Thesis Number: #5 (Page 8 of 9)

 E-money & the Next Crisis

The electronic age has added a new layer of complexity to high finance. The Bitcoin arrived as a currency fit for the virtual age. It was, concluded US Federal Reserve Chairman Ben Bernanke, potentially beneficial if correctly regulated.

Regulators may seek them here, or seek them there, but the users of virtual money will remain one step ahead of the State. The “money” lives somewhere on the internet. In November 2013, a single Bitcoin, in the surreal world of making money from nothing, commanded a price of $1,242.

In the absence of a justice-based realignment of income distribution, “money” will remain one of the routes to evil outcomes. Not because money is “loved”, but because of the political arrangements that suit those who are enriched by the statecraft of greed. It’s called arbitrage. Bankers capture socially-created value which governments fail to collect to fund public services.

There is one way only to terminate abusive behaviour in the banking sector: end the legalised cheating, and scrap the bad taxes on earned incomes.

Learn, or Lament?

Debts are eating deeper into the body politic. Some social activists propose debt cancellation, “a Biblical-style Jubilee: one that would affect both international debt and consumer debt” (Graeber 2011: 390).

By itself, debt cancellation would not be sufficient. Relief from debt would become a money-making opportunity for dealers in the land market, which functions like a sponge, soaking up the economy’s net income (Thesis #4).

•  Governments would relapse back into debt. 

Why? Because the collateral damage inflicted by their taxes would continue to impose a ceiling on economic activity. Tax revenue would continue to fall short of needs. The State’s welfare obligations would continue to out-pace growth. The deficit would be funded by once again borrowing from the banks.

• Citizens would relapse back into personal indebtedness. 

Why? Because the economics of apartheid outcasts about 30% of the populations of Western nations. They live on no or inadequate wages. They borrow to survive. In the USA, one in eight households relies on tax-funded food stamps. Following the 2008 crisis, spending on food stamps more than doubled to about $80bn a year.

Nor would the transfer of credit creation to the State be sufficient to resolve the pathologies of capitalism. Why? Its institutional structures and values were designed to serve the addiction to rent-seeking. Agents of the power structure, who directly or indirectly live off rents, would continue with their old habits: deploying state-created credit to the advantage of rent-seekers (example: subsidies to the owners of farmland under the cover of helping low-income farmers).

The need for a holistic reform of finance is attested by the way in which, in 2013, Britain’s Coalition government encouraged the adoption of Sharia-compliant forms of finance. Sharia law is popularly assumed to be based on ethical economics. Charging interest on loans is outlawed. Moslems are not allowed to make money merely by lending money. So why would the British government welcome Sharia-compliant financing for the City of London? Answer: Sharia does not outlaw the making of money out of land! Privatised rents are at the heart of the poverty that locks tens of millions of Moslems into the state of degradation in territories that are rich in rent-yielding resources.

Reformers argue that a root-and-branch reform is needed. These include Margrit Kennedy in Germany, James Robertson in the UK and Michael Hudson in the US They advocate a simultaneous transformation in the laws and institutions that govern the land and money markets (Kennedy 1989; Robertson 2012; Hudson 2012).

But change will not occur if the demand for reform is narrowly focused on fiscal or confined to broader financial issues. Critics need to develop visions of a culture-wide evolution. Change would acknowledge the private interests of the individual, but also the rights of society, and the rights of natural habitats. That paradigm will not emerge without first eliminating the culture of cheating on which perverse power now depends for its existence.