If the banks are so healthy, how come we're all still broke?
Douglas Rushkoff, the author of Life Inc., is a guest blogger.
We're supposed to take heart in the fact that the Treasury Department's bank "stress tests" didn't come out worse. No, our biggest banks aren't insolvent, exactly. In fact, enough cash was printed to guarantee that they should be able to survive the rest of the recession. Worst case, with a little late-night printing and lending by the central bank, even the worst of them - like Citibank - should be able to hobble through. Our Treasury Department wants us to be reassured.
True enough, as long as banks are understood by many as fueling the economy, this should be good news. By this logic, banks disperse the capital that allows businesses to do their business. As so many have explained to me, it all starts with the banks. Banks lend businesses money, and then those businesses turn it into something real - like products, salaries, or innovation.
Sorry, but that's just not true. Labor might make money, but money doesn't make labor. (Or as I said to Rolling Stone's editor, music makes money - money doesn't make music). And while we can certainly point to the fact that assembly lines and mixing boards cost money, neither are required as the first step in creating a car company or a musical act. Yes, in a well-functioning economy, good production yields income, part of which goes to making production better. A great company dedicates part of its winnings to R&D.
But the notion that enterprise and production starts with banking is just another artifact of Renaissance-era currency monopolies. Back before the first central banks, production and yield actually created money. (That's what all this hoopla about complementary currency is about.) Money was not lent into existence by a bank. Instead, farmers brought their grain to town and received receipts for the grain. These receipts served as the local currency. Currency was worked into existence. There was as much money as there was grain.
The problem with this scheme was that people got too wealthy - especially in comparison with the feudal lords and fledgling monarchy, who had always been used to getting rich, well, by being rich. So they went and made all the grain-based currencies illegal, and forced everyone to use coin of the realm - central currency. While this coin was better for long distance trade and collecting taxes, it was lousy for local transactions. People lost their ability to live off the land, took jobs with early corporations, got poor, less fed, and eventually the economic downturn in Europe led to a plague that killed half the population. This isn't economic interpretation - it's just fact.
Eventually, with only half the population to deal with, Europe's new economic scheme proved basically sufficient to the task. And we got the rules that have - in one form or another - defined economics to this day: people don't make money, banks do. The chief function of money is for money to make money - not for it to be used for successful transactions.
But today we may be smart enough, information may travel around fast enough, for many of us to realize just how transparent a fraud we're witnessing unfold before us today - how the bailouts of AIG were really funding Goldman Sachs, how intimately involved are bankers - Rubin or Paulson, are with Treasury chiefs like, er, Paulson and Rubin. How government and banking are one and the same, both after the same centralization of authority, both inextricably linked with the biases of lending-based wealth schemes, and both utterly incapable of serving as the source of anything.
the latest
latest episodes
Douglas: Excellent points and a valuable history lesson. The personal angle and cultural aspect of just how deeply embedded Rubin/Paulson/et al (Geithner almost uniquely so) in the entire Wall Street culture these men are would disqualify them from any standard business dealings because of the profound conflicts of interest involved. I keep wondering where the upper boundary of this bullshit is, and it just keeps getting more and more absurd. Great posts...book on order.
Today, when I hear everyday people (such as 20-something hipsters here in North Portland) talk about or mention the Stock Market, as in, whether it was up or down that day, I politely remind them that they need to make Wall Street their business no more. THAT was the problem we go into. The DOW became more relevant than the weather.
LOL, found this in the intro sample for Doug's book:
Looks like a good book.
So why aren't people rioting in the streets? What is the end game? As I recall you pointed out earlier that the European aristocracy shed itself of it's excess population by starving them to death or by shipping them off to the new world.There's no where for people to go this time.
So the poor just get screwed all over again while the elites bravely shoulder on?
I'm sorry, but I'm going to have to call for a little clarification on some of your bold sweeping statements here.
Centralised currencies have been around forever. The Anglo-Saxons had centralised currency, and they didn't even have a centralised government, just a bunch of dudes riding around the country gate-crashing the parties of the rich (in between fighting off vikings). The Romans not only had centralised currency, but fiat currency as well, not to mention lending institutions.
While it may be well and good to come down in a modern day version of casting the money lenders from the temple, the Roman's were able to make a much better fist of things before usury was banned under Christianity.
Now obviously associating the downfall of money lending with the downfall of the Roman Empire may be something of an unsuppoted leap, I would suggest the same for your very clever, yet historically unsupported claim that banks collapsing caused a global pandemic. While this is rather topical at the moment, I feel your arguments are relying on rhetoric rather than fact.
It sure is nice that history comes packaged in incontrovertible facts that perfectly coincide with our modern political sympathies.
Very interesting. I had some questions about this part:
While this coin was better for long distance trade and collecting taxes, it was lousy for local transactions.
Why was it lousy, exactly? And what was the causal connection to this(?):
People lost their ability to live off the land, took jobs with early corporations, got poor, less fed,
and from there to here(?):
and eventually the economic downturn in Europe led to a plague that killed half the population.
Finally, when you say this:
This isn't economic interpretation - it's just fact.
