but they weren’t allowed to do anything with it–except sell it at fixed prices to the British East India Trading Company, the corporation sanctioned by England to do business in the colonies. Colonists weren’t allowed to sell their cotton to each other or, worse, make clothes out of it. They were mandated, by law, to ship it back to England where clothes were fabricated by another chartered monopoly, then shipped back to America where they could be purchased. The American war for independence was less a revolt against England than a revolt against her chartered corporations.
The other big innovation of the early corporate era was monopoly currency. There used to be lots of different kinds of money. Local currencies, which helped regions reinvest in their own activities, and centralized currencies, for long distance transactions. Local currencies were earned into existence. A farmer would grow a bunch of grain, bring it to the grain store, and get receipts for how much grain he had deposited. The receipts could be used as money—even by people who didn’t need grain at that particular moment. Everyone knew what it was worth.
The interesting thing about local, grain-based currencies was that they lost value over time. The people at the grain store had to be paid, and a certain amount of grain was lost to rain or rodents. So every year, the money would be worth less. This encouraged people to spend it rather than save it. And they did. Late Middle Ages workers were paid more for less work time than at any point in history. Women were taller in England in that era than they are today—an indication of their relative health. People did preventative maintenance on their equipment, and invested in innovation. There was so much extra money looking for productive investment, that people built cathedrals. The great cathedrals of Europe were not paid for with money from the Vatican; they were local investments, made by small towns looking for ways to share their prosperity with future generations by creating tourist attractions.
Local currencies favored local transactions, and worked against the interests of large corporations working from far away. In order to secure their own position as well as that of their chartered monopolies, monarchs began to make local currencies illegal, and force locals to instead use “coin of the realm.” These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.
What does that do to an economy? It bankrupts it. Think of it this way: A business borrows 1000 dollars from the bank to get started. In ten years, say, it is supposed to pay back 2000 to the bank. Where does the other 1000 come from? Some other business that has borrowed 1000 from the bank. For one business to pay back what it owes, another must go bankrupt. That, or borrow yet another 1000, and so on.
An economy based on an interest-bearing centralized currency must grow to survive, and this means extracting more, producing more and consuming more. Interest-bearing currency favors the redistribution of wealth from the periphery (the people) to the center (the corporations and their owners). Just sitting on money—capital—is the most assured way of increasing wealth. By the very mechanics of the system, the rich get richer on an absolute and relative basis.
The biggest wealth generator of all was banking itself. By lending money at interest to people and businesses who had no other way to conduct transactions or make investments, banks put themselves at the center of the extraction equation. The longer the economy survived, the more money would have to be borrowed, and the more interest earned by the bank.
Financial Meltdown
Which is pretty much how things have worked over the past 500 years to today. So what went wrong? Nothing. The system worked exactly as it was supposed to. The problem was that after America’s post WWII expansion, there was really no longer any real growth area in the economy from which to extract wealth. We were producing and consuming about as much as we could. Almost no commercial activity was occurring outside the corporate system. There was no room left to grow. Sure, outsourcing, lay-offs, and technology created some efficiencies, but wars, rising costs of health care, and exchange rates essentially offset any gains.
Making matters worse, all that capital that the wealthy had accumulated needed markets—even fake markets—in which to be invested. There was a ton of money out there—just nowhere to put it. Nothing on which to speculate.
The dot.com boom seemed to offer the promise of a new market, but it fizzled almost as quickly as it rose. So speculators turned instead to real assets, like corn, oil, even real estate. They started investing speculatively on the things that real people need to stay alive. What real people didn’t understand was that there is no way to compete against speculators. Speculators aren’t buying homes in which to live—they are buying houses to flip. Speculators aren’t buying corn to eat or oil to burn, but bushels to hoard and tankers to park off shore until prices rise. The fact that the speculative economy for cash and commodities accounts for over 95% of economic transactions, while people actually using money and consuming commodities constitute less than 5% tells us something important. Real supply and demand have almost nothing to do with prices. We do not live in an economy, we live in a Ponzi scheme.
Luckily for us, the banks, and the speculators depending on them, made a bad wager: they bet on our continuing capacity to provide a reality on which to base their highly leveraged schemes. We just couldn’t do it. They put us between a rock and a hard place. With George W’s help, they sold us on the notion of home ownership as a prerequisite to the American dream. And they created a number of loan products which made it look as if we could actually afford over-priced homes. The banking industry spent hundreds of millions of dollars lobbying for laws making bankruptcy difficult or impossible for average people to accomplish—while simultaneously selling average people loans that they would never be able to pay back.
The banks didn’t really care, anyway, since they never meant to keep these loans. They simply provided the cash to mortgage companies, who then packaged the loans. In return for putting up the original cash, the banks also won the right to underwrite the sale of those mortgage packages to investors—investors like pension funds, retirement funds, or you and me. Get it? The banks get all the interest, but we put up all the money. Our retirement accounts and pension funds invest in the very mortgages that we can’t pay back. The bank collects any interest, playing both sides of the equation but responsible for neither.
