The Root of Much Evil

[Malcolm Ramsay]

Love of money, according to the Christian Bible, is the root of all evil .... but in fact there's a fairly simple technical reason underlying much of the evil it causes. There's a property of money which makes its most important functions hostage to the least important. It's a property which most people take for granted, one which textbooks describe as being essential - its durability.

The durability of money makes it hoardable, allowing people to use it as a long-term store of wealth .... but its primary functions are as a medium of exchange and (in abstract) as a standard of utilitarian value. Unfortunately when people hoard it they effectively take some of it out of circulation, which reduces the amount that is available as medium of exchange. That inhibits economic activity, and that in turn leads to general instability of prices; prices start to fall (because people lack the means to buy) which either results in a spiral of deflation (if the money supply is fixed) or in the creation of new money which subsequently leads to rising prices - in both cases compromising its function as standard of value.

The financial world has of course evolved mechanisms for bringing that money back into circulation; capitalist societies have 'interest' (other societies recognise interest as an insidious evil and have laws against usury, but rely on extensive patronage instead - which is probably even more pernicious). For practical purposes, those who have more money than they have any immediate need for are able to charge everybody else for the privilege of using it - and the result is a constant flow of wealth from the poor to the rich. This is one of the principal causes of inequality - only marginally less important to my mind than the inequitable control of land (in my view those two things are probably responsible for 90% or so of 'unnatural' inequality) - and it is only made possible by the fact that our medium of exchange keeps its value (its nominal value, that is) even when it's not circulating.

There are very good reasons why this came about. Money as an institution is not something that was ever 'created'; it evolved over many centuries before it was drawn fully into the sphere of government, and it's from that historical perspective that textbooks describe durability as one of its essential properties - it's hard to see how that evolution could have happened without that property. As long as money was a physical commodity, such as gold and silver, which could not be created at will, there was no possibility of separating its different functions. Once it began to be paper-based, however, separating those functions became at least a possibility; with electronic money we have reached a stage where it is entirely feasible. We can step beyond those historical limitations and create a monetary system in which those problems don't arise. But to do that we need to convince those who control it that that change is necessary.

I first started thinking about the subject in the early eighties when I wanted to understand why there seemed to be a link between unemployment and inflation (the mantra of the Thatcher government was that unemployment was the price we had to pay for bringing inflation under control). Because I was approaching it from that angle, positively looking for a flaw, I recognised almost immediately that the orthodox functions of money - medium of exchange; unit of account; and store of value - are in fact in conflict with each other. In my innocence I briefly imagined revealing this to a grateful world, but not surprisingly other people had already recognised it - and (also not surprisingly) the world had largely ignored them.

Largely, but not entirely. Some of the leading economists of the 1930s were admirers of Silvio Gesell who is regarded as the father of the idea; Keynes described him as a 'neglected prophet', and Irving Fisher tried to get his idea of 'stamped money' adopted at the federal level in the US. Local currencies based on the idea were in fact adopted by a number of communities in Austria and Germany, and in the US, during the depression of that time, and were very successful at stimulating the economies of the communities which used them - until they were banned (Bernard Lietaer, a modern proponent of the idea, includes a brief history of it in this article).

Gesell's proposal involved having notes stamped (for a small charge) at the end of each month in order for them to keep their value. It was perhaps the best that could have been done at the time, but it had the drawback that it didn't distinguish between money which was circulating at a healthy rate and money which wasn't circulating at all. It did encourage people to use it quickly, however, because nobody wanted to be the one holding it when it needed to be stamped. This was a time when people who had a bit of money were afraid to spend it for fear of worse times ahead - creating a self-fulfilling vicious circle - so it gave a huge boost to the local economies of the communities which used it.

In an ideal system cash which was circulating at the 'natural' rate would retain its full value, whereas stagnant cash would gradually lose value (I'm not going to go into the details of how that would operate, nor speculate about the best way of achieving it technically, because at the moment my primary concern is with the principle). Some people will question the focus on a physical property of money, when so much economic activity doesn't involve cash at all, but as long as money in the bank is convertible into cash on demand it is the properties of cash which ultimately determines how the system behaves. As long as people have the ability to store wealth as physical money, the banks would be unable to charge them for holding it (which is what would be needed to ensure that it circulates properly).

