-Caveat Lector- <A HREF="http://www.transaction.net/money/book/rethink2a.html">Rethinking Money, I.1</A> ----- PART I Money: a Conscious Choice "Economics is about money,and that's why it is good." Woody Allen And money is about....? Chapter 1: What IS Money? "How many hands, vicissitudes, Have worn this gold to the thin ghost That gleams in the shopkeeper's palm? A millenium flickers, eludes Us, is gone, as we bend engrossed In blurred words and a surface charm" Dick Davis (5) "Mom, could I have some money to go to the store and buy some candy?" For most of us, our first experience of money was as a facilitator, a necessary object in the ritual of getting things we wanted from people in stores. We accepted it with a child's pragmatism and nonchalance about mystery. As we matured, we became conversant in many adult mysteries. We learned where babies come from, and many of us participated in that process. We learned that all living things die, and probably witnessed or experienced the death of a relative, friend, or perhaps a pet. We learned how our government works, and who makes the rules that we are required to live by. And yet, one of the central mysteries of our lives as social beings remains completely obscure to virtually everyone. We allot a great proportion of our physical, emotional and mental energy to getting, keeping and spending money--but who really knows where it comes from, who decides how much it's worth, who made the rules? Most people would probably suspect that the answer to these questions comes from the study of economics or monetary theory, and we all know these fields are boring--full of equations and devoid of emotional juice. Paradoxically, money itself is very emotionally juicy. Throwing money on the ground in a public place has only a few equals as a way of getting attention, another being removing one's clothes. However, neither sciences of economics or monetary theory concern themselves with the emotions circulating around and with money. Indeed they deliberately suppress that aspect in order to study the subject "scientifically", objectively. Yet it is recognized by all those who work in financial markets that emotions are its weather patterns, ubiquitous, volatile, and powerful. What is going on here? In fact, the actual creation of money is largely invisible--and almost seems miraculous: most people, when they find out where money really comes from, are as incredulous as some children are when they first find out where babies come from. ------------------------------------------------------------------------ Why should I care? Letter to a friend from high school days, currently a Benedictine monk, living near Lake Titicaca, Southern Peru: ------------------------------------------------------------------------ My dear friend Pierre, I am in the process of writing my next book about a topic that you - in your monks retreat near your lake at the edge of the world - will probably consider of little relevance. Nevertheless you are among all the people I know one of those very few who live with the ultimate luxury of today. Being able to dedicate their full time and energy on following their bliss, their calling, on being who they want to be, without being concerned about money. It is ironic that only monks who don't own anything, the very rich, or those extraordinarily gifted, can afford your equanimity about money. The rest of us, the vast majority of the humans, even in the richest countries in the world, have succumbed to the obligation - or you might say temptation? - to "make a living" which does not fully coincide with what we really would like to do or be. How much have we had to give up of our being, of who we really want to be, in this process of making a living? Many have not even dared to find out what they really would like to do, out of fear that it would be too painful to go back to the "normal" job after that. The game we play is that - later, when we retire, when we have put enough money on the side - then we will take care of our dream. Some take it in little installments. Let us rush through our week, looking forward to the week-end or the vacation, when we will do what we really want. I know that even you may not believe what I have dreamt about. I have seen the possibility of a Golden Age, where the money we use will enable us to be ourselves. I have dared to dream that each child born into this world would have as main concern to discover what his or her calling really is, and have the opportunity to become a Master in that endeavor. What if the main reason geniuses are so rare is that we kill the genius even before anybody knows what she is a genius in. And how many of those who find out what they really want to be have the opportunity or the resources to learn at their full potential? Maybe the human race will need all the geniuses it can produce to get out of the collective corner we painted ourselves in. What if the scarcity is not mostly "out there" in nature, as we all have believed for centuries? What if the money system we have been using, by which we have been collectively hypnotized, was continuously creating that very scarcity we run away from? Is there a limit to the amount of learning that we can do, to the amount of passion, creativity or beauty that we could generate? What if every garden could be taken care of as the Japanese handle their traditional tea gardens, what if every child could be supported by the best mentors in her field of bliss, what if every street in our cities would become a work of beauty? Or is the limitation simply come into being when we need to change that "work" into a "job" , i.e. when we need to exchange it for an artificially scarce currency? Walter Wriston, Chairman of Citibank, defined money as information. Is