And when the whole scheme begins to break down, what do we do? We try to bail out the very banks that created the mess, under the premise that we need these banks in order for business to come back, since only banks can lend the capital required for businesses to flourish.
Yes, It is Wrong
President Obama may be smarter than most of us, but he’s still attempting to rescue the very institutions that robbed us in the first place. He’s not a socialist, as conservatives may be arguing, but he is a corporatist. Using future tax dollars to fund government job programs is one thing. Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor.
As painful as it might be to watch, and as irritating as it might be to those with shrinking retirement savings, the collapse of the centralized corporate economy is ultimately a good thing. It makes room for a real economy to rise up in its place. And while it may be temporarily uncomfortable for the rich, and even temporarily devastating for the poor, it may be the fastest and least violent way to dismantle a system set in place for the benefit of 14th Century monarchs who have long since left this earth.
If the corporate supermarket chain’s debt structure renders it incapable of stocking its shelves this spring, this may be the wake-up call that consumers need to finally subscribe to a Community Supported Agriculture farmer. If the former associate fund analyst at Lehman realizes that he is unable to get a job not just because his industry is contracting but because his work day creates no real value for anyone at all, he will be forced to learn how to do something that does. If an urban elite parent realizes he can no longer pay private school tuition for his kids, maybe he’ll consider donating to public school the time he would have spent earning that tuition.
In short, the less we are able to depend on business-as-usual to provide for our basic needs, the more we will be forced to provide them for ourselves and one another. Sometimes we’ll do this for free, because we like each other, or live in the same community. Sometimes we’ll exchange services or favors. Sometimes we’ll use one of the alternative, local currencies coming into use across the country as Central bank-issued currencies become too hard to get without a corporate job.
Deprived of centralized banks and corporations, we’ll be forced to do things again. And in the process, we’ll find out that these institutions were not our benefactors at all. They were never meant to be. They were invented to mediate transactions between people, and extract the value that would have passed between us. Far from making commerce or industry more efficient, they served to turn the real world into a set of speculative assets, and real people into debtors.
The current financial crisis is the best opportunity we have had in a very long time for a bloodless revolution against the faceless fascism under which we have been living, unaware, for much too long. Let us seize the day.
(UPDATE: “Hack Money, Hack Banking” by Douglas Rushkoff, the March 20 follow-up to “Let It Die,” is available here.)
Longtime Arthur columnist Douglas Rushkoff has just finished his life’s work, “Life Inc: How the world became a corporation and how to take it back,” to be published June 2, 2009 by Random House. (Pre-order info: Amazon). His live talk radio show, Media Squat Radio, airs Mondays 7-8pm EDT on WFMU. Streams at www.wfmu.org and iTunes.
Previous Rushkoff columns on the economy:
“No Money Down” (Arthur No. 31/Oct 2008)
“Riding Out the Credit Crisis” (Arthur No. 29/May 2008)
Arthur Magazine 
“The great cathedrals of Europe were not paid for with money from the Vatican; they were local investments, made by small towns looking for ways to share their prosperity with future generations by creating tourist attractions.”
So people in the middle ages building cathedrals were creating tourist attractions? Maybe it has ended up that way, but I’d guess that was not their original intention, unless you’ve got some evidence to the contrary. You could make the argument that they were trying to attract people on pilgrimages, but tourists and pilgrims are not the same thing.
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Why isn’t your new book available on the kindle? I’m assuming it has something to do with the anti-corporate stance but wanted to be sure
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Pingback: LET IT DIE: Rushkoff on the economy
Thank you, for putting into words the very things I’ve been thinking about lately but couldn’t properly elaborate.
Coming from Seattle, I know all about the anti-corporate reality tunnel. And I’ve found that it’s a better one to live in! There were some people who thought the W.T.O. protest was a big party — I was mainly confused, and awed at the time. But now I can consider myself one of those people 🙂
May the dream of Cyberia never die!
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if only there were enough CSAs around for everyone to ‘finally’ join! i don’t know about where you guys live, but around here there are some prohibitively long waiting lists…
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It breaks my heart that this lucid exposition is falling on deaf ears.
In the mid sixties as I was going to the U, I began to wake up to this situation, and wanted to act on it with a group of smart, capable, highly motivated peers. While there was some success in bringing this to the attention of others during the seventies, the people who understood this became marginalized, and bought into their own marginalization.
By the boom cash years of the Reagan era, the will to create an alternative narrative about corporations and cultural necessity was pretty broken.
Rushkoff has done a good job in this essay of resurrecting the insights of the radical social critics of the sixties. But the fires are out. The outrage is diffused among too many virtual spokesmodels, while the option of action is not addressed.
Every one sits on their hands, until they wave them for a while, then go back to sitting on them again.
How in hell is anything going to change?
Without leadership, there are no options The John Stewarts and Doug Rushkoff’s of the world can make us want to tear our eyes out for the perfidy we have witnessed. But they cannot get us to stand in line, and march, and seize our lives from the jackals that have tried to brand them and sell them back to us.