I feel the need to point out you never shared the facts behind your facts. Not saying your wrong. I can't. You didn't give nearly enough information to make any sort of determination on whether what you've written is fact, opinion, interpretation, or something you pulled out of a hat.
"Labor might make money, but money doesn't make labor."
I might beg to differ-- if I stop getting money (or equivalent compensation), I imagine my labor is going to halt fairly quickly. Perhaps you do what you do for the sheer intrinsic joy of doing it, but for most jobs, you're in it for the money.
Money does make music. Not very good music, but it makes a lot of it.
Uh No.
I don't know which medievalist you have been readng but that is one of the most glib and blatant distortions of the European medieval economy I have ever read. I'll be citing if you wish to check my sources
- Jaques Le Goff "Medieval Civiliation 1988"
- Norman Davies "Europe 1997"
- Jaques Le Goff "The Birth of Europe 2005"
- Miri Rubin "The Hollow crown 2005"
"Money was not lent into existence by a bank. Instead, farmers brought their grain to town and received receipts for the grain. These receipts served as the local currency."
It wasn't a monetary economy. Independent farmers had disappeared be the end of Roman Empire,(outside of Byzantine territories) and the land of Europe was basically parceled out between the late roman elite, and the franks, suevains, lombards, saxons, slavs and visigoths. If you weren't under a lord you were part of the local barter economy.Dues were paid to the lord either by serving in warband or by giving labour or part of the produce. There was none of this proto-communist egalitarian grain currencies.
-By a natural economy one should understand for the medieval west was an economy where all exchanges were reduced to a strict minimum. The lord and the peasant found their needs satisfied in the framework of the manor, and in the case of the peasant, above the compass of the home(le Goff)
"The problem with this scheme was that people got too wealthy - especially in comparison with the feudal lords and fledgling monarchy, who had always been used to getting rich, well, by being rich. So they went and made all the grain-based currencies illegal, and forced everyone to use coin of the realm - central currency."
Nobody got wealthy. The farmers of Europe stayed poor, locked into framework of feudal dues and a mentality of stasis(encouraged by the church)- St Thomas of Aquinas on work "It has four aims First and foremost it must provide the necessities of life, secondly it must chase away idleness, thirdly it must prevent the body from getting fat, and finally it allows one to give alms." Not exactly a formula for making money.
Moreover, the monetary renaissance of the 12 century comes from the Italian cities of Venice and Florence. Not from the feudal kings.
"While this coin was better for long distance trade and collecting taxes, it was lousy for local transactions. People lost their ability to live off the land, took jobs with early corporations, got poor, less fed, and eventually the economic downturn in Europe led to a plague that killed half the population. This isn't economic interpretation - it's just fact."
Coin was never produced enough to replace material goods and it had no value as we understand it, it was a round ingot with a stamp(which is why they were weighed). When currency was used as value it was used as a measure of value, you could still pay in grain or whatever local produce you desired.
What happened in Europe was a demographic expansion in population followed by a great geographic expansion onto marginal land. This collapsed under the weight of overpopulation and the onset of the little ice age. The black death was an entirely random event. It could have come 100 years later or 200 years earlier. It had nothing to do with the state of the European economy, and everything to with the intellectual and nutritional poverty that characterizes the medieval period and a siege where plague ridden bodies were thrown over the wall.
Ironically enough, if Mr. Rushkoff had bother to look beyond the popculture sources he so clearly love, he wold have found his argument far more pertinent in the 16th and 17th centuries, an era filled with re-coinages, centralizing monarchies, rampant inflation, economic dislocation, war and poverty.
"Eventually, with only half the population to deal with, Europe's new economic scheme proved basically sufficient to the task. And we got the rules that have - in one form or another - defined economics to this day: people don't make money, banks do. The chief function of money is for money to make money - not for it to be used for successful transactions."
Actually it failed miserably. As mentioned above the economy was worse in the 15th than it was in the 11th. What made the difference was in the introduction of New World Crops which converted all those marginal areas to sustainable and productive areas.
"So they went and made all the grain-based currencies illegal, and forced everyone to use coin of the realm - central currency"
Expanding on this
A) there was never enough metal to do this (see coins as ingots above). It would have physically impossible for any ruler much less the metal poor rulers of Europe to commute all dues to coins only. Khubilia Khan managed this only with mulberry bark dollars, and forced people to take them on pain of death.
B)Money was always a measure of value rather than means of transaction. Oxen, Cloth, Pepper, Grain, and exotic goods all served as appropriate ways of commuting dues.
C) I cannot find one reference from Clovis to Edward III to Fredrick II to Stephen Dushan of any European Medieval monarch enacting such legislation. Perhaps you've got a garbled version of the Statute of Labourers, or some mis-interpreted sumptuary laws but forcing everyone to a monetary economy? Nope, Sorry wrong era, wrong continent.
Oh, money makes music, all right, and there are too many examples to cite. And what is money, anyway, in the age of a "service" economy?
I have found your last week of posts quite interesting, although I’m still not sure I understand what you think is wrong with the system and especially how to fix it. But you seem to have some fundamental misperceptions about how capital works.
