Reverse Shock Doctrine

After all these years of privatizing any and all possible public assets, the pendulum has the momentum to swing back the other way, but it has to do it as an effective step into the future and not just trying to reverse what has already happened. I think that as money has evolved from its origins as an accounting of private property to a public medium of exchange, this point should be introduced into the public conversation.

Money is a medium of exchange, store of value and accounting device. The first two work at cross purposes because as a medium of exchange, money functions as a public utility, while as a store of value, it is a form of private property. By and large it is as private property that most people think of it, due to its historical origin as an accounting of assets, yet the reality is that modern monetary systems are fundamentally a medium of exchange and only as a function of that are they a store of value, as they have no real backing other than faith in the issuing institution and must be invested for the system to function and maintain value. If this understanding of money as a form of public utility, or commons, were to be broadly considered, it would have definite repercussions in the context of the current crisis.

The monetary system, with its broad connectivity, is similar to a road system. You own your car, house, business, etc., but not the roads connecting them. Money is in many ways identical to the road system. Money is not private property, since you cannot print what you want, as the government retains copyrights, but effectively loans this out to the private banking system. Its value is based entirely on public faith in the institution issuing it, so the taxpayer is ultimately responsible for guaranteeing its value. The result being private gains and public responsibility.

The concept of abstract wealth as a store of value has reached the point of being socially and environmentally destructive. Given the human tendency toward intellectual reductionism, that ability to distill out abstract wealth from ones social interactions and environmental situation is profoundly corrosive to both society and the environment. It is similar to processed sugars, and other forms of distilled ingredients which then must be diluted to be palatable.

Consider how society would function if money were to be considered entirely as a public medium of exchange, similar to a road system. For one thing, in most circumstances, it simply wouldn’t be a factor, as outside of the financial system, most money is in circulation and wealth is stored as tangible assets. Even in situations where one might be selling and buying a house, or a business, it functions as a medium of exchange. Similar to a road, where large vehicles need more space and pay more taxes, while smaller vehicles naturally give them more room.

Now consider the situation of storing value. The overwhelming problem with capitalism isn’t that there are poor people in the world without recourse to income, as poverty has always been a problem. No, the problem with Capitalism it that by focusing on money as a store of value, it has created a large surplus of capital. Since the demand for money is so large, as everyone thinks they must have enough to personally insure their own security and health, as well as viewing it as proof of success to accumulate as much as possible, a savings glut, as Bernanke put it, has been produced that cannot be effectively invested. This encouraged ever more lax lending standards as a way to absorb savings and sustain further growth of the money supply. Now that bubble is bursting and this evaporating wealth is panicking and driving up commodity prices, I think the very basic question of whether we should even have a system of stored abstract wealth needs to be re-examined. If people cannot suck value out of their social connections and environment to store in a bank as a form of ego gratification and social status, they would have to resort to putting their efforts and desires to increase status and build security directly back into restoring and strengthening their social and environmental health.

So I don’t think there needs to be currency for storing wealth, but only currency as a public utility for exchange. Not only are the enormous pools of personal wealth that it enables an excess the planet can no longer afford, but more importantly they provide an destructive role model for everyone else.

This isn’t socializing wealth, but understanding what money is in the first place. The effort to privatize Social Security is a good example of the disconnect between assumption and reality, since there is simply no place to invest this amount of additional personal savings and would only be a boon to the brokers given the responsibility for handling it. We invest in our old age by investing in our parents old age, so that our children might continue the practice. It is a clear example of investing in the larger community as a viable form of savings. It should also be noted that since the Federal Reserve controls the money supply by buying and selling government debt, the Treasury issuing large amounts of additional debt logically serves to support the value of the currency as well and this transfers value from taxpayers to bondholders, but that is a much larger topic.

Obviously we would have personal savings accounts, but what sets the amount of viable savings isn’t the cumulative desire for wealth, but what can be productively invested. So there has to be some regulatory method for distributing the potential to invest as broadly as possible. The logical method is to reinstate higher tax rates, but there might be a whole range of ways to encourage those able to accumulate large amounts of wealth productively to be able to invest in ways that benefit aspects of society and or the environment in ways they chose, much like Bill Gates and Warren Buffett are currently doing. Wealth is a convective cycle of rising assets and precipitating benefits. Stopping this process only creates large storm clouds of marginally productive wealth hanging over a parched economy, much like we have now.

Currency did originate as a store of wealth, because it started as a accounting of specific assets, but political power also started as a projection of individual influence and evolved into a very complex corporatization of personal power called monarchism before the inherent instability and corruption drove society to devise methods for making political power a public trust. It has come time to make economic power a public trust as well. Money lubricates the economy, rather than fuels it. Ideas, labor and resources are the real economic fuel.