Who can get us to stand in line, and move heaven and earth back to their proper order again?
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Nobody wants to stand in line and match, anyway. “A revolution without dancing….”
zeitguy, obviously you need to get to know your neighbors a bit more. Try having a block meeting every month, or post bulletin boards on telephone poles. Get closer to your community, and you’ll find that all the answers to your questions are right in front of you.
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I’d really like to believe that people are naturally more in touch with their local microeconomies, and are as baffled as I am with The Big Sham, and consequently want nothing to do with it. But there’s also the big urge for Status Quo, and this, coupled with the aforementioned bafflement, can keep the same old same old entrenched.
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My historian girlfriend has corrected me, and Rushkoff was right. Cathedrals were built for tourists, by whatever name. This is a lucid and scary-accurate article, don’t let my nitpicking sidetrack this important conversation. Looking forward to the book!
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I am a little baffled that Rushkoff uses “corporatism” instead of “capitalism” – why? Squeamish? Where would there be a difference? The need for constant growth is the essence of capitalist thinking, after all. Corporatism is an expression of capitalism and not the other way round, I would have thought.
Secondly, a lot of what R. points out is what Karl Marx already analysed 150 years ago, so I can’t see the novelty of his approach. Except that his take on pre-capitalist times is too rosy IMO. What about feudalism and serfdom?
And thirdly, I’d like to hear where he found evidence that women were surprisingly tall in the LATE middle ages, since I’ve only heard about Northern Europeans, including the British, being tall in the EARLY middle ages (900-1100 AD) and shrinking afterwards. See http://tinyurl.com/c42zbr
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Wonderful analysis there, simply superb. It’s nice to see people analyzing these world-historic events for what they are. It seems that old Gyorgy Lukacs and his grandfather, ol’ Karl Marx were still right. For the longest time, intellectuals have been too complacent because the system was able to serve a few selfish purposes. But now that it’s unraveling, it’s finally time to test our theories against the grain of the dialectical progression of these false economies and unsustainable corporate practices.
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Excellent article. I don’t think he is advocating communism, I just think he isn’t advocating for a society where banks are the biggest earners.
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one of the main ideas here that I cannot accept is that saving and wealth accumulation is necessarily bad. yes, corporatism is necessarily bad (see my comment to Veltlina below). yes, a compulsory, centralized monopoly on currency is necessarily bad. but savings is not necessarily bad. I cannot see how implementing a currency that is designed to lose its value, to discourage “hoarding” (savings), is fundamentally any different from the current fractional reserve system. competition currencies, however, would quickly vaporize any such inflationary currency.
@Veltlina:
corporatism is not an expression of capitalism. capitalism is simply voluntary exchange, absent coercion. corporatism implies coercion. corporatism is a system of state-imposed barriers to voluntary exchange. it necessitates taxation to fund regulatory bodies (which of course are vehicles for politicians/bureaucrats/parasites).
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This won’t be a bloodless revolution. Not when millions are starving. All the land used for local farming around here (metro NYC) has been used to build homes. And in the middle ages, people lived hard and died young. It wasn’t exactly easy for the lower classes. Your words make a lot of sense, but a change that radical will not come easy, nor will it come without a lot of pain.
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Why all the focus on local economy? How is a man half a world away any less my brother than the man next door?
Trading goods, services and ideas fosters community, no matter the distance.
Also, cathedrals are neat, but give the devil his due: the corporatist system gave us planes, trains, automobiles, the computer, the internet, and a large portion of modern medicine. Cathedrals aren’t nearly so useful as that.
With any luck and the right nudging, the corporatist system can probably provide the sustainable energy solutions to power all that stuff without destroying the planet.
Not that I’m defending corporations or the corporate-government alliances, but it’s pretty hard to look at things like the internet and air travel and say that they haven’t done anything to foster community.
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Corporations man.. corporations. They’re at the center of everything.
http://www.thesixtyone.com/paintingtasters/song/Corporations/39612/
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I will serve
Corporations
even when I say I won’t
I have a dream
I want a good life
2.5 kids and a country home
they’re in control
http://www.thesixtyone.com/paintingtasters/song/Corporations/39612
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@Harbinger: Classical, authoritarian state corporatism was primarily used by fascism. Pretending that there are not differences in a society, introducing a top-down structure where people are forced to join organisations, and all in all it’s been used as the legitimisation of dictatorships. But that’s not primarily what the author is talking about.
So-called neo-corporatism is the way most modern western democracies are organised, OTOH, i.e. the recognition that there are different interests among the various actors of a society who in turn voluntarily(!!) – grassroots-based – form organisations like trade unions or employers associations and the like.
So I’d still maintain that what R is referring to is essentially capitalism.
It’s no variety of corporatism the way we define it in Europe that crashed, as far as I can see, it is good old capitalism that brought this about.
