Thursday, November 26, 2015

Thanksgiving Follow-ups

A few million years ago dinosaurs dominated the earth, now they're a food source for mammals. So it goes with evolution. It's sad that Thanksgiving, a regional harvest festival, has turned into a celebration of monocrops (turkeys, potatoes, pumpkin, etc.). Apparently the decline of megafauna is related to the domestication of squash:
Without elephant-sized animals to distribute seeds, wild plants will grow only where the fruit drops -- as far as the pumpkin rolls. At the same time, the disappearance  of megafauna altered the landscape from one of a patchwork of environments to something more uniform. Cucurbita are weedy plants that liked the disturbed landscape created by the megafauna, but fared less well in the new landscape of the Holocene...
"It's been suggested before and I think it's a very reasonable hypothesis, that wild species of pumpkin and squash weren't used for food early in the domestication process," ...Rather, they might have been useful for a variety of other purposes like the bottle gourd, as containers, tools, fishnet floats, etc. At some point, as a symbiotic relationship developed, palatability evolved, but the details of that process aren't known at the present."...If humans initially used cucurbita for nonfood applications, they somehow eventually managed to find those plants that mutated and lost their toxicity...cucurbita may have been domesticated at least six different times in six different places. "There is a huge amount of diversity in some of the domestic species and between them as well..."
Loss of mastodons aided domestication of pumpkins, squash (Penn State)

Native American boatbuilding was fairly advanced. Polynesians crossed the Pacific Ocean in boats like these:
Using their ancestors’ traditional burn-and-scrape methods, [boatbuilders from the Mashpee Wampanoag nation] have built a small fleet, known as mishoon, hosted mostly at the Plymouth Plantation museum in Massachusetts...In the 17th century, when these shores were thick with towering old-growth trees, Natives made even larger mishoon, which the colonist Roger Williams reported easily held “twenty, thirty, forty men.” Another newcomer claimed he witnessed a sea canoe with 80 people aboard plowing through the waters of Long Island Sound. Indians also built light bark canoes for protected passages, but most coastal Algonquians preferred dugouts when heading into offshore waters...Though Native vessels were simple when compared to European ones, that fact only made foreigners all the more impressed with Algonquians’ nautical prowess. ..When colonists looked for “skilful hands to guide them in rough weather, none but the Indians scarce dare to undertake it.”

Native-style craft were so obviously useful that colonists eventually started building their own dugouts of identical size and form as Indian ones. Indian boatbuilding practices were cheaper and easier to master than European methods—and the shortage of qualified shipwrights in the region meant that plank-built vessels were pricier than most houses. Colonists therefore relied on simpler canoes for transporting goods, people, and livestock. The Dutch even boasted that they possessed a massive “wooden canoe obtained from the Indians, which will easily carry two hundred schepels of wheat”—a capacity of 9,000 pounds.
Masters of the Atlantic (Slate)

And ancient farming systems: Aztec Urban Agriculture (Wide Urban World). This produced a very nutritious diet.

And a perennial chestnut from Slate: Why don't we eat turkey eggs? Short answer: monoculture enforced by economics.

Another sunken city: 3,500-Year-Old Sunken Town Discovered In Croatia (Tech Times)

Related to that, here's a good Reddit disuccion on that topic:

Are new megalithic sites such as Göbekli Tepe and Gunung Padang changing mainstream Archeologist and Anthropologist views on the timelines of human beings?

We mostly know about civilizations that built in stone - i.e. nonperishable materials. That gives us a skewed view - societies that built monumental works with stone were probably more unequal nad top-down than societies which relied on wood, skins, wattle-and-daub, and earth. If you used gourds for containers, for example, like the article above describes, the record would be different than cultures that used fired clay pottery, which lasts practically forever. The evidence to some extent dicates the story.

Also, hurt feelings may have encouraged the human diaspora (University of York). Why fight when you can move away? Eventually, there was nowhere left to move, and too many investments in your local community after generations of sedentism to want to move (circumscription). The first progress trap?

Cities from even the earliest times were places where humans mixed genetically. Paging Jane Jacobs: DNA study finds London was ethnically diverse from start (BBC)
"The thing to remember with the original Londoners is that they were not born here. Every first-generation Londoner was from somewhere else - whether it was somewhere else in Britain, somewhere else on the continent, somewhere else in the Mediterranean, somewhere else from Africa," she said.
Compare also to London and Paris today.