When I first recognised this as a problem it was the instability it causes which I was concerned about, but over the years I've come to see that the most pernicious aspect of it is the constant flow of wealth from the poorer to the richer. For a long time I've assumed that there was nothing I could do about it, because a monetary system needs a community of people who trade regularly with each other before it can even get off the ground - and when well respected economists (Willem Buiter, for example) have no success pushing the idea into the mainstream, I don't think there's much chance of me succeeding. In the last couple of weeks, however, I've realised there might be a way for me to at least get it onto the agenda - if I have the nerve to do it!

It's to do with the relationship between taxation and money. Money itself has no intrinsic value; the value it does have rests on people's belief that they will be able to exchange it for something for which they have some desire or need. The whole system relies on that confidence, but for the most part there's no actual obligation for people to use it - we are free to trade through barter, or through an alternative currency. With one exception; by denominating taxes in a particular currency the authorities create an absolute need for that currency - so in effect the tax system guarantees its value.

In the case of some taxes, income tax for example, this might be defensible because to some extent they can be regarded as 'optional' - in principle, if not in practice, people can avoid them by being largely self-sufficient and only trading through barter. But with land-based taxes, such as Council Tax in England, you become liable for them simply by occupying a house or piece of land. By requiring payment in a particular currency, the authorities are not only guaranteeing the value of the currency, they are also locking everybody in to using it. So if that currency is a prime cause of inequality, as I argued above, then the tax authorities are, in effect, guaranteeing the continued existence of serious inequality.

In a previous post, Imago Society, I wrote about the British courts' power to declare laws incompatible with the higher principles of the law, and suggested that in some cases such a declaration might lead to a constitutional crisis which could be used to bring about useful reform. I think a challenge to the legality of demanding taxes in a hoardable currency (i.e. a currency which encourages the flow of wealth towards the rich) would be one of those cases, and I think there's a good chance the courts would indeed recognise the link between interest and inequality. But the whole capitalist system has grown up around the phenomenon of financial interest, around the fact of those who have surplus money being able to charge other people for the privilege of using it. The government would not lightly switch to a form of currency which prevented that .... but equally, it would be a major step for them to ignore the courts.

I'll have to do a lot of preparation on it, but it should at least be easy to bring the issue before the court. The first step would be to ask the local council, when they send a council tax bill, to justify denominating it in a hoardable currency (but without withholding payment at this stage). Their initial reply would probably be reasonably polite, but after two or three exchanges I'd expect them to refuse to enter into further correspondence. The next step would be to withhold payment on the grounds that they had refused to give that justification - and wait for them to take it to court.

If I have the nerve to do it.

[Edit (August 2012): I wrote originally about challenging 'the legality of demanding taxes in a hoardable currency', but since then my perspective has changed slightly, and I now think that a challenge should focus on the legality of demanding taxes in a form which people have no natural capacity to supply. It's a case which would be easier to argue, and would still break the chains which bind us to the current monetary system. Having said that, I'm not keen to provoke that argument on my own.]

[Roger Hicks]

". . its primary functions are as a medium of exchange and (in abstract) as a standard of utilitarian value."

Which makes it the most important, because most versatile, form of POWER - which, as we know, has a tendency to corrupt; the pursuit and exercise of POWER being what Homo sapiens' primordial drive and struggle for survival, advantage and reproductive success, in the artificial environment of civilisation, has largely been reduced to.

Trouble is, the corruption has been built into the very foundations of our civilisation, which doesn't only make it very difficult to change (tampering with its foundation risks bringing down the whole superstructure), but also difficult to even to recognise, our brains having evolved to "interpret" reality, i.e. its environment, in accordance with strong social conditioning and short-sighted self-interest in maintaining the (socio-economic) environment it depends on, not just materially, but also emotionally for social status.

This is why so many, especially amongst the rich, powerful, privileged and influential, who (short-sightedly) have the most to lose, are still blind to the inherent non-sustainability of our civilisation, obvious to most of us at the Dark Mountain Project.

In response to the Ecologist's 2006 Annual Essay Competition,  "What is Humanity's worst Invention?", I wrote this ESSAY. It probably needs updating, but still contains some valuable ideas, I think.

[Alan Durant]

Thanks Malcolm, I shall watch this with interest. Will you be posting something on the land question and do you have any thoughts on abolishing the need for growth which I think would be one of the results of the removal of the payment of interest.

[Malcolm Ramsay]

Thanks for the comment, Roger. There might be some valuable ideas in your essay, but I'm afraid I didn't see anything in it which contributes to the perspective I'm presenting here.