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@mrpinto
Some of these technologies have been used to foster community, but we have to remember that most of these technologies came about for the purpose export-oriented and import-oriented industries. Globalist capitalism, which is more extensively seen and felt where I come from, has a different face when you come a small country where the currency is devalued by virtue of structural adjustments. Capitalism also has a different face when foreign companies come to our national soil to buy coffee from our farmers for $5 per ton.
To a certain extent, the middle classes of industrial nations may be enjoying some of these developments. But a large portion of the world’s population, including me and my countrymen are not. Where I come from, the average wage in the busiest cities are less than $4 a day. And we’re talking about degree holders or even MA or MS students here. There’s underemployment, and we have had an 11% unemployment rate for quite some time now.
Our OIL, in the Malampaya Oil Reef is not “ours”. 45% is owned by Chevron, another 45% goes to Shell and a meager 10% is owned by the state itself. Our oil tax is at 12%. How can you say that any sense of community has been formed? We have been DIVIDED because the middle classes want nothing to do with the rest of the poorer populations of the country. Our educational system is rotten to the core. Our state universities are being privatized mercilessly. Where’s the community there? I think in these situations, the Internet, airplanes and trains cease to be sources of community.
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@Veltlina: I’m thinking that we are talking about two different things. By “corporatism” the author, I believe, is taking the popular usage: undue influence or even outright corruption in government by large business interests to the detriment of the public, even freezing the public out of the process altogether. Another word would be corporatocracy, but that doesn’t resonate with the media as well. I think you may referring to more, as you say, “classical” definitions, which is another way of saying “academic.” To say that “corporatism/corporatocracy” is equivalent to “capitalism” misses the point entirely. You can attempt to have capitalism with a level playing field, or without utter corruption of government and regulatory agencies. In fact, it’s not true capitalism unless everyone has an equal opportunity to compete. Small, local businesses also represent capitalism, but they have been getting the stuffing knocked out of them over the last few decades by the corporations standing on the high ground they have purchased at our expense. I think the author grasped this very important distinction accurately.
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I think that letting an entire economic system “die” so that it can go back to some non-existent idealized past is perhaps the worst thing I have read by any commentator on the current state of the economy. You’re talking about not only destroying peoples’ livelihoods, but their lives. The first to be hurt will be the majority living on the edge of (or below) the poverty line. The rich and the big corporations will be the last and least affected. You should really be ashamed.
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People were saying exctly this during the Great Depression. the Social Democratic party of Germany fought Keynesian macro economic policy because they felt that it would not solve “the basic contradictions of capitalism”.
Instead of a communist revolution they got Hitler. Do you think that we would fare any better?
In fact there are many things that can be done with intelligent collective action to bring our modern economy into balance with itself and the world. Just because our leaders for the past 30 years have been monumentally clueless in this respect does not mean that it cannot be done.
http://wonksanonymous.com/2009/03/05/equal-time-for-fools-on-the-left.aspx
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I think, more correctly, that change on a large scale must come slowly and generally. A rapid ‘revolutionary’ change en masse will create instability globally and give rise to other nations who choose to use the power of capitalism to feed on the vestigal remnants of capitalism in the west.
We’d lose our international strength, if only for a time, but what a time it is to lose that edge!
We would not be able to return to the top of the dogpile soon enough to weigh influence and keep foreign powers down.
This revolution, if it is to happen at all, needs to happen slowly. Cut the worst offenders out of the system and let them shrivel and rot. AIG, The big 3 auto makers, and the like. Replace them with smart, domestic innovation that bends knee to Rushkoff’s line of thinking.
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This article contains precisely the exact same ‘failure to explain’ that is contained in virtually every other article that I’ve read on this subject of the centralization of the money supply.
Here is the point at which I stopped reading this article:
“These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.”
Mr Rushkoff, you know an immense about your subject. The problem is that you have lost sight of the staggering ignorance of a layperson, such as myself, who is desperately trying to understand the root causes of what is happening.
When you say “lent into existence”, what on earth does that mean? For example, if you ask me if I can lend you a pencil, is there some strange alchemy by which I can “lend a pencil into existence” in order that you can be in possession of a borrowed pencil? Is there a fundamental property of matter of which I have been totally unaware for the last 60 years? That property by which, after receiving a request to borrow a quantity of matter in whatever form whether it’s a pencil or a Large Hadron Collider, that then enables it to be “lent it into existence”.
Then you talk about “any money issued … had to be paid back … with interest”. The problems here are manifold.
First, the expression “money issued” obviously relates to the alchemical process of “lending into existence”, and so I’m completely unable to understand how this abstract magic money is “issued”. What does “issued” mean? Does it “droppeth as the gentle rain from heaven”? Is that the form of its issuance or is there another form?
Second, we have “had to be paid back”. What on earth are you talking about? You have supplied the reader with the adjective “issued” without explaining the form that this issuance takes, and then you talk about “paying back”. I’m able to connect your tenuous threads here just a little. You referred to “lent into existence”, which probably relates to “paid back” as in terms of a loan. But in the adjective “issued” there is no hint of loan/debt/borrowing. Which results in me having to start going round in circles by asking yet again: What does “issued” mean?
