The Politics of Money

Towards Sustainability and Economic Democracy

By Frances Hutchinson, Mary Mellor, Wendy Olsen

Pluto Press

Copyright © 2002 Frances Hutchinson, Mary Mellor and Wendy Olsen
All rights reserved.
ISBN: 978-0-7453-1720-5

Contents

Preface, viii,
1 The money society, 1,
2 Why is there no alternative?, 21,
3 Money, banking and credit, 47,
4 Capitalism – the elimination of alternatives, 70,
5 Marx, Veblen and the critique of the money/market system, 98,
6 Guild socialism and social credit, 123,
7 Institutional critiques of capitalist finance, 142,
8 New critiques: green economics and feminist economics, 157,
9 New ways of thinking about money and income, 184,
10 Towards sustainability and economic democracy, 208,
Bibliography, 230,
Index, 242,

CHAPTER 1

The Money Society

This book is about money, economics and economic democracy. Our starting point is that the current dominance of capitalist economic theory and practice is socially and ecologically destructive. New ways of theorising and organising economic systems are necessary if sustainable and equitable human societies are to be achieved. Our particular focus is the role that money has played in the development of capitalised market societies. However, there is a relative silence within conventional economic theory on this subject. This silence is not only one of omission, the assumption that the theory of money and credit is very much secondary to the study of economic systems, but also of exclusion, even exile, of dissident voices. Those who have sought to raise critical questions about the nature and role of money and the radical potential of money systems are dismissed as radicals or cranks. In this book we will explore those voices from the Marxian critique of the cash nexus in the nineteenth century through the institutionalists, guild socialists and social credit movements of the early twentieth century to the contemporary ‘new economics’ movements.

Central to our argument is the view that ecological sustainability and social equality cannot be separated from economic democracy. With the global dominance of the capitalist market and the large-scale incursion of money values into most aspects of social life, access to money and credit is vital. In market societies, where resources are privatised and production is capitalised, goods and services necessary for survival can only be accessed through a monetary exchange. The hopes of organising production and consumption within a collectivised state system have been severely undermined by the failures of the Soviet model. Even if there were a move back towards nationalisation or municipalisation of some services or industries there would be an expectation that a profit-based market will still remain fundamental to the allocation of resources. If this is the case, then the organisation and structuring of that market and the money system that funds it is a fundamental question for democracy.

Our overall aim is to reclaim models of economic democracy that can (re)establish social(ist) principles. We will not write this word in such a peculiar way again, but we want to stress that we are looking for a renewed radical politics through the recognition of economics as a social principle. In particular, we argue that the nature of money systems as access systems is a critical issue for socialists. In seeking to make a contribution to the development of economic democracy as a socialist strategy for the twenty-first century this book will draw on contemporary movements concerned with social approaches to economics. We will also explore interesting innovative contemporary economic experiments at the local level but we will argue that these can better contribute to a more comprehensive strategy if we understand them through the analysis and proposals of earlier movements. We look in particular at institutional views of money and proposals for the socialisation of money and credit.

We also seek to retain the energy of the political economy of Marx through incorporating the work of feminist and ecological economists into his critique of capitalism and his materialist view of the economy. This would add to Marx’s analysis of the exploitative relations between capital and labour the marginalisation and exploitation of women’s unpaid labour and the economic appropriation and degradation of natural resources. At the same time we join with those feminist, ecological and institutionalist economists in their questioning of the elevation and reification of ‘the economy’ as a distinct and dominant social domain.

Money and society

In capitalised market economies having money means belonging, particularly in the US and the UK. Lack of money brings real hardship and refusal of access to money is indicative of exclusion from citizenship. In Britain asylum seekers were initially stigmatised by the refusal of the state to give them benefits as money instead of vouchers tradeable at selected shops. In the US welfare recipients are given food stamps. Early in the industrial revolution wages were often paid in a company currency or scrip recognised only by the company store or truck shops. Legitimated access to money became a sign of citizenship, culminating in the Blairite notion of ‘responsible’ citizenship. Following on from the Thatcherite era, those in receipt of money benefits without ‘earning’ are seen as ‘scrounging’. The UK Welfare to Work strategy is based on the argument that noone is entitled to money for ‘nothing’. Even being a parent does not qualify as being socially worthy, with single parents being urged to take paid work.

