6 things you should know about Money in our capitalistic system

We all agree money has taken a role that is too central in our economy, we often accuse capitalism, productivism, financiarism, but let’s take a look of what we have done with our monetary systems and the rules we are playing with. Here are 6 things you should definitely know about Money in our capitalistic system :

1/ It is created by private banks

In France since 6 January 1973 the issuance of money has switched from democratic national bank to private banks. It has been sealed at the European level twice: in 1992, the article 104 from the Maastricht agreement stipulates that national banks can’t issue their national money, in 2005, the article 123 from the Lisbon agreement reseals this.

So when governments, representing the people, need to borrow money instead of creating it, as they used to do in the past, they need to borrow from private banks and pay interest.

Conclusion: Money creation, one of the most important powers, which use to be democratic, has become private. The consequence is that most countries in the world need to pay interest to private banks while they could create their own money in the past.

 

2/ Issued on debt with compounds interest

Money creation is issued when credits are created. The money is created by a simple operation with the only restriction of fractional reserve available in the bank. The borrower will have to pay the main part of the credit plus find a way to pay the interest that have not being issued by the bank.

There is not enough money in the world for us to pay our debts at the same moment, so we consistently need to do new credits in order to pay the previous one.

We believe that we only pay the interest when we borrow money, but since every business has borrowed money, we pay the price of interest in each of our transactions. (see Margrit Kennedy : Occupy Money).

Compound interest is hard for our brains to understand so here is a little story:

Would you prefer?

●      10 000€ per week during one year
●      1 cent doubling each week during one year

While the first option appears to be sexy because of the big cash possibility, 1 cent doubling each week during one year reaches 45 trillion € at the end of the year: a lot compared to the 520 000 € you can get with option 1. See the graph from Margrit Kennedy to understand the exponential function in compound interests. As soon as you pay 3% per year, you have an exponential growth function.

Conclusion: Because it is issued on debt and with compounds interest, we need infinite growth to be able to cover never-ending interests. We know this is not sustainable on a finite planet with limited resources.

 

3/ Relating on short terms revenues and no regards of the ethical purpose of the project

In the way money is created, the only precaution from the banks are your viability and your caution: if you are going to be able to pay back your loan. Money is not created regarding ethical aspects, environmental projects or human development. This leads to a short-term limitation and a narrow point of view of what wealth creation is. Bankers will always prefer projects with no particular ethics but with big revenues and a good guarantee of paying back.

Conclusion: The only criteria that allow money creation is short-term revenues: Capitalistic money has no selection criteria regarding the effects of the project and it’s consequences on human development or the environment. Money creation is out of the democratic field regarding environmental purpose.

 

4/ In a scarce way enhancing and promoting competition mechanisms

Since the money issued is only the main part of the loan, but not the interest, it means at a systemic level, we all have to hunt some of the money outside in the market to be able to pay back our loans.

Whatever friendship, family relationship we have, it means on the money market we are all enemies trying to get the money back to pay our interest to get rid of our loans. This mechanism creates competition and scarcity for all of us, and makes us acts as rivals even if we are colleagues, neighbours hospitals, PhD in different universities. The result is that we compete for money because there is not enough for all of us.

Conclusion: We compete everyday to hunt scarce money as animals do it for food on a territory; this is probably one of the most stupid behaviors we have developed that separates us from each other. It is not our intention but the design and systemic consequence of capitalistic money creates and stimulates this.

 

5/ With consequences of money concentration in fewer hands

The systemic effect of capitalistic money is Pareto effect: money concentration: the more you have, the more you will get.

We believe that everybody pays interest, so it should be equal, but while everybody pays interest, the people who profits the most from interest paid are the one that can make their money work. This generally results in the richest 10% receiving interest payment from the 80% of the population; this is true in many countries. See below the comparison of household interest payments and interest returns in Germany. This resulted in a 1 billion transfer per day on interest’s rates in 2001 in Germany. Olivier Berruyer has found out that in 2010 90% of the French population paid 16 billions € to the highest 10% in order to pay the french debt. This is the opposite of a fair money distribution and will result in every democracy in an unbalance wealth distribution.

Conclusion: Capitalistic money creates an unfair stream of ongoing revenues from the one that pays interest to the one who benefits from interest resulting in the opposite of a sustainable society.



6/ Resulting in multiple monetary and banking crises, wealth inequalities and non-democratic representation

Because of our system’s instability, we need to reset the system regularly when the poor part of the population is not able to pay the interest anymore. This is exactly like the end of a monopoly game, you need to redistribute money in order to be able to carry on playing that game. The World Bank has identified no less than 96 major banking crises and 178 monetary crises over the past 25 years. We are reaching the game’s end because most part of the population, a lot of state, many companies and household are drowning under the compound interest weight and can’t pay anymore.

We have reached a level where the 500 richest person on earth have as much money as the 500 poorest million people. Wealth inequality has never been so spread.

These laws that are made and the decisions that are taken are at no moment in the democratic field: ECB, WTO, IMF & Bâle Agreement to name just a few aren’t representing the people. There is a huge need to bring this kind of question in the democratic field.