Third, and finally because I’m getting a little tired, you use the expression “with interest”. Certainly, I’ve borrowed money from a bank and repaid it with interest. But I’ve never had any dealings with a central bank. In what manner does this central bank create magic money and “issue” it without any implication of loan/debt/borrowing and then persuade the recipient of the issuance that interest has to be paid? None of this adds up.
You know so much about your subject that this response will probably fall beneath your radar and will be dismissed as the ravings of a senile idiot having a bad day. So be it.
I shouldn’t send this, but someone in the comity of economists has to be made aware that you aren’t communicating as you should in these extraordinary times.
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John Watson: You can’t “lend into existence” pencils or supercolliders, of course.
But consider what a bank does. If I put $1000 in the bank, it’s mine – but the bank can loan that money out too. So I have it AND someone else has it – new money has been created – “lent into existence”.
When the central bank issues billions of Treasury bonds – billions of dollars are created from nothing.
This is hardly some leftist fantasy – read anything the government writes about the “money supply”. Banks have a legal right to literally create money from nothing.
This isn’t necessarily a bad thing – in a well-regulated market.
I have to say that I really don’t understand the rest of your comments. What part of “borrowed… paid back” is unclear? In what world do you live where people lend money and don’t charge interest?
(My credentials are that I worked on Wall St for years and have a degree in math.)
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Hi Douglas,
I read your essay, “Let it Die”, earlier today and I agree with every word of it.
Nice job.
Here’s a little something that I wrote on the Quaker Peace list-serv that may be pertinent to what could take the place of the Capitalist status quo.
“I hope that Friend Funke is more correct in his interpretation of FCNL’s (Friends Committee on National Legislation)
position on Afghanistan, and more importantly that the policy of the United
States Government becomes that as advocated in that interpretation.
Because interest rates are approaching 0%, this may be a very opportune time
to make peace with the Islamic world and the struggles of working class and
other financially oppressed peoples of the world.
In accordance with Moslem law, loans are not acceptable because they view
all interest as usury. At a time when interest rates are approaching 0%, it
may be a good time to convert all banks and lending institutions into
community development credit unions (CDCUs) and to convert the CDCUs into
equity unions (where communities form equity partnerships with existing
and/or would be community betterment cooperatives and/or small independent community betterment
businesses).
It won’t be easy to climb down from the ladder of inflated market costs, and
other problems, due to the fundamentally inflationary and the irrational
resource allocation nature of Capitalism, but it could be a very good start
toward peace and local, inter-community, inter-regional, and worldwide
humane, quality, equitable, sustainable economic recovery.”
********************************************************
I will send you two additional e-mails with respect to my alternative economic plan. Please peruse these relatively brief essays and if you have the time look at my web log, http://www.peoplesequityunion.blogspot.com .
It would be great to get your feedback.
Peace,
Mike Morin
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Reforming Financial Systems
With respect to the “nature of wealth”, I think that the “quality of life” paradigm in lieu of the “standard of living” paradigm needs to be stressed.
“Quality of life” includes personal happiness for self, family, friends, neighbors, and all others. It includes ownership opportunities for all and everybuddy having the things they need, including health, healthy and loving relations with family, friends, neighbors, and all the people of the world. It includes peace on earth, and it includes a future for all the children of the world.
“Standard of living” implies maximizing the consumption of things.
The current Capitalist dominated system is dysfunctional both from an equity/fairness and economic and natural resource sustainability perspective.
The dominant paradigm in Capitalist financial business operations uses something called the discount rate which assumes that money will be worth less (eventually worthless) in the future, thus creating a necessity to extract profits exceeding a “hurdle” rate leading to unfair and unwise exploitation of workers, borrowers, and natural resources, and to rampant inflation.
The use of credit is not a good business or personal practice. In business, it should be discouraged because creditors have first claims on net revenues and hold liens on real property and capital assets. For “consumers”, the use of credit is unwise because the system is set up to extract profits from interest thus assuring that when consumers use credit that they are losing money relative to inflation. Certainly the current foreclosure crisis in the USA is ample evidence of the inflation and the unfairness and unhealthiness of the mortgage lien process.
Credit Unions and Mutual Insurance companies are in theory attempts to institute non-profit economic democracies for their respective industries. However, because of the need to compete for customers, both of these relatively progressive financial service organization types are forced to play the same game that is basically destructive to individuals, families, communities, and the natural environment. Ideally, credit should only be used as a last resort, much more preferably not at all. We should replace all aspects of the extant financial system with an Equity Union. In some ways, a mutual insurance company is similar to an equity union. However, because such companies are required to realize profits in order to compete for “policy holders” (really investors), the companies that comprise the portfolios of the mutual insurance firms cannot be not-for-profit, can not be mutual organizations themselves.
In a not-for profit Equity Union financial services system based on principles of mutuality working in concert with ethical, wise, knowledgeable, and intelligent community, inter-community, inter-regional, and worldwide planning there would certainly be an important role for financial service workers.