Everyone must be seen to make a contribution to ‘society’. Making a money-rewarded contribution is central to the exercise of citizens’ rights, regardless of the social or ecological impacts of the ‘economic’ activity. The ‘taxpayer’ is much more important than the voter in the mind of governments. The political focus of governments is on financial stability from the ‘pound in your pocket’ of Harold Wilson, to the ‘sound money’ of Margaret Thatcher and ‘it’s the economy, stupid’ of Bill Clinton. Massive money incomes and particularly lucrative share options for company executives have been a feature of late capitalism. What in the 1970s was called the unacceptable face of capitalism by UK Conservative Prime Minister Edward Heath is now not only acceptable but applauded. Greed is good. By the end of the twentieth century, the rapidly increasing number of billionaires was led by Bill Gates with over $50 billion amassed through attaining a monopoly position in information technology until the collapse of internet stocks when he was overtaken by Sam Walton, head of the US hypermarket chain, Walmart. Cultural icons such as pop, film and sports stars also command huge incomes. Status is defined by consumption. Advertising urges the latest, improved, must-have items, with children as particular targets. The sophistication of advertising is such that trading is more around ‘logo’ than product (Klein, 2000).

Consumption is not just about having money; it is access to credit as people and countries consume far beyond their current wealth. In mid 2001 the US had a credit bill of $28 trillion, 300 per cent of GDP (Guardian, 15 October 2001). Much of this had gone into the ill-fated stock market boom. By the end of 2001 the US was in recession. The second half of the twentieth century saw a huge growth in personal credit, which is, of course, a charge on future earnings. In mid 2001 the UK population owed £700 billion representing 110 per cent of disposable income. On average each household owed £5,300 on top of mortgage debt (Guardian, 31 August 2001). Mortgage debt in the UK at the end of the twentieth century was £409,433 billion, an average of £38,400 per house (1996 figures; Rowbotham, 1998: 18). In the early 1990s a national random sample survey showed that 8 per cent of households with a mortgage declared that they had difficulties making their mortgage payments (Buck et al., 1994: 143). In other western countries, particularly those who follow the UK/US model, similar levels of indebtedness are common, whilst in the southern and Asian regions of the world rapidly rising levels of consumer debt are also becoming widespread. This is additional to traditional levels of indebtedness. For instance, many Indian farmers are seriously in debt to local moneylenders whilst also being keen to receive bank credit. Sri Lankan farmers and emigrants are prepared to borrow at interest rates as high as 25 per cent (from banks) rising to 240 per cent (from moneylenders).

When major purchases are made, definitions of creditworthiness determine access to credit and therefore to goods. A catch-22 for many people seeking credit is that one of the main ways to gain creditworthiness is already to have had credit. For the poor, and particularly for many women, access to credit or even banking is effectively denied. Whole communities are cut off from financial services, banks, insurance, loan facilities and so on, either because of their personal situation or because there are no facilities in their locality. In the UK 1.5 million households use no financial services and 10 per cent of households have no bank account. In the absence of high street banking facilities, around 3 million households rely on local credit agencies often paying at least 50 per cent interest and often much higher.

Apart from their centrality to contemporary society, financial services are also a major employer, outstripping both farming and engineering in the UK. In 1996 and 1997 financial services counted for one-third of UK growth. In 1999 it was responsible for half of all output growth. The assumption that the money train would go on forever led Britain under the Thatcherite experiment to think that primary production and manufactures were no longer necessary. Britain would trade its way to prosperity via the value of its currency and its intangible services, particularly its financial services. This has left the UK very exposed to a collapse in the banking ‘industry’. While Britain gained from the 20-year-long boom, it is now exceptionally exposed to a bear market. The superficial growth of financial services has also been undermined by doubts about the financial probity of some of its activities, including the mis-selling of pensions, endowments and other products.

Money/credit has also become electronic, so its physical existence has largely disappeared. Future archaeologists will have little idea how the twenty-first century economy worked. There will be no hoards of coin buried in fields, books of accounts or hieroglyphs carved into stone. The intangibility of money has allowed a huge fluidity in money/credit and severe problems with financial regulation, particularly after the so-called Big Bang reforms in 1986. The financial system has been riven by financial scandals and spectacular collapses. In December 2001 Enron, the world’s largest energy trader, collapsed with losses that some commentators estimated could be up to $40 billion (Observer, 2 December 2001). This was a company that had been engaged in humble gas pipe-laying before the lure of the money market called. In 1991 in the UK the Bank of Commerce and Credit International collapsed owing £20 billion. In 1995 the 28-year-old trader Nick Leeson lost £800 million and destroyed Barings Bank. In 1998 the US hedge fund ironically named Long Term Capital Management collapsed owing $4.3 billion. This one was deemed ‘too big to fail’ (or small enough to save?) and a rescue was mounted by a consortium of banks and financial agencies (Lowenstein, 2001). The intangible nature of money has generally created a looseness in the financial system that undermines claims to ‘sound money’. Banks, credit card companies and internet traders face fraud on a massive scale, but the holes in accounts are quietly closed electronically to keep ‘confidence’ in the financial system. How long this can continue is, however, another question.