information necessarily scarce, particularly as Information Age technologies spread like wildfire all over the world? Yes, I'll concede you that it is not that simple. Before you conclude that I have gone completely crazy, I ask you to hear me out, to accompany me in exploring some lesser visited territories of the human psyche. I hope you will find them as surprising and fun as I did. Your friend, Bernard the human race enters the twenty-first century having accumulated various forms of power to destroy itself. If we don't do it with nuclear weapons, then we may destroy the environment that nourishes us with air and food. Or perhaps, as the nightly news suggests, we will simply descend into the savagery which is the end result of the community breakdown we've seen in many of our largest cities, and which is amplified by our expanded killing power. Many people believe that all these apocalyptic "possibilities" are converging. At the same time, science and technology offer us a vision of paradise: a world without diseases, where we live greatly extended lifetimes, all our survival needs taken care of automatically, leaving us free us to pursue our dreams. We seem poised between heaven and the abyss. People of all persuasions--scientific, religious, business leaders and visionaries--now believe a crisis is upon us, although they may differ about its causes and symptoms. Let us return to the idea that money is an ubiquitous and therefore invisible force, a force that shapes our social interactions, locally and globally. Very many people all over the world are concerned with what money does, daily attempting to control its flow to accomplish their aims or bring more of it to themselves or to their employers. Fewer until now have been concerned with what money is, with studying money as the language in which we express our hopes, fears, and expectations and develop our relationships with each other. This money, this tool for developing relationships with people who are beyond our intimate circle, has evolved like a language over many centuries. Like any language, it has rules that evolved organically over time, so that while one can pinpoint moments in history when one particular rule was introduced, it is impossible to assign credit or blame for the present structure to any individual. While some of the key choices were deliberate decisions by particular people and groups, most are simply the accumulation over time of our collective will, and many are beginning to prove inadequate. Two emotions are said to dominate the world of money: greed and fear of scarcity. Any language that expresses only these two emotions would be strained by ideas of community, cooperation, conservation of shared resources, or even the true passions in our lives. This aphasia now afflicts the stewards of governments and multinational corporations. As the saying goes, when all you have is a hammer, everything starts to look like a nail. This book aims to propose some additions to the toolbox, to expand the vocabulary of monetary relationships. But in order to do that, we should demystify what we are dealing with. And first of all, why is money such a mysterious thing? Where is the mystery coming from? The current US representative to the International Monetary Fund offered a revealing definition of money: "Money is magic. Central bankers are magicians. As all magicians, they don't like to show their tricks." What is even more intriguing is that magic and mystery have been surrounding the money process during its entire (and very long) evolution. There are two main reasons why money appears so mysterious: •its history of secrecy; and •the needs of the confidence game; ------------------------------------------------------------------------ History "Money, like certain other essential elements in civilization, is a far more ancient institution than we were taught to believe some few years ago. Its origins are lost in the mists when the ice was melting, and may well stretch into the paradisiac intervals in human history of the inter-glacial periods, when the weather was delightful and the mind free to be fertile of new ideas - in the islands of the Hesperides or Atlantis or some Eden of Central Asia" (6) If we don't know its exact origins, we do know however that all the earlier forms of money were deeply related to the mysteries of the sacred, and its role as a symbol. A symbol is "something which represents something else which is immaterial or abstract as a being, idea, quality or condition" according to the Oxford English Dictionary. And it goes on to point out that all its first uses relate to religious concepts. For example, the oldest coin currency that we know is a Sumerian bronze piece dating from before 3000 BC. On one side of the coin is a representation of a sheaf of wheat, and on the other, Ishtar, the goddess of fertility. The Sumerians called it the "Shekel" where "She" meant wheat, "Kel" was a measurement similar to a bushel, hence this coin was a symbol of a value of one bushel of wheat. (The word "shekel" survives in modern Hebrew as Israel's monetary unit.) The original shekel had as its purpose payment for sacred prostitution at the temple of Ishtar, which was the temple of life and death. The temple, as well as being a ritual center, was the storage place for the reserves of wheat that supported the priesthood, and also the community in lean times. So farmers fulfilled their religious and social obligations by bringing their contributions of wheat to the temple, and receiving in exchange a shekel coin, entitling them to a visit with the temple prostitutes at the festival time. All this also must be understood in its cultural context: The sacred prostitutes were representatives of the goddess, and intercourse