An effective financial system must express the dichotomy of bottom up process and top down structure that is the basis of nature, from ecosystems and the organisms which inhabit them to the political model of the democratic process constantly revitalizing the republican state. How to do this is to make the currency a national function to provide broad stability and accountability, based on the Treasury, or make the Fed a unit within it, while the banking system would be a function of local and regional government, with the necessary profit, generated by interest rates required to make investment decisions be based on viability, a form of public income to support the healthy social infrastructure necessary for a healthy economy.

Since money would be considered a form of public utility, the desire to accumulate large quantities would be curtailed, since it would be viewed as infringing on the health of the society in which one exists and this wouldn’t have the desired effect of raising ones social status, or even ones economic position, as it couldn’t be used to generate the increasing returns which wealth currently aspires. If hoarding currency lost its civic standing, inflation wouldn’t be necessary to maintain circulation of currency, so accounting values would be more stable. So rather then trying to re-regulate the entire economy and society, just start with nationalizing a banking system that will have to be bailed out anyway. Government might be slower than the private sector, but that might be more healthy, since its perspective is longer term.

John Merryman is a farmer in the business of raising and training racehorses. He can be reached at: brodix@earthlink.net. Read other articles by John, or visit John's website.

11 comments on this article so far ...

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  1. hp said on July 4th, 2008 at 6:49pm #

    Well here’s free money. Billions which are immune to any rules, regulations, market conditions or acts of God.
    While our amputated veterans struggle to survive, homeless citizens everywhere, food kitchens opening up and the unemployed increasing, there is one thing which will not be denied..
    Tribute to Israel.

    http://www.forward.com/articles/13709/

  2. Max Shields said on July 4th, 2008 at 8:15pm #

    Mr. Merryman,

    Thank you for your post. Few things, in economic terms money is not wealth. Wealth is the product of labor, resources and capital.

    The concern of privatization of the commons is a critical concern and one that has been a human struggle for the better part of 5 millenium or so, and getting worse with each century. The real concern is not ownership per se but monopolistic ownership – the roads, river-ways, air-waves, access to vital resources (water, land, energy…), utilities, and other commons essential for the shared well-being of all. Therefore, government (as local as possible) needs to oversee these commons. The earth should NOT be for sale, but what you “make” you have a right to own.

    Our common wealth would be sufficient to provide a stipend to all citizens across the board. This is called a Citizen Dividends (http://www.earthrights.net/docs/oilrent.html). Check it out.

    Back to money, if we are to understand it I think we need to understand the legacy of currency and its recent (1913) nationalization with the creation of the Federal Reserve. This up-rooted the valuable role of currency – to check a city’s or city region’s balance of trade. That’s been lost with legal tender.

    I would consider opportunies to: 1) establish local currencies (will be critical as the dollar becomes worthless) 2) establish time-banking that exchange based on time banked in community work as well as providing goods and services. This is not taxable and is a powerful means of building communites.

    As much as possible search for the many ways to eliminate money altogether. There are many things that we need which can be obtained when we re-think our community and local economy. This is not idle talk. It’s happening and vital given what appears to be the collapse of the US empire’s economy.

  3. siamdave said on July 4th, 2008 at 10:23pm #

    - some good thoughts, but a fair amount of fallacy as well. The problem is not money per se, but the fact that the control of money in our ‘modern democracies’ is in the hands of a small group of people who manipulate the money supply for their own personal gain – and that very few people seem to be aware of this. We require democratic control of the money, and a better understanding of what it is in general, which is very much lacking these days. Spelled out in a bit more detail at Banketeering – how the banks have been stealing trillions from you, and the tap is still running http://www.rudemacedon.ca/dlp/box/box01-money.html

  4. John Merryman said on July 5th, 2008 at 3:46am #

    hp,

    The logical fallacy of monotheism is the assumption that the universal state of the absolute would be the conceptual apex, when it is the conceptual basis. So the spiritual absolute, should you care to believe in one, would be the raw essence of awareness from which we rise, not an ideal form from which we fell. (Down with Plato!)
    Of course it is politically useful for those at the top of the social order to maintain a top down theology, as it validates top down political order, from the divine right of kings to W’s gut instinct, as well as top down economic order, such as trickle down theory. While all structure must have some singular focus in order to maintain basic integrity, none is unique and all proceed through a basic life cycle that depends on a healthy bottom up process and environment in order to survive. Currently humanity is top predator in a collapsing ecosystem and in order to continue, we must find a way to transition into being the central nervous system of the planetary organism. Otherwise we really are toast.
    There is a point in ones life where the parent goes from being the model one follows to being the foundation one rises from. We’ve about used up all the protein in this egg and it’s time to hatch.