You are absolutely right that money doesn’t make labor, but in a capitalist system – in anything other than a subsistence society – output (measured in money) is created by multiplying labor and capital. For one hour of work a man with no capital can dig a one foot deep hole with his hands, a man with a little capital can dig a three foot hole with his shovel, and a fully capitalized man can dig a 20 foot deep hole with his backhoe. If there are no banks, a man must dig with his hands for a year, living in poverty, to save enough money for a shovel. But a bank will lend him money to buy the backhoe. Now, even if he has to give the bank the money from 10 feet for every 20 feet he digs, he is still digging ten times more than he was – he is getting 10 times as much money as he made digging with his hands.
So you are absolutely right that capital is not a “first step.” Capital is a multiplier of labor. Capital is what makes us better off. Your saying “music makes money - money doesn't make music” is the perfect example of exactly what you are not trying to say. Music doesn’t really make much money. Look at pretty much any local band you like. They make very little money from live performances at pubs and the likes. They probably earn most of what money they do make from selling cds. Those cds are the direct result of capital, and they multiply the bands labor. 4 hours of playing in a pub? Maybe $800 if they’re good (at least in my city). 4 hours in a recording studio? A couple hundred cds at $10 bucks a pop. If you want to start making real money, you sign on with a studio, that organizes capital to a higher degree. Your labor remains the same, that labor is multiplied by a much greater amount of capital. So perhaps the real saying should be “people make music – people plus money make money.”
The exciting thing about debt is it can allow someone who has labor to get money to multiply their labor. As long as the cost of the money is lower than the amount by which the money multiplies their labor, they come out ahead. They literally pull themselves up by their bootstraps.
When a piece of software breaks, you have to decide is the fundamental design so flawed it has to be scrapped and you need to start with a whole new design? Or do you merely have to go in, and fix a couple of bad subroutines and manage memory a bit better. There is little doubt that we are getting screwed over by the various government bailouts, and by the lack of oversight in the banking arena. Our rules have been bent out of shape. I do not see how it follows that we need to throw out the entire system.
You allude to the centralization and accumulation of power. And there is a fascinating subject that I would very much like to discuss with you, but this post is already way to long.
P.S. I am thoroughly confused by your description of the apparently idyllic times in the dark ages back before central banks, the cause of the black plague, etc. If you could provide some additional reading on the period, I’d appreciate it. At the moment, Mindpowered’s cited comments are much closer to my understanding of the economy at the time.
@ Cicada #4
"if I stop getting money (or equivalent compensation), I imagine my labor is going to halt fairly quickly."
Then I guess you'll just die. No? You don't really need money if you can live off the land and that's the assumption he's making here. During the depression people survived off the land. That's why we had the dust bowl. Farmers started planting fence post to fence post, along came a drought and there was nothing to stop the wind or hold the rain when it did fall. The economic conditions caused people to take extra risks. Which makes you more vulnerable to random events like a drought.
I like the grand sweeping statements without any real analysis or facts to back them up.
You come off completely unbiased and give a detailed and very balanced look into modern economic problems. (Sarcasm)
But seriously, thank you most posters for not just going along with the crazy just cause he's disappointingly BoingBoing approved.
@#15- Let me clarify, then-- any portion of my labor that goes beyond keeping myself fed is going to halt.
Ask yourself the next time you go to the doctor-- does the guy really have a secret joy in poking fingers in orifices which makes him do that rather than farm, or is the main difference the amount of dough that gets slung his way? This applies to many other professions, for that matter-- money serves to get people to do things they wouldn't be intrinsically motivated to do. Who would be a garbageman?
I like the grand sweeping statements without any real analysis or facts to back them up.
I also like grand sweeping statements without any real analysis or facts to back them up.
Perhaps you should provide some.
The stuff that the author assures me is "just fact" is contradictory to what I know of monitory, corporate, and european history. Some generalities he says happened before the plague actually happened later
I think the "it's just fact" is a poor rhetorical device covering up a great deal of either dishonesty or sloppy thought.
It's weak. When your assured it just a fact check that fact first.
go read "confessions of an Economic Hit Man" or watch Zeitgeist Addendum where the guy himself gives an account of his actions.
It's very scary and makes you wonder just what is going on behind the curtain that the corporatocracy uses to sheild things from the public
@18, I didn't make a post sans facts on a popular website...I'm not sure what you're asking me for? I'm merely happy that others have already laid down numerous ways in which he's completely off base, and more to the point they've done that with actual analysis and sources...
"the economic downturn in Europe led to a plague that killed half the population."
Killed around half of the population of Europe you say? Hmm. Sounds sort of like the Black Death, except that was due to by rat-born flees, not a weak economy.
Care to explain how an economic downturn caused the Black Death?
Haha, this guy's Michelle Bachmann...
"I'm just saying we had a democratic president the last time there was a swine flu outbreak"
ahahaha
Can we have Maggie back now?
Hello Daemon,
actually, it was rat-borne fleas, not "rat-born flees" that spread the Bubonic Plague.
In defence of Mr. Rushkoff, he is probably referring to the fact that undernourished people (read poor) are more susceptible to diseases than healthy folk.
I expand on all the history in my book. I'm not talking about 300(AD) to 1000 as much as 1000 to 1300. Just those last three centuries of the late middle ages.