with them was intercourse with the goddess of fertility herself, nothing to take lightly. At that time fertility was truly a matter of life and death. If the crops failed, there was no alternative, and everyone starved or at least went hungry until next year. And, of course, completing the magic ritual properly insured the fertility in crops, animals and children that was necessary for future prosperity. The shekel is by no means atypical: Throughout history, virtually every society has conferred some mysterious sacred qualities on its currency. Two thousand years after the Sumerian shekel, the first Greek coins were tokens proving that a citizen had paid his dues and could thus participate in the annual "hecatomb" or sacred meal to be shared with the Deities (where half of all victuals were burned in their honor). The English word "money" derives from the Goddess Juno Moneta and the first Roman mint was in the basement of her temple. (7) Many centuries later, without the need for further clerical intervention, gold and silver remained respectively symbolically associated with the sun and the moon. Their prices settled mysteriously into a stable ratio of 1/13.5, astrologically determined to reflect the heavenly cycles. These two metals remained divinely ordained currencies, long after the astrological justification was forgotten. There are many people who, to this day, claim that "real" money would be a return to the gold standard; some even keep invoking its biblical origins (8). Until very recently, it was still the fashion to design banks to look like temples, and reverence lingers inside them: Central bankers, in particular, shroud their doings in priestly secrecy, while a hearing of the Chair of the Federal Reserve in the U.S. Congress has just as much ritual and studied ambiguity as the Eleusinian mysteries of ancient Greece. As William Greider puts it in his well-named bestselling book on the Federal Reserve Secrets of the Temple: "Like the temple, the Fed did not answer to the people, it spoke for them. Its decrees were cast in a mysterious language people could not understand, but its voice, they knew, was powerful and important."(9) There appears to be more to the mystery of money than just a reflection of the well-known conservatism of financiers. ------------------------------------------------------------------------ The Needs of the Confidence Game If I offer you a choice between a twenty-dollar bill and a piece of paper on which I have written "I promise to pay twenty dollars to the bearer of this piece of paper", which would you prefer? You may know me as a sterling and trustworthy fellow. But if you try to exchange my little note at the hardware store for a new garden hose, they won't take it. Even if they also know me, they will be concerned that when they try to pay their suppliers, they won't take my little note, since the suppliers don't know me from Adam. So you would naturally prefer the twenty-dollar bill, because lifelong experience has taught you and daily reassured you that the twenty-dollar bill will be accepted by everyone as being worth twenty dollars. You have a deeply held belief, and this is the key, not that the twenty dollar bill is valuable, but that everyone else will accept it as valuable. It doesn't really matter what you think about your money, you still know that you can spend it. You believe that everyone else believes that the money is valuable. We are talking about a belief about a belief--a social convention. Other things are a matter of belief, and beliefs can be powerful and practically indestructible. History abounds in examples of people who have chosen torture and death rather than change their beliefs, or to where their allegiance was due. We also recognize that someone can choose to continue believing something, even in the face of a preponderance of evidence to the contrary. So belief has a formidable presence in the human psyche. But a belief about a belief is a different animal altogether. It is a fragile and ephemeral thing. Perhaps nothing can shake my belief, but my belief that you believe can be eviscerated by a rumor, a mere hunch, a feeling. And, a chain of belief about a belief is only as strong as its weakest link. If I think that someone on the other side of the world has stopped believing in the Mexican Peso, then I have to fear that her neighbors will fear that other people will stop believing--and the whole house of cards may fall down, as it did for Mexico in December 1995. This explains an interesting phenomenon that has been noted among Central Bankers. If you are a Central Banker you can never admit to having a problem. Why? In any business (except Central Banking), the first step to solve a problem is usually to identify and declare it as a problem. If you are a Central Banker, however, even the slightest appearance of any doubt or uncertainty about how to proceed on your part will cause an immediate fracture in the chain of belief in the belief of the value of your money. Acknowledging a problem creates the very problem you worry about. For instance, when in June of 1977 Michael Blumenthal, then Secretary of the U.S. Treasury, addressed the dollar valuation problem, he launched the dollar into a two-year tailspin. In short, the game of money, exactly as the Ancient Greek oracles, is a game of confidence. And whenever the emperor has no clothes (i.e. whenever a crisis looms), everybody just hopes that no untrained kid will make any improper remark. Under such circumstances, it may indeed require a lot of regal confidence, mystery, decorum and ritual to ensure that a long chain of understandings holds. ------------------------------------------------------------------------ Money is not an Object We should now dissipate a key illusion in the magic about money: Money is not a thing. For most of history, money has definitely appeared to be a real thing, in fact an incredible variety of things. Without even mentioning the most recently prevailing forms of money such as paper, gold, silver or bronze, Glyn Davies created a full money alphabet with a small selection of objects which had this purpose: amber, beads, cowries, drums, eggs, feathers, gongs, hoes, ivory, jade, kettles, leather, mats, nails, oxen, pigs, quartz, rice, salt, thimbles, umiaks, wampums, yarns and z appozats, which are decorated axes.