Transcending our animal nature is undoubtedly an important long-term goal, but in the short-term (I mean humanity's short-term, i.e. the next century or so) it would be sensible to try and change any specific features of our society which obviously contribute to social malaise. In Passing On I wrote about inequitable patterns of land ownership, which constitute one glaringly obvious source of trouble and which can be traced to a specific custom which originally developed for reasons which are no longer valid. In this piece I've done something similar with money, pointing to a specific (fortuitous) feature of the monetary system which, if it were changed, would give rise to very different patterns of economic behaviour.

In the economic sphere I'm advocating two specific changes; limiting how much land any individual can acquire by inheritance or gift; and establishing a medium of exchange which cannot be used as a long-term store of wealth. Those two aspects of society are so fundamental that they shape our behaviour in every part of our lives, so until we've made those changes I don't think it's really possible to see what other reforms would be needed (though I am fairly sure that treating corporations as legal persons is also a source of dysfunction). As long as there are specific, identifiable flaws in the system, railing against the behaviour of the privileged, or human nature in general, seems to me to be rather short-sighted.

Malcolm

[Roger Hicks]

Hi Malcolm,

I wrote that essay a few years ago now, and would no longer suggest that we have to "transcend our animal nature", so much as develop an understanding of our evolved (Darwinian) human nature, so that we can learn how to direct it consciously in a more rational, just, humane and sustainable fashion, rather than allowing it to rule us subconsciously as it does now - driving us, as it does, in pursuit of POWER (thus the insane need for and rationalisations of perpetual economic growth).

This is what has shaped our social, political and economic power structures in ways that facilitate money's misuse as the most versatile form of POWER. If your own ideas don't take this into account - and I don't see that they do - I don't see how they can be very helpful, sence they don't seem to deal with the root cause of the problem, which is human motivations.

The vast majority of people with POWER (in whatever form) are highly motivated, not just consciously, but above all subconsciously, to hang on to or increase it. No amount of ideological reasoning will loosen their grip, and trying to take it from them is likely to provoke a violent response.

Only by understanding ourselves, and our evolved Darwinian nature, will we be able to change, or redirect, our behaviour.

I'm sorry if that sounds a bit arrogant of me; I don't mean to be.

[Malcolm Ramsay]

Hi Alan

Yes, I certainly intend to post more on the land question. As I mentioned in Passing On, I possibly have a way of bringing the inheritance issue before a court, but it's something where I'll have to initiate a case (unlike the money issue where my aim will be to provoke the local authority into initiating it). That means there has to be an underlying dispute which the courts will recognise as a valid 'cause of action', and I'm not sure yet whether I have one or not (until the precedent has been set I don't think the question I want to bring up would constitute a cause of action in its own right - but I would, hopefully, be able to raise it as a peripheral issue in this other case). If I am able to go ahead with it, I would wait until that was settled before provoking a challenge on the money issue, so I'm expecting the whole process to stretch over a few years.

I'm not intending to say any more on that while it's a live issue, but that aside, I'm intending to write about how I think a market in land could operate without depriving new generations of their natural rights. Before I get onto that, however, I'm aiming to post something more about the relationship between money and taxation, and how it might tie in with a process for holding the Executive to account (as I discussed in Parcivilised Government).

On your question about the need for growth and removal of the payment of interest, I suspect you're assuming that payment of interest is a precondition for investment. With the current system it is - but only because it's needed to attract stagnant money back into circulation. And what I'm proposing would not remove the possibility of interest, it would remove the necessity of it. In practice it would tend to encourage investment rather than constrain it, because investors would be able to borrow at much lower rates - lenders who might prefer to hold onto their money (if it held its value) rather than get 4% interest, might well be glad to get 1% if they were otherwise going to lose 3%.

Whether or not there is in fact a 'need for growth' is another matter. I suspect that, to a large extent, the mainstream perception of a need is connected with inequality - through the argument that growth is needed to lift the poor out of poverty - but on the whole that's a debate I'm happy to leave to others.

Malcolm

[Malcolm Ramsay]

Hi Roger

I don't think you should worry about being thought arrogant - better to be concerned about why you're not taken seriously. Statements which are manifestly untrue don't help in that respect:

Only by understanding ourselves, and our evolved Darwinian nature, will we be able to change, or redirect, our behaviour.

It wasn't by developing any new understanding of ourselves that western societies changed (for example) the custom of sending children up chimneys - it was by making laws against it. Our behaviour is the result of a nexus of needs, desires, hopes and expectations all operating within a particular set of conditions, many of which are man-made .... and when conditions change our behaviour also changes.