A major impediment to such an Equity Union would be the competitive advantage of the current financial sector and the fear of the friction of change to those individuals and organizations. Dealing with this sector of “the” economy, it would be more feasible with regards to Capitalist resistance and more humane, to orderly and peacefully transition to an Equity Union, coordinated with ecologically sound economic planning.
I am writing and talking about transitioning slowly, methodically, and with the minimum amount of friction and hardship from a dysfunctional financial system, based on self-interest, to one designed to benefit everybuddy.
At risk of understatement, it will take a huge amount of work to educate folks to the need and benefits of such change and to communicate the basic Plan. Transition Planning will also be a very difficult process, but I see no alternative to the current, impending and worsening global economic, political, social, and natural environmental collapse.
The Peoples’ Equity Union concept is designed to be a grass roots, popular choice “movement”. I am organizing with individuals, workers, and shopkeepers in my neighborhood, adjoining neighborhoods, and through the inter-net to whomever I can attract an interest in the concept.
The focus is primarily local, yet global at the same time. It is my dream, not a hope yet, to encourage a critical mass of people to organize locally around a unifying mission, unifying principles, unifying strategies, and unifying tactics in order to minimize the amount of executive administration at the regional and global levels.
The theory is that neighborhood locales, the neighborhood community/worker hybrid association will have maximum autonomy and will be guided only, in their inter-community and inter-economic sector relationships by regional Planning Boards and a Global Policy Committee.
We must replace the current equity trading systems, corporate conglomerate corporations, insurance companies, and usurious banking systems of the Capitalist status quo with a worldwide Peoples’ Equity Union with branches in every community/neighborhood.
The goal is to be a true economic democracy: of, for, and by the people.
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It would be useful to explore the alternative economic system known as “Distributism.” It would seem, in my estimation, in large part in line with your propositions. You can find the founding papers for that in book called “Flee to the Fields.” You can find it here: http://www.ihspress.com/flee.htm
And by the way, don’t let an anti-Catholic bias keep you from considering this economic system, there is a lot of merit to it for the social well-being of our country.
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While I found Mr. Rushkoff’s article insightful and interesting, I have to agree with Chris B. that this is one of the worst ideas I have heard in a long time. What happens to the currently low-income individuals in middle age or older who don’t have the physical or mental capacity to labor manually or learn to provide a “service” or good that is desired by the local community? I suppose they starve. Also, it appears that retirement is no longer an option under Rushkoff’s proposal, because it would be much more difficult to accumulate sufficient wealth to sustain oneself without working using “local” currency that devalues at a fairly rapid clip.
I suppose if the goal is to return to an agrarian system where most people engage in subsistence farming and work until they die, Rushkoff’s suggestion that we “seize the day” and follow his advice is valid. Personally, I will continue to seek a more moderate approach that preserves societal features such as technological innovation while increasing the availability of financial and other resources to the general public, and making increased concentration of wealth less inevitable.
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Neo-marxists and socialists will find themselves in the same chains that the Bolsheviks experienced under Stalin’s oppression. The 60s were an abomination and its progeny are destroying the greatest republic in history. We’ll see how well the pseudo-intellectuals and aging hippies among you like picking fruit and veg in the vast government controlled farms that are your future.
Oh and by the way, the revolution will not be televised!
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After reading this article and subsequent comments, I think the “neighborhood community/worker hybrid association” was called communes in the USSR.
It is human nature to work “like a dog” to improve the lot of ones self, especially if one is working on a piece work basis, or in your own company.
When you are working for every one else and your pay is the same no matter how hard you work, the result is the USSR.
A USSR joke was – We pretend to work and They pretend to pay us –
This scheme, like socialism, or Communism will always fail.
Man will only work, think, invent, etc, when it benefits him.
Our Banking system is a Ponzi type fraud given us by FDR.
The Fed should be disbanded and its duties taken over by the Treasury Dept, which is its main reason for existence.
I agree that that the Fed should not ever charge interest.
Local banks should be allowed to lend out their customer’s savings, Not 10 times that amount.
All currency should be redeemable in gold, silver or other precious metal.
Credit card companies should not be exempt from bankruptcy discharge, and they should be subject to usury laws.
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@TheLibertine: When did anti-corporate become pro-Stalinism? Who said anything about government controlled farms? (If corporatism does not get checked, the result may be Monsanto controlled farms. How would that be that preferable?) I think the argument here is about being for small businesses and for trust busting, not for state control. The commodificaion of the superficial aspects of 60’s culture was the real “abomination”.
@Len: A CSA is a small business, not a commune. Yes, folks will work when it benefits them, but corporations sucks the wealth from the folks and deposits it at the top. Income distributions are skewed worse than 30 years ago – where’s the benefit there?
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Best of all, all local currencies are pegged to the Time Standard of Money (how many dollars/hour child labor) and Hours earned locally can be intertraded with other timebanks globally!
In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours.
U.N. Millennium Declaration UNILETS Resolution C6 to governments is for a time-based currency to restructure the global financial architecture.