And a couple brief follow-ups on monetary history: This post seems to convey the idea that lending was mostly peer-to-peer in the North Atlantic area in the Early Modern peiod. Somehow (the author doesn't know how), lending became controlled by the banks instead of peer-to-peer. So a lot of the Internet direct-lending schemes are once again a "back to the future" type scenario:
Since at least 1400 rural lending and borrowing was at least in some regions common and tied to the life cycle of households and families, which needed to borrow considerable amounts of money during some phases of their life cycle and lent money during other phases...After 1500 at the latest such credit markets can be found all over Europe: around Zürich, in the Black Forest, in the Vosges, in Flanders, Westphalia, the East of the Netherlands and many parts of England and France...we discover extensive and lively credit markets everywhere. Most lending and borrowing was local. Some of it (especially when people borrowed from family?) was however supra-local (i.e. lender and borrower lived further away from each other than can be travelled in one day)...A lot of lending and borrowing was based in the countryside. Towns sometimes played a decisive role but this was often the case when circumstances were special, i.e. in the case of new polders in the Netherlands (for instance around 1600) or the abolishment of seigniorial dues in Germany (first half of the nineteenth century)...Banks were next to non existent in these areas, at least until the beginnnig of the nineteenth century. But there often were middlemen, often quite literate officials. Using the information available to them often made this position quite profitable...Which, in a long run perspective, of course leaves us with the question why people stopped lending to each other and started to leave lending to the banks.
And the real first widespread implementation of paper money seems to have been under the Mongols: Amazing History of Paper Money, the Gengis (sic) Khan Epoch (Let's Talk Payments)

To get your ancient Near Eastern history fix on, check out the latest Dan Carlin episode.

Saturday, November 21, 2015

Did Floods Drive Civilization?

Early human migration tended to follow the coastline. Around the world, we see coastal settlements before we see inland settlements. In the Americas, South American coastal settlements predate those farther inland in North America by thousands of years, suggesting the first humans sailed down the coasts before moving into the interior of the continent. Similarly, older human remains are found in places like Indonesia than are found in the interior of places where humans first settled outside of Africa like the Near East. Most likely, when conditions got too crowded, early humans hopped into a coracle-type boat made from reeds, or skins, or hollowed-out trees, to go find another beach somewhere to live. Coastal living is ideal - usually the climate is fairly benign, and the ocean supplies a virtually limitless supply of food for Homo sapiens. Even today, living on a beach is considered to be paradise by a lot of people, and oceanfront property is typically the most valuable.

According to one theory, it was a rise in sea levels that drove people into the first cities. To my mind, this makes sense. It would take a considerable shock to make a change to people's lifestyles as radical as urban life with its crowded conditions, interpersonal conflicts and outbreaks of disease. But as former foraging lands went under the waves, humans may have had no choice. It ties in with Carneiro's ideas of circumscription - only when escape routes were cut off could sociopathic elites seize control of the means of production. Could that circumscription in some areas have come in the form of rising seas?
Six thousand years ago, people across the Middle East grew crops and kept animals, but they hadn’t yet invented urban life. Sea levels were on the rise, and the Persian Gulf rapidly encroached on Mesopotamia. This is one of the world’s flattest places. Like a broad beach in an oncoming tide, the land was quickly swallowed up by water. Those living in the marshes and low-lying hamlets sought refuge on a few narrow ridges just high enough to protect them from inundation. Suddenly, people had to find a way to cooperate on these small but thickly populated islands of dry earth. They adapted by reorganizing their society.

They experimented with innovative ways to store food. They crowned kings, invented a priestly class to mediate between humans and the gods, and divided up tasks like making pottery, keeping financial accounts, and soldiering. They built temples and public buildings on a scale never seen before. By 3200 B.C., scribes made the first written records. Almost everything else in all of human civilization is a variation on a theme first played in Mesopotamia.

“There is this idea that cities happen because somebody invented irrigation,” says [archaeologist Jennifer] Pournelle. “My argument is that irrigation happened because you had cities.” Only later, when the water began to recede, around 3000 B.C., did the new society began to construct large-scale water works designed to grow crops on an industrial scale to feed the burgeoning masses. The ideas of cities, writing, big temples and palaces, and kings and a priestly class spread quickly across Asia and Africa and eventually into Europe. In some cases, such as in Egypt, these traits all appear nearly simultaneously.

Something similar likely took place in the New World, where the first monumental buildings and cities sprang up along the Pacific coast of Peru 3,000 years ago, not long after the modern El Niño weather pattern began. The onset of that periodic phenomenon—the same weather pattern that is due to deliver floods and mudslides this winter from Chile to California—may have prompted ancient Peruvians to join together in a novel way to deal with the recurring destruction.

Historians and archaeologists no longer see civilization as a forced evolutionary march from farming to factory to Facebook. Instead, they see individuals and groups grasping for creative ways to overcome immediate perils. The results, as in Mesopotamia, can transform not only their society, but those around them and those that come after. Stress and strain make us stretch.

Humans, of course, don’t always triumph. Terrible droughts 4,000 years ago may have played a central role in the dramatic collapse of the first Mesopotamian cities, along with Egypt’s Old Kingdom and the Indus civilization in what is now Pakistan and India. The changes were too deep or fast or tenacious for societies to cope. Warfare, famine, and disease stalked the Near East for centuries.