You're right that feudalism was a big deal, but it was actually beginning to break down by then. Peasants did subsistence farming, on land they did not own. (Which turned out to be a better deal than what came next.) But merchants and others began forming towns and cities whose commerce was largely beyond the control of feudal lords. So was trade *between* feudal territories, which was crucial. The aristocracy was landlocked in the feudal system. Merchants were not. Neither were the early family companies doing trips to new territories.
It takes longer than a blog post to say all this - and the best reference are the works of Braudel.
As for earlier examples of central currencies, yes yes. They've been used by dictatorships attempting to take control of new colonies. The best two examples are Egypt (the story is actually central the Joseph fable in the Bible, and why my first book on this subject, Exit Strategy, was a retelling of Joseph on Wall Street) and Rome.
Egypt had local grain-based currencies that were eventually replaced by centralized currency as the Empire expanded and needed a tool for extraction of resources. Same with the territories overtaken by Rome.
And we know how both of those empires ended up. There's only so much you can extract before you either kill the society or it rises up against you.
But please, you have to understand, the things I'm writing here are not as supported as they'd be in a whole book - which I hope to wikify as soon as it's out, as well, for people to contest and/or support with additional documentation.
Neither more nor less coherent than anything else I've heard so far on this topic.
Sigh.
Smell of a faith based economic system. It works if everyone believes. Oh no, it failed! Time to believe something new! Even the failure becomes dogma, very fast. Sitting in a cafe, listening to one economics student explain to another the correct interpretation of the "crisis", complete with correct value judgements on all the players.
Any improvement should be tested in the small before scaling it up. That far I agree with. But what I'm hearing so far from Rushkoff is simply recreating in the small what caused a mess in the large. You think your banks made a hash of things? Just wait till amateurs start printing play money! On the positive side: relatively few people will be hurt, and it may even be possible to learn something.
There is some fundamental story about risk and capital that's missing here. This shouldn't be hard. There should be a set of principles or something that yield a safe strategy. It should be obvious and intuitive, both how to set up a little economy for your mates, and how to judge the health of larger economies.
I'm feeling the effects of these banks, personally. The company I work for (not publicly-held) was profitable last year. But, it wasn't profitable enough for these banks to continue their lines of credit. So my company cut 5% of workforce and everyone else got their wages cut by up to 15%. Nobody complained, of course, because there aren't exactly a lot of jobs in my area.
So thanks to the banks being more stingy with their credit, I'm not able to purchase items I normally would. So thanks, banks, for propping up the market for generic toilet paper and bulk dried foods!
"This isn't economic interpretation - it's just fact."
Even if you're right, that line right there sets off my bullshit detector.
@14
> Look at pretty much any local band you like. They make very little money from live performances at pubs and the likes. They probably earn most of what money they do make from selling cds.
You have a couple of good points but this is untrue. Studio cost, mixing, mastering, distribution, all that costs a lot of money. So much money that most bands just sign a deal - if they can get one - and let the record co. take care of it. They get an advance, then have to pay it off by selling CDs. So no, they don't make a lot of money on the CDs at all, except if they would sell so many that they could repay the record company... But that won't happen unless you're Radiohead. Or Madonna.
Shows on the other hand, those cost practically nothing. The gas to drive up there. The band already has all the gear, so they just need to show up and do their thing. It gets costly when you get bigger, for example U2 would have to pay security, build a stage, etc. Local bands just play their songs and that's it. Some venues even let them share in the booze income and they get a share of the door price. They also get income from merchandise.
If you want to support a band, go to their show and buy the t-shirt. Forget about the CD.
Mr. Rushkoff, I'm not likely to read your book. I don't use "corporation" as a pejorative word. I'm capitalist and unashamed. I've been both a debtor and a creditor with good results.
I am curious, however. Can I ask that before you conclude your guest post duties you make a post outlining the main culprit (or top three) of your thesis as you see it? Is it fractional reserve banking? Is it lending at interest? The concept of money itself? You've told us who started it, but what exactly is the "it" they started?
re #30: You're correct. I wasn't clear. When you get to the big leagues, you don't make money from the CDs, instead, the CDs and the marketing campaign behind them are basically your advertisement for live performances. However, without those CDs and marketing, it would not be possible to gross a million dollars at a single live performance.
I was instead speaking about small bands that have not signed up with a major label. Quite a few local bands simply produce their own CDs, or go with one of the alternative labels that have much different business models from the big labels. The cost of semi-pro recording studios have come way down, to the point where an artist can build a serviceable studio for a couple grand. At that level of capitalization, CDs can be quite profitable.
Others have already pointed out the broad gaps in thinking, but this one was so wrong that I let out a dumbfounded "Wah?":
"The economic downturn in Europe led to a plague."
@PROBOSCIDEAN The idea that musicians make money from CDs rather than live shows is false. That statement should be switched around.
I have known dozens and dozens of musicians over a decade (and I myself am one) all the way from making homemade CDrs to being signed on a label and performing on Conan O'Brien and the only thing they all share is that no one no matter what level they are at makes any money from CDs. This is nothing new and has been going on for at least as long as the record industry has been selling LPs.