 

Conclusion:
Monetary crises are part of the design of our exponential wealth spreading inequity in the capitalistic model. Their rhythm is rising and the origin of each crises haven’t been address so far neither the similitudes between them. Our capitalistic money creates wealth inequity, monetary crises and hasn’t been, so far, part of the democratic discourse.

 

Capitalistic money, what would you do?

Money is not the problem, the problem is the rules we use that governs our monetary system: based on debt, issued by private banks with interest that becomes compound interests and has no limit regarding the environmental limit or the ethical purpose.

We can change the rules to play a different game, a fair one, that enhance abundance, that respect the limits of the earth and that put human at the centre. Governance of this new game should be discussed democratically at a global as at a local level involving the different economic actors.

 

There are already solutions:

> Banking approach : Interest free bank : Jak bank in Sweden

> Top down approach : Basic income with central bank money creation.

> Bottom-up approach : Complementary Currencies: Wörgl, Wir, Mutual credit system, SOL, Local Exchange Trade Systems…

> Trust approach : Tontines, Cigales, Non-monetary exchange, Gift economy…

We’ll detail the solutions in some articles coming soon.

Did you know? What are you interested in?

 

Download this document as a PDF : 6 things you should know about capitalistic money

Complementary sources :

EN : http://www.margritkennedy.de/books.html
EN : http://www.brillig.com/debt_clock/
FR : http://www.legrandsoir.info/dettepubliqueetcreationmonetairepriveedesinstrumentsdupouvoirfinancier.html
FR : http://www.lescrises.fr/pertedutripleafrance/

12 réflexions sur “6 things you should know about Money in our capitalistic system

  • 14 février 2012 à 17 h 59 min
    Permalien

    Silvio Gesell’s book The Natural Economic Order gives an excellent solution for this problem.

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    • 14 février 2012 à 19 h 41 min
      Permalien

      Indeed, and this is very used « demurrage » in many complementary currencies such as the Sol Violette. Thank you for reminding this!

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  • 15 février 2012 à 17 h 44 min
    Permalien

    For me the solution is definitely a new global, peer-to-peer and negative-interest-rate currency. Global because FOREX is one of the biggest aberrations of existing currencies. The economy is global, we all live on the same planet, with the same challenges to face, and we can’t let speculators trick the game anymore. Peer-to-peer because we have all the tools we need now to completely bypass the banks and decentralize money management. And negative-interest-rate because when you know that banks don’t create any value, and that you don’t deprive them of anything when you borrow money that just didn’t exist in the first place, a positive interest rate just doesn’t make any sense anymore. Positive interest rates encourage storage when money was supposed to be a means of exchange. Negative interest rates would make everybody a lender, foster circulation of money and real ethical value creation, especially in a peer-to-peer model. Why do you think most countries forbid the creation of a new currency? Because they know their system is crooked, and that the day when we take matters into our own hands and reinvent a better system, they are screwed. But let’s take them back anyway.

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    • 20 février 2012 à 1 h 43 min
      Permalien

      @Sebastien Arbogast: I like both approaches : global P2P currency AND local special designed currencies that suites different needs and problems. We already have a lot of different kinds of money but they aren’t recognised as such yet. A global P2P currency would replace the dollar or euros or big currencies we have at the moment but some specific design would be necessary to adapt to the local issues.

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  • 15 février 2012 à 19 h 48 min
    Permalien

    You might want to avail yourself of the work I’ve done over the past 30 years on discovering the dysfunctions inherent in the global monetary regime, and outlining effective alternative mechanisms for exchange of goods and services. My books The End of Money and the Future of Civilization, and Money: Understanding and Creating Alternatives to Legal Tender, provide a comprehensive education on these topics. My website, Beyondmoney.net lists links to many of my presentations and interviews.

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    • 20 février 2012 à 1 h 18 min
      Permalien

      @Thomas H Greco: Thank you Mister Greco, I have seen your work and your name many times in the field without going into further research of your work, this seems like the right moment to do it, thank you for inviting me to do so and commenting here.

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  • 17 février 2012 à 12 h 59 min
    Permalien

    I think there is a problem in your demonstration.

    « Conclusion: Because it is issued on debt and with compounds interest, we need infinite growth to be able to cover never-ending interests. We know this is not sustainable on a finite planet with limited resources. »

    I dont think debt is exponential at all.

    I borrow 100, with 10% of interests.
    I have to give to the bank 110.
    The mass of money existing is 100.
    So i borrow 10, with 10% of interests.
    I have to give to the bank 11 now.
    The mass of money existing is 10.
    So i borrow 1.
    As we can see, the limit of the « interests » function is 0. Not infinite !

    At the end, i would have borrowed 111 for 100 with 10% of interests.

    Else it’s a good article. The biggest problem of our monetary system thing is that it’s private corporations who decides who can have money or not. Also, they can create cycles of inflation/deflation. Their power on the economy is huge.

    And sorry if my english is bad 🙂

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