If history is our guide, then, an effective response to today’s changing climate—which is shifting more rapidly than at any time since Homo sapiens evolved—requires a major retooling of our economy, institutions, infrastructure, and even our beliefs.
Floods Led to Civilization (Slate)

The article goes on to make an analogy to the flooding that will be unleashed by global warming. It argues that we, too, will need to come up with new forms of social order, just as they did back then. Most likely what will happen is tectonic shocks to an already fragile and hyper-complex system leading to disruption and dislocation. From that, I do see a different social system emerging. Clearly the path we're on is not sustainable.

In this view, rising seas drove people into close proximity and began the first societies in the Near East, at least in Mesopotamia and Peru. In places such as Egypt, it was most likely advancing desertification that removed foraging lands and shrank Egypt to a thin band along the Nile. There, surrounded by deserts, people had no choice to accept the rule of the priest-king owners of the land, with one war chief eventually reigning as the Pharaoh.

The ideas above tie in with Jane Jacobs' notion of cities as primary drivers of economic development and technological change.
Jacobs argued that perhaps the first great example of the process of creating new work was the invention of agriculture and animal husbandry. ‘Cities’ developed this industry due to the need to feed people in the ‘city’. Eventually this technology was exported to other places, including the countryside.

Jacobs’ reasons for saying this was that she saw the countryside itself as a passive receiver of ideas. Lack of population pressure means that new industries don’t need to be developed in the countryside. Therefore the countryside gets its technology and industry, and much of its work, from cities. As a result of this, Jacobs argued that when local cities disappear the technology of the countryside, unsupported, can disappear with it.

The reason why people are reluctant to consider such a radical idea, Jacobs argued, is due to the influence of the Bible on people’s thinking. So if Genesis said that farming came first and cities later then that’s how people viewed the past. She particularly singled out Adam Smith in this respect, saying that his ideas, which were influenced by the Bible, have heavily influenced people’s view of economics ever since.
Jane Jacobs, agriculture and a model for ancient civilisations (Armchair prehistory)

While Jacobs' "cities first" model has been criticized with regard to agriculture (most likely agriculture was practiced long before cities, but intensive agriculture is probably urban in origin), it does make sense that cities drove trade, specialization, political complexity, and with it, inequality.

We also have increasing evidence that early humans cooperated on much larger scales than we thought long before we lived in top-down social hierarchies. Göbekli Tepe is one prominent example, but others are emerging. Also, keep in mind the above: many of the earliest sites of human habitation are now under water, and have been for millennia.

Revelations on Shigir Idol 'change our understanding of ancient civilisations' (Siberian Times)

Mysterious Middle East 'Wheel Of Giants' Is As Old As Stonehenge (Huffington Post) Ancient rock formation is believed to be 5,000 years old -- but no one is sure what it was used for.

NASA Adds to Evidence of Mysterious Ancient Earthworks  (New York Times)

When cities rise from the depths (BBC)

These range from 5,000 to 10,000 years ago. Clearly a lot was going on before we settled down in dense urban areas, which may be why civilization developed so rapidly. Large-scale construction and long-distance trade were nothing new.

Here is an interview with Graham Hancock and Randall Carlson on JRE, where they are frequent guests. As far as I can tell, they are arguing that there was a highly advanced human civilization with extensive trade networks long before 11-12,000 BCE. They argue that many monuments, including those of ancient Egypt, date from that time period. As evidence, they cite things like signs of water erosion on the Sphinx, which would have had to have been made before the desertification of Egypt, along with numerous underwater ruins which have not been sufficiently explored.

Around 12,000 BCE, according to the theory, a comet entered the atmosphere causing major catastrophes on a scale similar to that of the dinosaur extinction or the Toba eruption. The comet caused the ice sheets to melt, inundating this ancient civilization and causing its collapse. The knowledge of the civilization was passed down through various stories and esoteric traditions including the universal flood myth and the stories of advanced civilizations lost beneath the waves: Atlantis, Lemuria, Mu, and others (the Egyptians claim their knowledge originated in Atlantis). When civilizations were eventually rebuilt, they remembered the catastrophe and built all sorts of astronomical clues warning us of the comets in their monuments, including the very geographical siting of the monuments (according to Robert Bauval, the Giza site is laid out to align with stars in the Orion constellation). This is why every ancient civilization was so obsessed with stargazing, going so far as to encode astronomical knowledge such as the procession of the equinoxes into their mythology.

An interesting theory, to be sure. I'm not going to hazard an opinion here. It seems possible, but it's too often lumped in with the idea that early humans were in contact with aliens, or that ancient civilizations has some sort of secret advanced technology, or psychic powers, and other New-Age nonsense. It would also help if Carlson (a builder with no scientific qualifications) didn't take every opportunity to assert that his catastrophe theory somehow disproves the idea that humans are the source of anthropogenic climate change. Here's a better summary from Disinfo.

One of my favorite candidates for the Garden of Eden and the Flood Myth is that one of the first permanent settlements outside of Africa was where the Persian Gulf is today, and when the sea breached the Straits of Hormuz, it inundated the area creating the Gulf and driving the survivors to higher ground where Mesopotamia is today. I first read about that here: Lost civilization under Persian Gulf? (Science Daily)

Friday, November 20, 2015

The Hipcrime Vocab on JRE

JRE #718 - Christopher Ryan from JoeRogan on Vimeo.