For the independent artists CDs are barely profitable at all and if you are lucky you will come out breaking even.
Musicians don't make money from CDs/LPS and never had you must be drinking too much RIAA Kool-Aid.
#17 posted by Cicada
"money serves to get people to do things they wouldn't be intrinsically motivated to do."
I don't think we actually disagree. Yes, I pretty much agree with much of what you say but nothing you've said goes to explain your position. Initially you disagreed with Rushkoff's:
"Labor might make money, but money doesn't make labor."
This seems patently obvious to me. Money is just stored wealth and only labor can create wealth. A piece of paper or hunk of metal has no intrinsic value. Capitalism creates surplus wealth (via mechanized efficiency) which can then be used to fund things like your doctor. Agrarian societies cannot afford their sons sitting in a room reading books until they are in their mid twenties. It takes them a long time to build up the surplus value they need to send a favored son off to college.
@ #22 posted by Daemon
"Care to explain how an economic downturn caused the Black Death?"
I don't know about the Black Death so much but take a look at the Irish potato famine. Was that caused by the potato blight? It was the proximate cause yes but work your way back in the causal chain. The reason the the blight caught hold was because there was a vast monoculture of potato plants for the disease to spread through. The reason everyone was farming potatoes is because it was the only crop that allowed them to feed themselves off their tiny plots of land. The reason they were on those tiny plots was because their absentee landlords, who owned that land, forced them onto smaller and smaller plots in order to extract every last bit of money from them and so that the rest of the land could be used for English beef cattle.
So basically people were herded into a smaller and smaller area until an opportunistic disease like potato blight, or the plague virus, came along and killed millions.
"All of this has happened before and all of this will happen again."
Right on!
unfortunately, only the people who have: enough time to crawl blogs like this and who have a certain level of education can get access to information that reveals this fraud.
I disagree, the general populace does not understand our currency system, it makes too much sense. We need a simple and omnipotent way to express what is going on here before anything will change. Which will be hard as the "super elite" also control the media.
No change will happen unless anyone/everyone can understand what's going on here intimately. We are effectively in an open air prison.
The potato blight was far more akin to a Stalinist Terror famine than the black death. By adhering to the interests of English famers(and with the class of absentee landlords) the government at Westminster callously starved the Irish population to death.
By definition everyone in the medieval period was malnourished. Before the Black death there had been a seven year famine, which wiped out 10% of the population of Europe and left the rest malnourished and weakened. Of course, nutrition was generally so bad that any type of disruption could lead to famine and sickness.
Braudel is great but I would suggest, going Ad Fonts(to the source). I all ready mentioned Le Goff, I would add Marc Bloch, Henri Pirenne to that and Alfons Dopsch. And for a newer Long Duree I would advocated Norman Davies.
There was trade and there exchange. However it was a small fraction of a small fraction of the population which participated in anything more than the most basic exchanges. Yes there is the Hansa, or Islamic Spain or The City States of Northern Italy,but these are by far the minority (and they share the trait of being lightly feudalized).
The real breaks in the medieval system didn't start until the late 15th century with the end of the Reconquista and the 100+ years war, the repopulation of Europe and the breakdown and destruction of the feudal mindset. It's no accident that the 95 theses, the renaissance, the discovery of America, and the expansion into Siberia all happened with 60 years of each other.
I had a lot of hope for your work but so far you come off as a crank. Please, please, please do your homework (you might start with Mindpowered's references). What you're writing about is terribly important at this time, and I wish you'd go to the trouble of doing enough homework so that your work will improve matters, rather than making them worse.
Krawk!
Only a decade of homework so far, but I'll definitely put in another ten years.
Alas, I wish I were a crank, that Citibank were an honest company basing their decisions on a good understanding of how the economy works rather than a cynical vision of how to exploit people.
Yes, what I'm writing about is terribly important right now. That's why we have to look at the people who developed central currencies and monopoly corporate charters in the early Renaissance. For those who need it as a numbered list of things I think matter, here they are like that:
1. The invention of the chartered monopoly corporation, which was not about promoting commerce but extracting wealth from those who were.
2. The invention (or, more exactly, re-introduction) of centralized currency (post-Floren) by France and other European nations, which impoverished the middle class.
3. The way those institutions were so thoroughly embedded in our culture that to question them - even in conversations among ostensibly open-minded people - is to invite ridicule.
But it takes longer than a BoingBoing post to articulate and document all this. I admit I am developing a new narrative for the events of the past six hundred years - but that it's a more logical line drawn through the historical record.
#26: I'm not talking about 300(AD) to 1000 as much as 1000 to 1300. Just those last three centuries of the late middle ages.
Erm, no. The Middle Ages last until some point in the 16th century (though there are debates about whether that point is in the early, middle or late portion of the 16th) by most accepted definitions, and at least to the mid-to-late 15th in virtually all of them. You've got them ending over a century early, at best.
The classical dates for the Middle Ages are 476 (the Fall of Rome) to 1453 (the Fall of Constantinople.) The 16th century is quite definitively the Renaissance. Northern Europe had its Renaissance later than Italy and the South, but one certainly wouldn't classify Tudor England as medieval.
So, I have a hankering fer freespirited money talk, who can I see about that?