See my banking systems engineering analysis at http://youtube.com/kingofthepaupers with an index of articles at http://johnturmel.com/kotp.htm
So yes, let the bankster ship sink while we unite our community currency lifeboats around the world through the internet.
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Excellent article, for shedding light on a few key points of our economy.
Premise: Capitalism (or whatever -ism name you want to apply to our current system) relies on growth to survive. I.E. a $1000 loan must be paid back in time for $2000. The person / small business / corporation taking out this loan must earn more money than it has borrowed in order to pay it back. They earn money by creating value (selling something they have created, and has a use). This system works, if the growth is small enough to be sustainable over time, matching closely to the natural growth rate of the ability of market / country / Earths population to create real value.
Through several perversions of this model, instability has been created,
Perversion #1: Banks lending out too much money, especially in high risk loans. When a bank lends money, it is taking a risk that it will be paid back. If the person / business / corporation that takes the money is unable to create value, earn more money, and pay it back, then the bank, and the people who keep their money in the bank, have just lost their money. This one is and has been carried out by countless financial institutions, spurred on by the government in their short-sighted and misplaced efforts to “stimulate growth”. When banks can lend out 30 times more money than they actually have, they take huge risks, and outpace the actual capability of the participants in the system to create more value. (see Sub-Prime mortages, and the avalance of unstable fallout)
Perversion #2: Speculative “investment” is the practice of making money by buying something at one price, and then selling at another higher price, without actually creating more value. I.E. futures trading, real estate investing, etc.. The stat quoted was 95% of the activity is speculative. No wonder the terrorists hate the capitalists.
Wall Steet and the banking industry has been Extreemly successful at it for many many years. Just look at the profits and salaries of the top execs we have been exposed too in recent months. How many $30K a year salaries would just one of those Lehman execs salaries cover?? (Scary Math: $165M / $30K = 5,333 people. That’s 5333 people who make Zero dollars, so one guy who moves money around can make $165 million.) Did that executive actually create value? or did he just move money around and skimm off the top. I’m not pickng on rich people, just those that don’t create value to earn it.
If we fix at least these 2 issues, we will have a sustainable economy.
As you can tell, I’m not an economist, just a systems engineer who understands a few basic laws of nature.
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Successful speculators are better at perceiving value than others. Perception of value is important to society. What we value returns interest. Interest (or gain) is our reward for perceiving value. Price and value are often not synonymous. The successful speculator knows that and capitalizes on the difference between price and value. “Moving money around” is an activity that is necessary in the perception of value. Understanding the laws of nature is not the same as understanding the laws of economics.
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Hack Money, Hack Banking” by Douglas Rushkoff – follow-up to Monday’s “Let It Die.” http://bit.ly/1aV7r0
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Why no mention of the quality of life fostered by the corporate/capitalist system? The system in place for the extraordinary achievements of the last 200 years are relevant. The advances of technology are not going to occur otherwise in some pastoral nirvana void of ugly things like “growth” and “advancement” and “making money”. Just another screed from a creepy commie that gets a listen every time business slows down a little. By the time you publish this nonsense, no one is going to care because the capitalist economy will be off to the races again and you can go back in your dank hole.
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There will be a point where the evil of the corporate system is balanced out by the good of another replacement system, such as direct bartering. That is to say there will be a big BITE out of corporations. There should be. They have had it their way far too long.
I’m glad I live in France where I can barter directly for my food at the local market with the farmers that produced it!
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Veltina- you are incorrect. There is a HUGE difference between capitalism and corporatism. However, the corporatists have confused the terms over years, and caused you to feel otherwise.
“Capitalism” is simply a free market, not an “ism”, per se. It is what exists in the absense of central control by the state, tribe or other forced collective – two people exchanging goods, free of control or tax by the state.
Corporatism is when the state colludes with producers of given goods or services to regulate. This regulation, often written by the corporations themselves, favors the growth of the corporation. A true free market has a localizing effect on commerce and favors the creation of small, local, independent business– businesses where you can shake hands with the man or woman whose name is on the door. Corporatism has the opposite effect.
See: http://barbedwiresmile.wordpress.com/2009/01/24/the-corporation-and-the-state-in-a-regulated-economy/
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Everyone reading this article seems to be in agreement that corporatism (capitalism?) is the cause of the current economic system problems. What do you suggest we replace capitalism with? Is there anything better? A capitalistic/republic has produced more wealth for it’s citizens than any other county in the world. Compare the USA to Europe. Stagnation, and unions that strike despite more than adequate benefits, few jobs created, grants to start a business, a birth rate of about 1.4 per woman, not enough to replace itself so they invite in Muslims to help replace the needed workers. Europe and the UK are socialistic/democracies at their best and are failing. You want to replace what we have with what, that? Individuals doing business with each other and no central banking system? This article is written by a socialist and the ideas proposed do not suggest any solutions or answers. Hardly worth reading in my opinion. Without corporations that people can invest in, how would capital be raised to expand business and grow ideas? Have any of you raving about this article ever had a class in economics or business? I doubt it, yet you seem to eat up this guys prognosis like it’s ice cream on a cone. Wake up! America will recover, the people, as long as they continue the fight as rugged individuals will survive and prosper. It is the governmental at all levels that has screwed up the economy with it’s ever expanding need for revenues that has caused our current problems. Smaller government and less taxes is the answer. That’s what will happen after this calamity has passed and the bubble of cradle to grave protection by government is proved to be a disaster.