Okay, not really, but at 56:00 Chris Ryan mentions my Reddit post to Joe, so I figure this is probably the closest I'm going to get to be on either Tangentially Speaking or The Joe Rogan Experience. But who knows...?

The Reddit post is here: Chris Ryan, Duncan Trussell - Charting A Prehistoric Path Into The Future

Sunday, November 15, 2015

Inequality and Economics - Odds and Ends (Money as an IOU)

As usual, there were a few bits that escaped logical inclusion into the series on inequality and money. I will try and include them here.

One item that came out that I would have liked to include was this piece on the history of coinage: The first coins – no ‘means of market exchange’ but ‘means of gift exchange’? (Real World Economics Review) The Greek kingdom of Lydia in Asia Minor appears to be the epicenter of all metal coinage as we know it today, under it's fabled king Croesus who has become a byword for wealth. Apparently Lydia had large reserves of silver and gold, and stamped the coins as proof of their value. The convenience of using these stamped bits of precious metal spread far and wide, and they circulated beyond the kingdom, giving birth to the idea of coinage. From here, the idea spread to the Roman Empire, and also to the Islamic States which succeeded the Eastern Roman Empire.

What's interesting is that even these coins were used as a sort of gift exchange, sort of like wedding rings, rather than currency as we know it today. It's also interesting to see how recent it is. For most of us, coins are still "real" money unlike the "worthless bits of monopoly money" we typically use, probably because coins are made of metal. But note that one small kingdom in Greece is the source of all coinage. There was an awful lot of history before then (coins were also independently 'invented' in ancient China, along with paper money).  It's another blow to the idea that before government came in and ruined everything, people' naturally" exchanged bits of gold and silver for eggs and shoes in spontaneously occurring self-regulating "free" markets.
Somewhat to my surprise, I find myself reading numismatic articles. Money existed before coins were invented. So, where and why were coins invented? According to Reid Goldsborough, in an nuanced article, it’s not unlikely that the first Lydian coins (about 600 BC) were not used for ‘market exchange’ – at first they might well have been used for ‘gift exchange’, somewhat like we exchange wedding rings. What’s not a ‘maybe’ or a ‘likely’ in the history of this innovation is the crucial role of the state.

The Lydian Lion is the one coin I’d personally call “The Coin.” It directly preceded ancient Greek coinage, which through Rome begot all Western coinage, and which through the Seleukids, Parthians, and Sassanians begot all Islamic coinage. Indian coinage has largely been a product of Greek, Roman, and Islamic influences. Chinese coinage, though it probably developed independently, was succeeded by Western-style coinage in the late nineteenth century. Other countries in Asia, in Africa, and elsewhere have adopted the Western approach to coinage as well. It’s not chauvinistic, and it’s only mildly hyperbolic, to suggest that virtually all coinage in use today is the progeny of the Lydian Lion, that it’s the Adam of coins…

The most fundamental debate involving these coins is whether the Lydian Lion is in fact the world’s first true coin. Much here depends on what definition you use for “coin.” I’m using a commonly held numismatic definition of what a coin is, which is spelled out well in Webster, Second Edition: “A piece of metal (or, rarely, of some other material) certified by a mark or marks upon it to be of a definite exchange value and issued by governmental authority to be used as money.” Key here are “mark or marks” and “certified … by government authority.”…

There’s no reason that fully typed coins couldn’t have been the first coins. Stone and clay seals with pictorial designs predated coins, and some scholars have argued, persuasively, that the idea of stamping coins with designs developed from the use of seals to designate ownership or authority…Even though coinage doesn’t appear to have initially served commerce or trade, it’s likely that the Lydians created coins as we know them because they were the first to recognize their profit-making potential...

It used to be thought that coins came into existence to facilitate commerce, preventing merchants from having to weigh bullion with each transaction. The weight of Lydian trites, in fact, is remarkably consistent, with most hovering very close to 4.7 grams. But one of the things we now know about the function of the first coins with any degree of assurance is that they weren’t used as coins were used later on in ancient times, and as coins are used today, that is, for everyday market transactions.

It’s clear that it took some time before ancient coins were used for commerce and trade. Even the smallest-denomination electrum coins, perhaps worth about a day’s subsistence, would have been too valuable for buying a loaf of bread. Electrum coins have been conspicuously absent from archeological finds in the marketplace in Sardis, capital of Lydia. Gold and silver bullion were likely still used for commerce in western Asia Minor, including Lydia, at the time that electrum coins were minted. The first coins to be used for retailing on a large-scale basis were likely small silver fractions minted by the Ionian Greeks in the late sixth century BC.

What’s more, evidence shows that Lydian Lions weren’t used in international trade, not showing up in substantial quantity in hoards outside of western Anatolia. That role would be served later on by silver coins, whose intrinsic value could be more easily determined than electrum coins, beginning en masse with Athenian Owls and to a lesser extent with the coins of Aegina, Corinth, and the Thraco-Macedonian tribes...