Antinous,
Even 1453 is over 150 years later than 1300 (remember, I said mid-to-late 15th century, and 1453 is mid-15th). And while the 16th century in Italy is definitely Renaissance, it is still considered medieval for some other parts of Europe.
I think that there's an unwholesome focus on facts. Or maybe an unwholesome definition of facts. Outside of mathematics, chemistry, etc., most disciplines are highly subjective. Historical and economic 'facts' are generally someone's subjective interpretation of incomplete data. In theory, interpretation is determined by available information, but in practice information has often been selected to fit a pre-existing interpretation. Given that selection bias seems fairly inevitable, I, for one, welcome taking fresh philosophical approaches to problems.
I am up for the freespirited money talk! That's all I was hoping to engender, anyway.
Are we ready to understand the money we use as a kind of money - more faithbased, in fact, than commodity-based currencies of earlier eras? Are we ready to look at the way a business landscape predicated on interest-based loans leads companies to make decisions based on debt structure rather than supply and demand? And are we ready to consider - just consider, mind you - whether this bias is intrinsic to commerce or the legacy of reforms by people who have long since left the building?
Here's the way I conclude the rather extended argument about the plague and centralized currency in my book:
Philip’s new, more opaque tactic, made possible by his centralization of money, was to debase his own currency—removing some portion of the gold and recoining it with less precious metal. Philip forced his people to use and value money from which he could extract worth at any time. For these repeated debasements, Dante later pictured Philip in Hell. Philip’s wanton currency manipulation led to attacks on royal officials and widespread rioting. By 1306, violence got so bad in Paris that Philip had to take refuge in the house of the Knights Templar and temporarily restore “good money” for his people to use.
Philip had done far worse than simply debase a currency. Taken alone, all that would have done is made it harder for him to purchase foreign goods. His people could still have accepted gold florins for their exports, and used local currencies for their daily transactions. No, Philip’s real crime against the people was to outlaw the use of any currency besides his own.
Even if they had given up all long- distance trade, the people couldn’t conduct efficient local commerce with a currency that was designed for long- term storage instead of short- term exchange. Besides, the long- term- storage capacity of the currency was undermined by Philip’s corrupt debasements.
Philip and other European monarchs copying the successful florin sought to increase their own power by extracting value from local activities. The people no longer had inexpensive currencies that were grown into existence with each farm’s harvest; they now used scarce currencies coined into existence by a central authority. Instead of reinvesting excess wealth back into their windmills and ovens, they hoarded what money they could before it was again debased.
The people’s ability to create value had been taken from them. Central currencies—when they weren’t simply debased by corrupt monarchs—favored the new players on the economic landscape: chartered corporations conducting competitive, international trade, and speculators who contributed cash and never labor to the enterprise. By making money scarce and centralized, royals and the corporations they chartered could monopolize savings and investment. As a result, people who had been in business for themselves, investing and reinvesting in their own people and equipment, were reduced to laborers. The first Renaissance ended, and the Renaissance we might better call a dark age had begun.
Between 1000 and 1300, when local currencies peaked in use, the population of Europe grew at an astonishing pace. The best census estimates we have come from En gland, where the population more than doubled over those three hundred years. In the 1290s, En gland exercised its own changes in the monetary system, outlawing local currencies in favor of a single scarce coin issued by central authorities. Monarchs extracted wealth and value through constant debasement. Within ten years, the population increase reversed to a decline as standards of living fell. Another forty years after that, in 1347, came the first outbreak of the plague.
Historians like to blame the plague for Europe’s subsequent loss of half its people and all its prosperity. But it would be far more accurate to blame the shift in monetary policy for both the poverty and pestilence that followed. By the time the plague hit, a dramatic decline in the standard of living and population numbers was already under way. Unable to earn a living on their farms or in town, people migrated to cities for jobs as unskilled day laborers in dirty and dangerous workshops. With less money to spare, towns made fewer investments in basic sanitation. The increase in forced loyalty to central patriarchal authorities and their particularly Christian traditions led to the repression of pagan practices, folk remedies, and women’s access to work. As a result, people’s access to health care diminished as well.
Superstition rose, witches and other suspicious characters were burned, and communities turned against themselves.
Famines and epidemics—which had previously always been highly local, limited events—became widespread phenomena. The price of food went up as the scarcity of commodities matched the scarcity of money. Rural land was purchased by city companies and worked by laborers who didn’t enjoy its bounty before it was sent to the urban centers. Farming practices deteriorated along with equipment. The crops suffered. Ten percent of Europe’s population had died eating cats, dogs, rats, and in some cases children, before the plague even hit. The plague did not lead to Europe’s economic collapse. Rather, Europe’s currency- driven economic collapse led to the plague.
I don't see how centralized currency is the problem. I think the problem is banks competing against each other, leading us all down a riskier road, when they could operate instead as a government agency, one that employs civil servants to provide needed banking services. Of course you need a loan to buy a house and that's what the bank is for. But your mortgage company should not be sold out from under you four times in a two year period. No. A centralized bank to go with our centralized currency sounds like it would be a good idea.
Oh, and the stock market should be abolished. What a debacle.