    Max,

    Yes, money is the lubricant, not the fuel. I certainly wouldn’t argue against any number of mediums of exchange. The more diverse they are, the more resilient the economy would be. Part of my argument is that if we begin to understand money doesn’t constitute personal property, any more than one owns the section of road one is traveling on, this would seriously reduce the power of money over human interaction and thinking and people would begin developing and strengthening other social and mental connections. I do think some form of larger national or internationally accepted currencies are necessary to keep the larger world integrated and mitigate regional conflicts.

    siamdave,

    I agree that we are being pulled around by those who control the currency, but some form of currency is necessary to maintain even the most basic economies. The question is how to leverage the current crisis in the most effective way possible to break down the current system. That it is in the process of self destruction may prove to be a big advantage, but some model does have to be developed to provide the next step, or we fall backward and that’s a long way down.

    Back to work…

    Regards,

    John

  5. John Rogers said on July 11th, 2008 at 3:37am #

    Yes, currency as a medium of exchange may be seen as a commons that turns into a desert if currency as a store of value takes over. That is one definition of the Great Depression of the 30s: flight of currency from the exchange commons. Roosevelt closed down all the local scrip currencies overnight that could have taken the US out of the Depression “in 3 weeks” according to leading economist of the day Irving Fisher (source: Bernard Lietaer, Future of Money).

    Community currencies maximise the exchange and circulation functions to increase the ‘multiplier effect’ in any given community that adopts one. As we get better at designing and organising these lifeboats we will have some genuine alternatives to cling to. Lots of resources about this movement at my website: http://www.valueforpeople.co.uk

  6. John Merryman said on August 8th, 2008 at 6:12pm #

    John,

    I have no problem with community currencies, but we live in a far more complex and interconnected economy than that of the thirties. The question is as to what the next step will be from where we are at the moment. The function of a currency is to provide interchangeability, so local currencies would be seriously limited in their application.
    The fact is that US taxpayers are responsible for maintaining the value of the national currency, so the rewards should be effectively nationalized as well.
    If in a more organic society, other mediums of exchange evolve, they should be encouraged in order to expand the range of connectivity.

  7. Paul Condon said on September 14th, 2008 at 10:54pm #

    I have a personal anecdote concerining privatization of social security: In my youth my family lived in Washington, DC. My father was in the government of Harry Truman. My parents were personal friends of Gifford and Lila Pinchot, who kept a rather grand house in Washingon, and a rather grander house in the country near Milford, PA. I remember an occasion on which Lila was reminiscing about the early days of setting up social security, and the reasoning that went into deciding NOT to establish it ‘on a sound actuarial basis’. She said that FDR’s advisors realized that if they collected enough money for actuarial soundness, they would have nothing to do with it other than placing it at risk on Wall Street. And that would have been foolhardy, because the trust fund would certainly lose its money to slick Wall Street brokers. Of course that could not be part of the official justification because Wall Street brokers were voters and it wouldn’t do to accuse wealthy members of the moneyed class of being crooks. She was smart. FDR’s advisers were especially smart.

    Imagine the fix we would be in now if the decision had been the other way! It appears to me that they were actually doing what you advocate for the reason that you give.

  8. John Merryman said on September 15th, 2008 at 6:18pm #

    Paul,

    Thank you for the anecdote. Roosevelt had a clear view of the situation. The people in charge today can’t see beyond the teleprompter.

    Money is a tool that can be used for great good, or it can be abused and broken. In which case, we will be up the creek without a paddle.
    As of today, the 15th of September, we are.

  9. Deadbeat said on September 20th, 2008 at 5:37pm #

    I’m surprised no one brought up Ithaca Hours. This is a possible solution that has been in practice.

  10. John Merryman said on September 20th, 2008 at 6:52pm #

    Db,

    There are a broad range of possible exchange systems, some already in operation. Here is a website for setting them up, http://www.transaction.net/money/rocs/.

    There are also some very good economists working on the subject. Bernard Lietaer, http://www.lietaer.com/, is one of the best known.

    Ellen Brown develops the idea of public banking quite extensively: http://webofdebt.wordpress.com/monetary-proposal/

    In the natural order a conspiracy is simply the layer of the food chain, or the level of emergent phenomena above yours. Just as humans manipulate the natural world, there are levels of society which manipulate those less organized than they are. This top emergent level used to be religious and political, now it is economic and financial, with politics and religion being used as tools.
    The problem they face is that in a collapsing ecosystem, highly specialized top predators are vulnerable. This opens the door to other possibilities. In the interaction of bottom up growth and top down order, when the order can no longer define the growth, it is shed like dead skin and the growth expands till it solidifies into a new form. Hopefully it’s not human civilization which is shed, just our current monetary/economic practices and the detrimental environmental costs they impose.

    We live in interesting times…

  11. Alice Cameron said on December 28th, 2008 at 8:24am #

    The main problem with money is that it allows people to increase their wealth without contributing anything to society. They simply manipulate the system to their advantage. ‘Money’ needs to be used as storage point to enable recognition of contribution rather than a trading medium.