Instead of commerce and trade, these earliest coins were in all likelihood used for other purposes. What follows is a suggested scenario: Bullion had long been used as money. The Lydian king, Alyattes, a crafty and powerful figure who ruled for half a century, figured out that if he controlled the bullion market, or part of it, he’d further amass his wealth. So he deemed that only bullion with his mark, the roaring lion, could be used for official purposes — the state paying state workers and mercenaries and the people paying taxes and making religious donations. Other purposes that this first coinage were soon put to likely included gifts as part of treaty ceremonies, wedding presents, and hospitality offerings. Along with typical seigniorage profits that later minting authorities would enjoy, Alyattes further enriched himself by debasing naturally occurring electrum with silver and copper. To facilitate acceptance, he carefully controlled the weight of each piece of this new type of bullion. Merchandisers and traders continued to use regular bullion until the Greeks, clever traders that they were, took what the Lydians invented and went a step further. They figured out that silver coins, being more difficult to debase, would be more accepted in more places than electrum coins for retailing and trade while still earning them profits. Coinage, invented by the Lydians, was thus spread by the Greeks...
See also: The profitability of early coinage (Vox EU):
Research traces the beginning of coinage with increasing accuracy to around 630 BC in the Greek city-states in Ionia or in Lydia, or both, in the contemporary part of West Turkey east of the Aegean Sea. The earliest coins were made of electrum, a mix of gold and silver. The common view, even among knowledgeable scholars, is that early coinage was highly profitable, at least for the Lydian kings Alyattes and Croesus. It is “usually understood [that] the electrum coins were highly overvalued”, say the archaeologists Cahill and Kroll, by which they clearly mean highly profitable. In an influential book, Le Rider estimates a profit rate of about 15 to 20%. However, I argue that this position is very dubious.

Consider first the historical context in which coinage began. The innovation occurred in societies that belonged to a vast trading network where the use of the precious metals as money went back at least over 1,000 years to the East, where the Assyrian empire stood, and at least many centuries to the South, in the Levant, where the Phoenicians had been active as international traders since Homeric times (that is, centuries before Homer). The producers of traded goods, wholesalers and traders possessed accurate scales for weighing gold and silver, were expert at detecting fineness, and could use the touchstone for help. Their benefit from coins would depend entirely on their ability to dispense with weighing and assessing and simply count, based on trust, but the associated savings could hardly make much difference in a large transaction, while the early electrum coins, consisting very roughly half and half of gold and silver, were only useful for big-ticket items. According to the estimates, one of the largest coins (a stater) might buy an ox, and the very smallest coins (tiny) would be far too valuable to serve as small change.

In accordance with this line of reasoning, coinage took off very slowly outside of Ionia and Lydia, and it is arguable that its take-off was particularly slow where monetary habits with the precious metals were most deeply engrained. It took about 80 years before a few Greek city-states on the mainland and offshore started to coin, beginning in 550 BC. They did so in silver. Coinage subsequently spread widely in the Greek city-states over the next half-century or so, but almost nowhere else. After King Croesus fell to the Persian King Cyrus in 547 BC, the Persians imitated the coinage they found in conquered Lydia and encouraged its spread. The Persian coins were also in gold and silver following Croesus’ example (the latter had introduced separate coins in the two metals shortly before, in 550 BC). But the Persian coinage had most success in the western part of their (Achaemenid) empire and made little headway in the more sophisticated east. Quite significantly too, the Phoenicians who traded far and wide started to coin only in the middle of the 5th century and their Carthaginian outposts somewhat later at the end of the 5th century. Egypt, hardly a commercial backwater, did not begin to coin until the late 4th century BC. It was clearly the conquests of Alexander the Great in the last third of the 4th century BC and the subsequent political expansion of Rome in the next four centuries that led to the wide spread of coinage in the ancient world outside of China and India (where coinage had begun independently but much later than in Ionia and Lydia). North and central Italy and most of Europe also saw coinage arrive only under Roman influence. Rome itself started to coin late, around 300 BC, and coinage really only took off there with its military advances in the third century, that is, about two and a half centuries after coinage had covered most of Greece. This early history of slow progress is difficult to reconcile with the idea that the early coins were a source of exceptional profits.
Gift exchange is interesting. We do it today. It seems like "gift cards" have taken over the Christmas holiday market. They make no sense - why not just give money? If you give a gift card for, say, Target, you can only spend it at Target, unlike cash which can be spent everywhere. It's like converting your money into a special type of currency internal to Target. If you get a gift card for Chili's, you are committed to going to Chili's (yes, I've seen this card). And you could just as easily go to Chili's or Target yourself and spend your own money (or take your friend there). Gift cards are a pure form of symbolic gift exchange. Note also that they are given without expectation (and yet we feel an obligation to repay).

