Time for a New Theory of Money

[marmar]

from YES! Magazine:



Time for a New Theory of Money
By understanding that money is simply credit, we unleash it as a powerful tool for our communities.

by Ellen Brown


The reason our financial system has routinely gotten into trouble, with periodic waves of depression like the one we’re battling now, may be due to a flawed perception not just of the roles of banking and credit but of the nature of money itself. In our economic adolescence, we have regarded money as a “thing”—something independent of the relationship it facilitates. But today there is no gold or silver backing our money. Instead, it’s created by banks when they make loans (that includes Federal Reserve Notes or dollar bills, which are created by the Federal Reserve, a privately-owned banking corporation, and lent into the economy). Virtually all money today originates as credit, or debt, which is simply a legal agreement to pay in the future.

Money as Relationship

In an illuminating dissertation called “Toward a General Theory of Credit and Money” in The Review of Austrian Economics, Mostafa Moini, Professor of Economics at Oklahoma City University, argues that money has never actually been a “commodity” or “thing.” It has always been merely a “relation,” a legal agreement, a credit/debit arrangement, an acknowledgment of a debt owed and a promise to repay.

The concept of money-as-a-commodity can be traced back to the use of precious metal coins. Gold is widely claimed to be the oldest and most stable currency known, but this is not actually true. Money did not begin with gold coins and evolve into a sophisticated accounting system. It began as an accounting system and evolved into the use of precious metal coins. Money as a “unit of account” (a tally of sums paid and owed) predated money as a “store of value” (a commodity or thing) by two millennia; the Sumerian and Egyptian civilizations using these accounting-entry payment systems lasted not just hundreds of years (as with some civilizations using gold) but thousands of years. Their bank-like ancient payment systems were public systems—operated by the government the way that courts, libraries, and post offices are operated as public services today.

In the payment system of ancient Sumeria, goods were given a value in terms of weight and were measured in these units against each other. The unit of weight was the “shekel,” something that was not originally a coin but a standardized measure. She was the word for barley, suggesting the original unit of measure was a weight of grain. This was valued against other commodities by weight: So many shekels of wheat equaled so many cows equaled so many shekels of silver, etc. Prices of major commodities were fixed by the government; Hammurabi, Babylonian king and lawmaker, has detailed tables of these. Interest was also fixed and invariable, making economic life very predictable. ..........(more)

The complete piece is at: http://www.yesmagazine.org/new-economy/time-for-a-new-theory-of-money

[Kurt_and_Hunter]

1. Valuing gold and silver is little less arbitrary than valuing slips of paper

Just sayin'

[DCKit]

3. Until you find out there's more "paper" gold than gold gold.

The jig is up.

[alcibiades_mystery]

2. Newsflash: 21st century economist figures out what Marx argued 150 years ago

Jeez. Doesn't anyone read the first chapter of Capital anymore? Marx argues that money takes on the appearance of a commodity, when it is in fact a stand-in for the whole of social relations of production. That's the "commodity fetish," which doesn't mean that we have a "desire" for commodities, but that the universal equivalent (i.e., money) operates as a fetish object for social relations, which is to say, that it is misconstrued as a commodity.

So, yeah, no shit.

But the economist rather predictably gets it wrong by remaining within the fetishistic realm of "economics." By treating money as a "credit vehicle/debt obligation" our lovely economist merely displaces the real problem; the economist remains in thrall to the exchange relationship rather than seeing what's really there: the relations of production.

[On the Road]

4. I Was About to be Hatin' on Anything Entitled 'A New Theory of Money' --

what with all the common-sense amateur economists who seem to think they're being progressive and original by adopting old conservative beliefs.

Now my only questions are: (1) This is new? (2) I doubt that 'reimagining' will 'unleash' anything. The current economic problems are after all a result of too much of a good thing. Banks and governments already know how borrowers behave and debt affects economies.