Globalisation and finance

The finance industry lies at the heart of globalisation. Of the total international transactions of a trillion or so dollars each day, 95 per cent are purely financial. Globalisation is not about trade: it is about money. For Gibson-Graham (1996: 136) ‘financial gamesmanship’ has led to money being traded for money in such a way that even the exchange of physical commodities is more concerned with future monetary transactions than meeting real needs for goods and services. As McEwan points out, global trade as a percentage of national output is very little different to what it was at the end of the nineteenth century – around 40 per cent (1999). Investors no longer put their money into factories or merchant ships but, instead, into a plethora of overlapping ‘financial products’ such as futures, derivatives, hedge funds or currency speculation. Even a small rise or fall in the value of a currency can make a fortune for large-scale investors, while a larger rise or fall, caused by those same investment practices, could destroy a national economy. Value in money terms has become ephemeral and, as we will argue, always was. What was valuable yesterday becomes valueless today, and vice versa. Within the global economy the relevant performance or efficiency of business is much less important than the value of currency. Wages are cheap, partly because workers are relatively less well paid, but also because they are also paid in a less valued currency (Hines, 2000). Currency imbalance also fuels a mass tourist trade as the wages of workers in high-value currencies can buy services and resources at seemingly minimal prices in low-value countries.

Another source of devastation wrought by the inequality in the value of currencies is the huge transfer of wealth from South to North through the loan shark system of North-South debt. We do not here enter into the debate on the relationship between international debt, trade and cash cropping on the one hand and the spread of famine and the degradation of the land on the other (see, e.g., Shiva, 1988). The scandal of the debt crisis has been told many times (see, e.g., George, 1988). Globalisation has been a disaster for poorer countries, with minority elites fighting for power both militarily and economically through the sale of minerals, cash crops and cheap labour to the developed world (Chossudovsky, 1997). Research by the Worldwatch Institute shows that UN figures indicate that by the end of the twentieth century the 20 per cent of countries at the top end of scale earned 86 times more than the 20 per cent of countries at the bottom end. In 1997 the difference was 74 times; in the 1960s it was ‘only’ 30 times. Between 1950 and 2000 global trade grew by 17 times – but Africa’s share of trade has fallen from 8 per cent to 2 per cent and Latin America’s from 11 per cent to 5 per cent (report in Guardian, 14 April 2000). At the dawn of the twenty-first century, one-sixth of the world’s population had 80 per cent of world income averaging $70 dollars a day, while 57 per cent of the world population in the 63 poorest countries had only 6 per cent of world income averaging $2 per day. There are 1.6 billion people living on under $1, a figure that has not changed since 1987, while 1.2 billion are overnourished, or badly nourished, to the point of obesity (Worldwatch, 2000). As we demonstrate in these pages, however, the money value of an income is a poor indicator of well-being.

While money value can provide some measure of inequality, the relationship between money and livelihood has greater significance. Around 30 per cent of the world population still lives on or near the land, a figure which overlaps with the proportion of the world that has very little money (under $2 a day). For this group of people what is critical is access to sufficient fertile land to sustain the continued existence of subsistence livelihoods. Around 25 per cent of the world population live in highly commodified economies with a high standard of living and rely almost entirely on the market for their sustenance. In 1939 the UK supplied over 95 per cent of its food regionally, but by 1999 the position was entirely reversed. For the remainder of the world’s people, rapidly becoming the majority, their livelihoods are uncertain as they gradually coalesce into the burgeoning cities as land is commodified and depopulated. Within those cities the problem of how to make a living becomes predominant as the dynamism of most city economies depends on money investment and circulation.

The limits of money

The merry-go-round of the global money economy appears to be faltering at the beginning of the twenty-first century. By the 1990s Japan, a leading trading nation in the 1970s and 1980s, was caught in a depression brought on by the collapse of a bubble in land prices. For the last ten years of the twentieth century it was unable to get money to circulate, even with interest rates at zero. Equally, many communities in the old industrial economies have become becalmed, left behind, even abandoned by the global economy. Those still swinging around at the centre of the global financial economy are beginning to be troubled by overcommitment to the ‘bottom line’. Rich populations seem not much happier than poor ones, certainly not as happy as their relative wealth would indicate. Caring, friendship, love cannot be bought. Women have pointed to the huge amount of caring and domestic work that lies beyond the world of money and credit (Himmelweit, 2000). The limits to money can be seen most clearly in the areas of health, happiness and the environment. Money may buy cosmetic surgery but it cannot buy contentment, spiritual growth or ultimately defy death itself.

(Continues…)Excerpted from The Politics of Money by Frances Hutchinson, Mary Mellor, Wendy Olsen. Copyright © 2002 Frances Hutchinson, Mary Mellor and Wendy Olsen. Excerpted by permission of Pluto Press.
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