Another interesting item was this post: The Standard Definition of Money is in Error (Naked Capitalism) We're told that money is three things - a medium of exchange, a unit of account, and a store of value. But the "store of value" characteristic of money is simply not true. Money doesn't store any value at all. How could it? It is entirely dependent upon what is "out there'' in the real world to buy. That fluctuates over time. The money in your bank account constantly fluctuates every single day. All that money is is a token of demand for stuff in the real world.

Consider, during the financial crisis, Alan Greenspan could guarantee that the United States would always have enough money to meet its debt obligations, but what he could not guarantee was its purchasing power. The purchasing power of money relative to things it can buy is constantly in flux, and that is what we call inflation and deflation. Inflation means money buys less and less over time, which means that future money is worth less than present money. This actually helps debtors, because they are paying back loans with increasingly worthless dollars. It hurts savers, though.

Deflation means money can purchase more over time. This means that future money is worth more than today's money. Your dollar goes further. This is great for savers and people living on fixed incomes, but not so good for those in debt, since they are paying back their debts with increasingly valuable dollars over the period of the loan.

This dual nature of winners and losers means that there is constant debate between people who support either inflation or deflation. That's something to keep in mind whenever you hear debates about inflation and deflation. But what it also means is that money has no intrinsic value, whether credit or commodity money. Money does not, in any sense, "create" wealth. It is a social relation designed to mobilize resources. It is also a symbol of power.

We're told that the value of things can be calculated in money. A diamond is more valuable than water because it costs more. A CEO is more valuable than a schoolteacher because they "earn" more money.  But money has nothing to do with value, as this article points out, it's simply a store of potential demand:
The standard definition of money is given in terms of its three functions:

    1: Money is a medium of exchange.
    2: Money is a measure of value.
    3: Money is a store of value.

In the standard definition, Number 3 cannot possibly be true. Were Number 3 true, money would have value of itself. The value of money would be independent of what ever else an economy produced. But consider, the best monies are those instruments which have no intrinsic value whatever. How can any amount of something which has no value, be a store of value? Even where commodities have been used for money, (and this may be the origin of the error,) they have tended to be those commodities, precious metals, for instance, which, because of their properties, were of only limited economic use. The reason for this is known and simple: These commodities had to be more valuable as money than they were valuable as commodities. If they were more valuable as commodities, they would be consumed, and so their use as money would disappear. But this implies that the value of these commodities, as money, over their value as a commodity, is not intrinsic, but as with plain fiat money, purely a matter of other factors. That is, the value of the commodity as money is not based on any intrinsic value of the commodity to the economy. 
In other words, what we use as money has no intrinsic value, because otherwise we would be using it for that. This is just as true for gold as it is for paper. So the reason gold and silver are used for money is precisely because they have no practical use (most practical uses for them are due to modern technology). The same goes for diamonds and other valuable gems. If they had practical uses, they would be used for that instead. This is why we don't use oil for money - it makes more sense to put it in your engine. Gold and silver items were possessed by wealthy ancients as a sign of wealth rather than practicality. Thus, Egyptian rulers has gold (rather  than bronze) weapons in their tombs, and wealthy Romans ate from silver (rather than clay or glass) plates. Jewelry, a complete frivolity, is associated with gold, silver, and gemstones. This may ultimately stem from a fascination that certain animals such as corvids, rodents, and us primates have with shiny objects.
So fiat money has no intrinsic value, and therefore cannot be a store of value. If the economy produced only money, that money would have no value. It does not have value as, say, a refrigerator full of food has value, or a tank filled with gasoline. But, what the third function of money actually is is as a store of demand. If you have $100 in the bank, or in your pocket, you have a store of demand, which you can keep as long as you want, and when you choose to, you can spend it. You can demand something which is offered for sale, to the amount of $100. Then you can take your $100 of tokens of demand and you can go to the grocery store and with it buy $100 worth of food.
So money really is a demand token. It is a promise to exchange something for it. In other words, it is an IOU, as we'll see shortly.
Money is not a store of value. Can it reliably be a measure of value? Economically worthless things may be in much demand, and therefore command a price beyond their value. Yachts, for instance. Economically valuable things may be in little demand, or supplied at prices below their value. Water, for instance. With money, you have demand for these things, at the prices they are offered. But their prices do not reflect their economic value, only the amount of demand, the amount of money, which must be exchanged for them.
Prices don't measure value. So how can the Market God of Neoliberalism, who makes decisions based upon price, be all-wise? How can price alone coordinate all the activities of society, as some economists claim?
This counters the claim that the only value a thing has is that set and measured by the market: The toys of the wealthy are much in demand, but of little value. The goods needed by the poor are to them of great value, but it may be that those poor are only able to demand a meager portion of them. Markets only measure demand. They need not measure value. This is the primary inadequacy of markets. 