(10) However, a simple thought experiment can separate the aura of money from any one or even all these things. Let us assume that you travel to become a Robinson Crusoe on a desert island. If at departure you put a thing in your pocket - a pen, a paper, a glass, a knife - you will still have it with you on your island. Now, you may take with you a million dollars in money in this fantasy, and you may have it in any form you like: cash, a cashier check, credit cards, gold bars, Swiss Francs, even any of the forms of the above money alphabet that strikes your fancy. What good will it do you? Whatever form you chose for that money, on your island it suddenly loses its spending privileges. Events of the past decades have further echoed the thought experiment we just made. On August 15, 1971, the United States suddenly removed the fig leaf of gold convertibility for the dollar by ceasing to define the value of the dollar in terms of gold. Since that time the dollar has represented a promise from the United States government to redeem the dollar with what? Another dollar. In short, the dollar has become the ultimate circular argument. When money was backed with gold for example, we could at least easily believe it had some objective value. With the dissolution of the dollar-gold equivalency, such self-deception has become more difficult. Another analogy: no magician's routine is complete without a decent de-materialization act. Money has been performing this feat in a rather spectacular way. Once upon a time, when money was mostly gold coins, banks started issuing pieces of paper which just pointed out where the gold really was. The next step is already well under way: the vast majority of our paper money has further dematerialized into binary bits in some computers at bankers, brokers or other financial institutions. There is serious talk that all of it may soon join the virtual world. Do we have to wait until the last dollar bill has disappeared into an electronic purse to wake up to its true non-material nature? ------------------------------------------------------------------------ A Working Definition of Money Our working definition can now be very straightforward: We will define money as an agreement, within a community, to use something as a medium of exchange. Each one of the bold terms is essential in this definition. Money, as an agreement, lives in the same space as other social constructs, such as political parties, nationality, gender or marriage. These constructs are real, even if they only exist in people's heads. The money agreement can be attained formally or informally, freely or coerced, consciously or unconsciously. One of the main purposes of this book is help us articulate the terms of this agreement more carefully. That agreement is always valid only within a given community. Some currencies are operational only among a small group of friends (as tokens used in card games), for certain time periods (as the cigarette medium of exchange among front soldiers during World War II), or among the citizens of one particular nation state (as most "normal" national currencies today). Such a community can be the entire global community (as is the case of the U.S. Dollar by treaty as long as it is accepted as reserve currency), or a geographically disparate group (such as Internet participants). Finally, the key function that distinguishes a currency is its role as medium of exchange. There are other functions that today's money tends to play: unit of account, store of value, tool for speculation, etc. (11) However, we can consider these other functions as secondary, because there have been perfectly effective currencies which did not perform some or all of them. In fact, we will see later that these other functions can even be detrimental to the key role of medium of exchange in the economic system. Therefore, we'll pay special attention to this last facet of currency. Most people simply assume that there is only one kind of money possible in the modern world: the familiar national bills and coins. The first magician's trick concerning money appears to make believe that we need the magician's approval before someone can create money. This is definitely not the case: not only have many very different kinds of money been used simultaneously in the past, but many are being used now particularly in the most developed societies, and the further computerization of money announces an explosion of further creativity. Irresistible forces are gathering to make sure that several very different kinds will coexist again in the foreseeable future. In summary then, the "magic" of money is bestowed on something as soon as a community can agree on it as medium of exchange. The next chapter will uncover the mechanics of how today's money is created out of nothing, and what the positive and negative consequences of this particular money system are. ------------------------------------------------------------------------ ©Copyright 1996 Bernard Lietaer http://www.transaction.net/money/book/rethink2a.html [EMAIL PROTECTED] ----- DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. 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