Saturday, 16 March 2013

Who is at fault?

I am strongly biased in favour of monetary reform and a backer of the Positive Money proposals. I see this as a real alternative to the austerity measures being promoted by the UK government and being forced on nations receiving bailouts in the European Union. I object to the theft of depositors money being forced upon the Cypriot people in the bailout package offered by the Economic Union. Was it the depositors who caused the banking problem in Cyprus.

My bias does influence how I read economic material but I notice that there are many politicians and economists who are equally biased in their belief that governments and the people in general should not benefit from the creation of new money. They hold firm to the belief in the market despite current evidence of the difficulties. The question who is really basing their argument on the real evidence and how the system currently works?

One of the positive money promotions clearly emphasises the role of the banks fuelling the house price boom through funding increasingly bigger mortgages for properties. However, there is another two parties to a property transaction and that is the seller and the buyer. When the seller and buyer see the transaction as an investment then they like the banking system are looking for increasing prices and a positive return on the transaction. We look for this gain even if all we will be doing with the return on investment is buying our next home. What influences our attitude in these transactions? It comes back to our understanding of market forces and our desire to move up the property ladder and improve our status in the world. Even when making home improvements, we are encouraged to think of the economic gains and not the improvements in living conditions.

Michael Rowbotham, the author of The Grip of Death in critiquing the debt based money system and the way that it fosters certain behaviours, talks in respect to housing how mortgages moved from being one or two times a person's annual income to being closer to ten times their annual income and how despite having a 25 year term the average repayment period was eight years where now we are enslaved for life to the debt.

For banks or lenders, property was a guaranteed return. Property prices increased faster than the rate of inflation. There was a guaranteed return on investment. Putting money into mortgages becomes almost a certain profitable bet. In contrast investing in a business seems higher risk. There is no guarantee that the business will be a success so why take the risk?

Mary Mellor (2010) describes how even the concept of profit places emphasis on growth or the need for the input of new money and an expanding market for capitalism to survive. She says money is “invested in commodity production with the aim of selling that commodity at a profit, that is, M – C – M+” (p 83). That is more money is required than is paid out for production. This was the argument of C.H. Douglas and the Social Credit movement. When you begin to include financial investment or financialised capitalism, “where money is invested in financial assets to create more money” then we have M – M – M+. That is we invest money in order to obtain more money. Capitalism by its very nature requires growth or at the very least continued expansion of the money supply. If that expansion is in the form of debt then we have to question whether the system can survive?

Rowbotham argues that this profit or growth emphasis causes us to produce cheaper products with shorter life and to export our unwanted surpluses simply to maintain profitability. The consequence is environmental destruction and as reported on a recent news item a desire to mine for what we see as essential minerals from the ocean floor even though this could cause high levels of damage to the environment.

We all behave in ways that are consistent with our beliefs. This is easily identified with politicians who argue that austerity is the only option. This is despite the evidence that suggests a reduction in government spending decreases economic activity. However, there perspective is consistent with the view that governments don't create value and therefore should not be involved in creating money. However, it also leads to governments having to borrow from banks while being the guarantor for customer deposits or in the current crisis guarantors that the banks do not fail. It also leaves banks in the position of creating money and then investing it for a return even though they are also not the generators of new wealth.

Although changing the way money is created and spent into the economy will help, ultimately it is our belief about how we work together and trust each other that will make the difference. Are we here to maximise our own advantage over others and the environment with a consequence of a reduction in trust or are we looking to the interests of others and the environment.

Reference:

Mary Mellor (2010) The future of money: From financial crisis to public resource. London: Pluto Press

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