By mistaking demand for value, the standard definition of money thus implicitly fails to distinguish between the value of an object, and the demand for that object. In an informal sense, this results in the failure to distinguish between the needs of an economy, and its wants.To provide another example, the economy ‘needs’ streetlights in Highland Park, Mi. It ‘wants’ yachts in Newport, RI.
...because money is demand, or more exactly a token or instrument of demand, it serves as a ‘medium’ of exchange: Because money is not demand for any particular good or service, but is demand for any offered good or service, it may be exchanged for any offered good or service...The individual who exchanges his good or service for money then himself has equal demand on others for different goods or services. Money thus flows opposite to the flow of goods and services, not to the degree of the value of these goods and services, but according to the demand for these goods and services that are offered.
In other words, those "worthless pieces of paper" are meant to be worthless. A stock share is also a worthless piece of paper, but I'm guessing Ron Paul isn't campaigning to end the Stock Market. Indeed, nothing can be a proper store of value, because the laws of thermodynamics are constantly at work, as Frederick Soddy pointed out. Money can only be a symbolic representation of real goods and services on offer. Money cannot cause resources to exist where there are none. What it can do is mobilize those resources for the social good.

So,then, what is money? It's actually a representation of debt, specifically our debts to each other, our debts to government, and the bank's debt to you. In other words, money is an IOU.
It may be wondered in what sense government money is an IOU. What, in other words, is the government’s obligation or promise when it issues the currency? Among its obligations is the promise to accept its own money (IOU) back again in payment of taxes.

By way of analogy, suppose that your neighbor mows your lawn while you are away on holiday and you pay with a personal IOU. What you are doing is agreeing to accept back, in the future, your own IOU as payment for a service you will perform for your neighbor. .... So your promise, in issuing an IOU, is to accept it back at some later date in payment for services you agree to perform.

Similarly, the government pays for various services with its money (IOU). It uses its money to pay teachers, medical practitioners, police officers and many other types of workers for their labor services. .... The government undertakes to accept its own money (IOU) back from the community as payment for the provision of these goods and services.

It is the imposition and enforcement of the tax obligation that enables government to spend its money into the economy. Some people will be willing to work for the government in the public sector to obtain the currency. Businesses will be willing to supply goods and services to the government in exchange for the currency. Others with tax obligations will be willing to transact with public servants and businesses or work in the private sector to obtain the currency.

The tax obligation is far from the only reason that we are prepared to accept the national currency. But it is the basis of our need to obtain it. Once this basic need is created, even people who pay no taxes will be willing to accept the currency, because of the established demand for it. And, for convenience, we will use the currency for much more than just paying our taxes. Once a demand for the currency is established, it is safe and convenient for buying and selling as well as for saving.
Indeed, most people throughout history had no forms of "saving." The concept was entirely foreign. For most of history, title to land and to buildings was the only form of permanent wealth. Some in ancient times were able to hoard some precious metals, which may be where the idea that there is some magic form of permanent and unchanging wealth came from. But even then you needed to exchange it for some sort of actual good like food or shelter, and if no one was willing to accept it, it has no value.

Speaking of land, here is a snippet from the Michael Hudson interview about the role that the value of land played in ancient societies:
In America down to the time of the Revolution in the 18th century, order to be a citizen and vote, you had to be a landowner. And all the way back in Rome and earlier times, Mesopotamia, Babylonia, Sumer, citizens had to have their own land. In Rome each citizen’s voting rights were defined by the land area he owned. I say “he” because only the males were citizens. It was a patriarchal society, with voting rights proportional to the size of one’s landholdings.

Much as today, debt was a major factor concentrating landholdings. Finance always has been the great lever to appropriate the land rent and interfere with widespread land ownership. If you owe money on a mortgage and you can’t pay, you can be evicted. That began to happen already around 2000 BC in Babylonia...One’s rank in the army down through Roman times was defined by how much land one had. If you had just a basic subsistence plot, you were in the infantry. If you had a lot of land, you were able to support yourself in leisure, have a horse and participate in the cavalry, practicing military training and buying your armour and weapons. You find much the same thing in Japan. All over the world, citizenship, landownership and one’s rank in the army were linked together.
Now, it is the poor who are driven via economic necessity into the army. But we may be crushing them too well: many of the poor are rejected because of ill mental and physical health. Perhaps that's behind the drive for military robots. Plus, robots don't disobey orders or turn on their masters. It's an oligarch's dream come true. The need for soldiers has driven the lot of the ordinary person throughout history - countries with citizen soldiers have typically been more equitable, as Ian Welsh points out: The Technology of Violence and its effect on prosperity and freedom (Ian

People without land were most likely laborers, slaves, merchants and vagabonds. The reason people without land weren't in the army was because they had no real incentive to. Why, if they didn't own anything? There was no real concept such as "patriotism" or "nationalism." (although there was ethnic solidarity). Who cares if the new rulers took over; you might even get a better deal. Maybe they'll forgive the debts or give people some jobs working on their victory monuments. Maybe they'll redistribute land. So it was the landholders who had to fight, because land is what they were defending after all. That's very different from the post-French Revolution national armies of today motivated by notions of nationalism and patriotism.