".. the money we use ... more faithbased than commodity-based currencies of earlier eras? UNDERSTOOD!
"..business predicated on interest-based loans leads to decisions based on debt structure rather than supply and demand?" SEEN!
"..whether this bias is intrinsic to commerce or the legacy of reforms by people who have long since left the building." CONSIDERED!
They are all excellent points. And 'teeheehee' at the way your word processor rendered En gland, ("from the nipple", in French).
Hmmm, I'm not equipped to judge the validity of this, but historian David Herlihy notes:
Thus Herlihy, The Black Death and the Transformation of the West, 32. Discuss.
Funny, I'd always thought old Yersina pestis led to the plague.
But what lead to Yersina pestis? Ah HA! :)
Why, evolution, of course:
OhHO! :P
Interesting. Might lead us to conclude that the population decline was not just a result of the plague, but some other cause - such as the inability to do subsistence farming, the requirement to go into the city to do day labor, the collapse of local support systems...
But to the point above, you're right: we can certainly discuss the banks' abuse of power without getting into a conversation about central currency. Problem is, once you get into that discussion, you have to at least consider whether banks should still be trusted with a monopoly currency.
That said, local banks have not - for the most part - had anything to do with these shenanigans. In fact, they've been begging for a place at the table in the banking talks.
Funny, I'd always thought old Yersinia pestis led to the plague.
There's now doubt about that. Some researchers have suggested anthrax or an unspecified hemorrhagic fever.
I have an alternative explanation for both the demographic statistics and the wide-spread nature of the plague. Large-scale migration of populations looking for a better way of life and poor co-coordination of census activities could lead to these kinds of numeric shifts.
(Just a theory - haven't done the research yet, though this piqued my curiosity enough I probably will)
Source for that, Antinous?
“Are we ready to understand the money we use as a kind of money - more faithbased, in fact, than commodity-based currencies of earlier eras?”
Yes, it seems to me this is a defining characteristic of fiat money. However, I am not sure it is any less faith-based than commodity money. Although, perhaps I am confusing faith and trust?
“Are we ready to look at the way a business landscape predicated on interest-based loans leads companies to make decisions based on debt structure rather than supply and demand?”
This seems like an axiomatically true, though misleading, statement. Debt structure strongly influences the cost of supplying a good and the demand for the good. So by considering supply and demand, a company is also, not rather, considering debt structure.
Supply: A machine will let me make a widget faster and therefore reduce my costs by $100 annually. If servicing the loan for the machine is going to cost $50 dollars annually, I will take out the loan, costs will drop and my supply curve will shift. If servicing the loan costs $150, I will not buy the machine, and my supply curve will not shift.
Demand: If I have $100, I can either buy the widget for $100 from which I can expect to derive $10 worth of utility/enjoyment annually, or I can buy a gadget for $100 from which I can expect to derive $20 worth of utility/enjoyment annually. I will buy the gadget, not the widget. But wait, if I can borrow $100 and service the debt at $5 annually, then I’ll also buy the widget, because I have a net gain of $5 dollars annually. My demand curve has shifted!
“And are we ready to consider - just consider, mind you - whether this bias is intrinsic to commerce or the legacy of reforms by people who have long since left the building?”
Yes, I am. But I don’t know that I understand (1) how you think it can be done and (2) why this would be advantageous. The only way I can see would be to eliminate interest. The problem is, even if you declare by law that no one may charge interest, you can’t declare that there is no time value of money any more than you can declare that that pi is equal to three – so, I guess you can declare it, it just won’t make it so. So if money becomes worth less in the future, people won’t lend it to each other unless they get more back in the future. Thus the only way we can get people to lend money is to allow interest, thus we get back to the statement above.
So are you saying you want to get rid of interest and therefore lending? I don’t see the advantages of either of those (in fact I see major disadvantages). Please explicate further?
I'm in favour of suppressing folk remedies, myself. Christianity from its inception has been an urban religion, and a religion that makes urban living workable. See Rodney Stark's books on the topic.
Dictators inducing hyper-inflation is a familiar story.
But don't forget Malthus.
Source for that, Antinous?
Something I read a year or so ago. There were several researchers considering alternate pathogens.
This article isn't the one that I read, but it gives an overview of the basic ideas in play.
"So are you saying you want to get rid of interest and therefore lending? I don’t see the advantages of either of those (in fact I see major disadvantages)."
For the first, I can suggest Islamic banking, which features no interest - but still lends.
http://en.wikipedia.org/wiki/Islamic_banking
1. The invention of the chartered monopoly corporation, which was not about promoting commerce but extracting wealth from those who were.
So you cast "chartered" monopoly as the villain but not natural monopoly or laissez-faire competition. Interesting choice. I wonder if you could mention one or two chartered monopolies in the last two centuries that have had any major impact at all. Also, how do you square this with item #3? Are you seriously saying that monopoly is still "embedded in our culture," or that we have not or cannot question it, chartered or otherwise? What about Sherman, Teddy Roosevelt, Howard Taft etc.?
2. The invention (or, more exactly, re-introduction) of centralized currency (post-Floren) by France and other European nations, which impoverished the middle class.