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There is the one thing about America that no other country can offer, and why people flock here to try and better themselves, including all the Latinos. Once you move here and become a citizen you are an American! In no other country in the world is this true. My daughter lives in Wales and no matter how long, now over 7 years, she will never be considered Welsh, even with citizenship. She will always be referred to “that American down the street.” My brother lives in Mexico and despite his “green card” the constitution prohibits him from becoming a “Mexican,” as he must have been born there to achieve this distinction. Read a little about the Mexican Constitution and you will understand why only the aristocracy runs the country and can run for office or be officers in the Army. The greatness of this unique experiment called the American dream is based on our Constitution, perhaps the finest document written in the history of the world. Under our Constitution, which correctly refers to rights that cost no one else anything, and are the rights to life, liberty and the pursuit of happiness. When we get back to these principles our country will prosper again, the dream will not die. The following generations will change this country and reduce the size of government, solving most of the problems. For over 50 years all we have heard about is peoples rights, not it is time to start thinking about people’s responsibilities! Elect new people that will change government once and for all, putting an end to the greed and corruption of the political class. Business people are supposed to make money, politicians are supposed to be providing “public service.” What happened to change the public service to political greed?
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Barbudo- see my comments above. You are correct in many ways. However, too many have confused capitalism with corporatism. These are NOT the same things. Though there are those in power who want you to feel otherwise.
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This blew my mind. Definitely a perspective that’s new to me. I look forward to reading those books you recommended in Hack Money, Hack Banking. Too bad your book doesn’t come out until next year. Looking forward to your future posts, since this needs more detail.
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Barbedwiresmile: The way you defined corporatism is so similar to fascism, and that’s no mistake!
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The difference between Capitalism and Corporatism is risk. Capitalists are risk-friendly, Corporatists are risk-averse. They are 180 degrees apart.
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“Smaller government and less taxes is the answer. That’s what will happen after this calamity has passed and the bubble of cradle to grave protection by government is proved to be a disaster.”
I really envy you your fine Spartan/American ethics, El Barbudo. It can be a nightmare living in here the UK. Like the times I needed two operations when I was young and the hospitals refused all offers of money from my parents. The doctors treated me then turned us away from their doors! My parents were forced to spend the money on toys for my sister and I. Then years later, when I needed treatment for an eye complaint. Once again the doctors treated me swiftly and efficiently and laughed when I suggested I pay them for their trouble! What audacity!
Worst of all was the times when I was unemployed and the government insisted on giving me welfare payments until I could start earning again. I was desperate to prove my Spartan resilience by living under a bridge in a cardboard box but, no, they insisted on paying my rent and making sure I had enough money to eat. It’s shameful, sometimes, it really is.
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Quote: Elect new people that (sic) will change government once and for all, putting an end to the greed and corruption of the political class. Unquote
ElBarbudo:
…and where oh where are “the new people (who) will change government once and for all, putting an end to the greed and corruption of the political class” going to come from? And once they ascend to unlimited power in the federal government, what will keep them from being just as corrupted as what we see today, or God forbid, more so?
And in fact many of the MOST corrupt are the formerly-idealistic icons from the 60s — more corrupt than anything we’ve seen before. Or perhaps just like now, in that pretend-ideal era those people only lusted for power, not the flower power that was touted by the press of the time.
People who want to be elected to public office are looking for power. Politicians and politician wannabes are the same pimps and whores, it’s simply that the first are already in office and the others…well, want to be in office. And sadly that is an insult to traditional pimps and whores.
Let us not kid ourselves. Elections are part of the entertainment of the masses — just like Roman circuses — and they are opiates that make us think our votes count. They don’t and I’m through pulling levers for politicians who want to use me in order to abuse me. I would not weep if Washington disappeared.
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Does someone here actually believe that “corporatism” has anything at all to do with capitalism other than its subversion? Capitalism has to do with investing in the economy in the expectation of return; i.e., “capitalizing” businesses in te expectation that the business will proser and return a profit. CORPORATISM, on the other hand, is nothing but a latter-day form of feudalism, where the individual making binding decisions on his employees and his customers and to a great extent on his community cannot be held personally liable for the consequences of those decisions — so long, you might note, as his decisions are deemed “in the public interest” by the government boffins he supports with his taxes and perhaps more under the table. YES, corporatism should be abolished, because you cannot have liberty and responsibility unless those in power can be held accountable for the devastation their profit-motive and social-engineering decisions cause. But leave capitalism the hell alone, and restore government to its absolutely only, singular, exclusive function, which is to protect the rights of the people!
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