A system in which people can tuck money away for years knowing that it will retain its value allows them to satisfy a (natural) need for a sense of security simply by holding on to any surplus money they acquire. A system in which it will lose value if it doesn't circulate (eventually becoming completely worthless) will require them to find some other way to satisfy that need. That simple technical change would alter the way people behave. If you think that's not so, feel free to put forward some reasoning which suggests otherwise.

I did read The Origin of Species many years ago, but I'm afraid 'Darwinian' doesn't mean much to me (my understanding is that Darwin postulated a continuous, steady evolution, in contrast to occasional periods of rapid change, but I don't even have much confidence in that conception of it). For the most part I regard labels like that as worse than useless, because I think they positively encourage misunderstanding. They often give a spurious sense of distinctness and completeness to things which are in fact intrinsically diverse or diffuse, and they can give people an illusion of understanding something which in fact they've only just begun to appreciate. I certainly don't see any relevance of it to the views I've put forward here.

If you want to engage with what I wrote I'd be happy to hear what you have to say; but if all you want to do is promote your own views I think you'd do better posting them on your own page. I'm posting here because I have ideas of my own; ideas which are not just 'ideological reasoning', but which provide me with a course of action I can follow. I might be helped by other people's support in that, though I'm not depending on it, but I'm posting because I think my analysis of what needs changing, and how it might be done, is worth sharing. What I'm planning might fail at the first hurdle (the courts rejecting my arguments) but it could just conceivably lead to fairly immediate reform (if Parliament changes laws in response to a declaration of incompatibility by the courts).

My expectation, however, is that the courts will accept my arguments, but that Parliament will try to ignore the issues. As I suggested in my previous posts, that will open the way to further challenges, which (as I envisage them at the moment) almost certainly will need other people's support - if it's not there I'll just have to look for some way of doing it on my own.

Malcolm

[Stranger]

Money is not durable at all, it devalues until fols finally lose faith in it and then it is worthless....

[Alan Durant]

My money definitely isn't durable.

 

Alan

[Roger Hicks]

Malcolm, I've just come back to this thread and discovered your response to my last post, on the 2^nd and 1^st of July, respectively . . !!

I don't remember reading your response, or what distracted me – although something obviously did. I'm sorry. All I can do is apologise and pick up the thread now that I've rediscovered it. The issue of MONEY certainly hasn't gone away in the meantime, nor the urgent need for us to understand and attend to it.

I don't agree that money keeps its value, thus causing people to hoard it and create all the problems it does. On the contrary, money is continually losing its value through inflation, which everyone with surplus money (savings) seeks to compensate for by investing it, so that it “works” for them, at least compensating – ideally, overcompensating - for any losses.

It's this “overcompensation”, which forms the basis of our capitalist economy, which is the real problem, I think: the fact that the rich can make their money (property) work for them (just as in feudal times), providing an income (often huge) which they don't have to actually work for.

Its a well-known platitude, which I well remember learning from my parents, that “money doesn't grow on trees”; only it's a LIE. It does grow on trees, effectively, if you have investments. In the past, when there was virtually no “social mobility”, it was just the wealthy (propertied) elite who possessed money trees (received income from property and investments), but the development of capitalism has lead to more and more people getting onto the “property (investment) ladder”, and not just individuals, but institutions as well; most perniciously, pension funds, which make normal workers even more dependent than they already are on the capitalist system which exploits them as a “human resource”, on the one hand, and as consumers, on the other.

I don't see how keeping money circulating is going to solve the fundamental problem of money (property) being misused as a means of generating unearned income. Which is what drives the systemic, but ecologically insane and suicidal, need for perpetual economic growth.

Continued in next post (because it won't fit in here):

 

[Roger Hicks]

Continuation of previous post:

Obviously, money has to be invested in projects which serve human needs. What's wrong is what drives and directs these investments, which is narrow and sort-sighted personal gain, e.g. short to medium term return on investment, rather than the long-term collective good of society.

This I attribute to our, largely subconscious, Darwinian nature, which we use much of our prodigious brain power to rationalise, while at the same time making things so complicated that no mere mortal can fathom it - so that we must leave things to a genius elite of financiers economists and business wizards, who – surprise, surprise – are doing very nicely for themselves, thank you; to the great satisfaction of their own subconscious Darwinian nature, which the Darwinian nature of us lesser mortals can't help but envy and admire them for.