As others have pointed out, anyone issuing a currency has the potential to debase it; centralized or not. Just because some king outlawed foreign currency 500 years ago doesn't mean that's the case today. The dollar is not a monopoly currency; it's legal tender. In the US, if you and I agree we can transact business in Euros, gold, Ithaca Hours, coffee beans, gift cards, or any other form of barter. However, we cannot refuse to accept dollars as a legitimate offer of payment.
3. The way those institutions were so thoroughly embedded in our culture that to question them - even in conversations among ostensibly open-minded people - is to invite ridicule.
There is an interesting change of tense here. Did you use "were embedded" because "are embedded" is indefensible? I've tried to give your posts here a charitable reading, but you haven't offered a shred of evidence of any causal link between your historical examples of monetary malfeasance and the modern era.
If you are certain that the world's centralized currencies are being debased then short them and grow rich. Buy commodities. If there's a currency you do trust, put your savings in that country. Hedge your currency risk by spreading your savings over multiple currencies if you wish. Doesn't the fact that you're free to do all of this undercut your position?
PFH 58: I'm in favour of suppressing folk remedies, myself. Christianity from its inception has been an urban religion, and a religion that makes urban living workable.
Suppressing folk remedies makes a certain amount of sense today, but in medieval Europe it was a disaster. The folk remedies weren't arrived at scientifically, but they were the result of a thousand years of trial and error, and MUCH better than the "medical doctors" of the time, who invented grotesque treatments based on weird theories about bodily humours.
Christianity is a religion that makes being poor seem acceptable, because "you'll get your reward in heaven." In other words, you'll get pie in the sky when you die (that's a lie).
"farmers brought their grain to town and received receipts for the grain. These receipts served as the local currency. Currency was worked into existence. There was as much money as there was grain."
Jct: In Argentina, it was even better. After the crash in 2001, large corporations had to take farmer's IOUs for grain at the dock. So farmers got to issue their own receipt currencies themselves and the big companies had to take them and that's about as personal a Do-It-Yourself currency as it's ever gotten.
http://www.youtube.com/watch?v=jtMIz6XgjMI is my video "Reuters: Ford, GM take Argentina farmers' grain bucks Nov 24 2002" reporting on how large corporations were forced to accept farmers' IOUs for sales because the banking system was closed down.
Mr. Rushkoff, I have to say your description of how monetary policy caused the plagues is somewhat far-fetched. Many of the actual facts are there, but you connect the dots in a way that is a little bit to self-serving for my taste.
Arkizzle:
Islamic banking acknowledges the time value of money, and the laws allow for a form of interest (although it is not called that). I do not mean to trivialize the differences -- the islamic model significantly, and in many ways beneficially, shifts the allocation of risk between lender and lendee -- but they still charge a form of interest.
Proboscidean, I'll have to look up the differentiation, but thanks for the tip. I was unaware of anything like interest (Riba) being allowed, but I'll definitely check into it.
I'm sure city living, overcrowded and sanitation-free, facilitated all sorts of disease outbreaks, black death included. But surely it also fueled pretty much all the reasons you and I, centuries later, have vastly higher standards of living than anyone in Medieval Europe, be they city-dweller, farmer, or even aristocracy. So I'm thinking that anything that forced more people to abandon the just-more-than-subsistence agrarian lifestyle and move to those festering progress engines is going to be very good for the "middle class" in the long term, if probably not for those people themselves.
Rushkoff @ 53
You are speculating that social conditions that existed after 50 to 100 years of social conflict after the plague caused the plague to be more deadly. This is not a strong or convincing argument. There is another word for it.
fun refresher on the timeline...
http://www.youtube.com/watch?v=Yg3YDN5gTX0
Antinous @ 59:
That article to linked to makes it pretty clear that the "plague deniers" (people arguing for something other than Yersinia Pestis as the cause of the Black Death and subsequent pre-19th Century epidemics) are on flimsy ground.
In fact, the genetic evidence for Y. Pestis as the causitive agent of the Black Death (and the 6th-7th Century outbreaks that began with the Plague of Justinian) is now quite strong. See, for example, this study from 2007 and the references therein.
People lost their ability to live off the land, took jobs with early corporations, got poor, less fed, and eventually the economic downturn in Europe led to a plague that killed half the population.
That argument, as others have pointed out, is nonsense.
The Black Death -- almost certainly caused by the bacterium Yersinia pestis -- showed up in the Crimea in 1347, probably via caravan routes from Central Asia (and probably originating in a series of devastating outbreaks in 1330s China), and then spread from there via trade routes throughout the Mediterranean. Extreme mortality occured all over the place: death rates in places like Egypt and Syria were as high as those in Southern and Western Europe. So an argument based on Western European economics ("Philip centralized the coinage in France!") simply doesn't work.
(A similar devastating epidemic -- also most likely caused by Y. pestis -- struck the Mediterranean and Europe in the mid-500s, during the reign of Justinian. This was one of the high points of the Byzantine Empire, when it had the wealth to reconquer much of what had been lost in the West -- hardly a case of "corporations and economic downturn lead to plague.")
So now some towns are printing their own money.
http://www.usatoday.com/money/economy/2009-04-05-scrip_N.htm