It's interesting to note that as wealth consolidated in the hands of a few rich and more people became rootless urban proletariat and day laborers, the Roman Empire turned to mercenaries to police itself (sound familiar?). People used to our modern notions of fighting for "the love of one's country" are often surprised at hearing how the Roman army ended up being staffed by the very same Germanic peoples it was supposedly fighting against. But in those days, if you were a warrior, you fought for pay, not some nebulous idea of patriotism. The analogy here is professional athletes. No one on the Packers is playing for their deep, abiding love for the city of Green Bay (none of them are from there anyway). They are playing, often against former teammates, for money. In the past, warriors were professionals, just like today's athletes.

Back to the main article.
Banks also create their own money. This is in the form of deposits. A deposit is a bank’s IOU to convert bank money into currency (government money) at a deposit holder’s request, either on demand or after some duration of time. Most definitions of money include checking accounts, sometimes called demand deposits. These are bank deposits that can be converted into government money whenever the account holder demands it. When we use EFTPOS to direct a bank to transfer funds from our account to the account of a business in exchange for goods and services, we are making use of deposit money.

Banks are in a special relationship with government. They are required to convert deposits to government money in the form of hard currency (notes and coins) at par. In most countries, demand deposits are guaranteed through government provision of deposit insurance. It is possible for government to provide such a guarantee because of the central bank’s unlimited capacity to act as lender of last resort. Whenever banks find themselves short of currency, they can always borrow it from the central bank on terms specified by the central bank.
So a bank converts your savings into the government's currency at the current value. If it is short, it borrows that currency from the government's central bank. The interest rate at which it can borrow from the central bank is the Federal funds interest rate that we hear so much about. By keeping the rates low, the Federal Reserve stimulates money creation (monetarism). Those low rates mean more money, meaning more inflation, which is why the chairman of the Fed, who makes those decisions, is such a polarizing figure.

Thus, we see usury drives the system.
The requirement to convert at par in combination with the protection to account holders provided by deposit insurance ensures that $1 of deposit money is in most respects equivalent to $1 of government money. Since we have a need for government money, and bank money is “as good as currency”, we will readily accept bank money as well.

There is another important aspect of the relationship between commercial banks and government. Banks are required to hold accounts with the central bank (the government’s monetary agent). These accounts hold a special kind of government money called reserves. The accounts themselves are referred to as reserve accounts. The general public (referred to as the non-bank public) has no direct access to reserves. Only banks do. Banks can only use them for transactions among themselves and with the central bank.

Reserve balances play a key role in the monetary system because they are required for final settlement of transactions, including our transactions with government. Although we usually pay taxes and buy goods and services with bank money, final settlement only occurs once the central bank has adjusted reserve accounts to eliminate claims of banks on each other. At the end of any given day, some banks will owe others as a result of transactions occurring during the day. The central bank will need to delete reserves from the accounts of some banks and mark up the reserve accounts of other banks.

Since final settlement of transactions must occur in government money (reserves), banks must have access to sufficient reserve balances on our behalf. The banks need reserves for settlement purposes and we need the banks because the government gives them access to reserves.
Money Interpreted as an IOU (heteconomist)

An IOU is a form of debt. As soon as you engage in a financial transaction, that is, as soon as any economic activity takes place whatsoever, someone is in debt to some else. That debt is represented as money, and money circulates through the economy as symbolic of all our debts. That's why, as David Graeber pointed out, we cannot have an economy free of debt, because then there would be no money, and no economic activity would take place. Furthermore, as he also pointed out, the amount of money is not limited by some arbitrary standard such as a debt ceiling, bit by the amount of people who wish to borrow.
When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What's more, insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity. Since the beginning of the recession, the US and British central banks have reduced that cost to almost nothing.
What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this ... So there's no question of public spending "crowding out" private investment. It's exactly the opposite.

Why did the Bank of England suddenly admit all this? Well, one reason is because it's obviously true...But politically, this is taking an enormous risk. Just consider what might happen if mortgage holders realised the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it....
The truth is out: money is just an IOU, and the banks are rolling in it (Guardian)

So the "national debt" is money we owe to ourselves. The portion we owe to foreigners would never be called in because it would screw over their own economies:
The treasuries-as-financial-weapon-of-mass-destruction theory goes something like this: China currently holds more than $1 trillion worth of U.S. government bonds, equal to about 20 percent of all treasury debt owned by foreigners. If one day the Communist Party leadership felt like starting some havoc, or just simply lost confidence in Washington’s ability to or desire to repay its obligations, it could liquidate that stash, driving down treasury values and forcing the U.S. government to offer sky-high interest in order to borrow (as treasury prices go down, rates go up).
Now here's what's going on in the news: After accidentally terrifying investors this summer by slightly devaluing its currency without warning, China has been trying to prevent the yuan from collapsing even further against the dollar by, well, selling off treasuries. The way this works is simple. The country’s central bank unloads some its bond holdings for dollars, then it uses said dollars to buy yuan, thereby pushing down the value of the greenback and pushing up the redback. In August, it reportedly spent about $120 billion to $130 billion intervening this way. At first, there was some worry that all this selling might indeed end up sending U.S. interest rates higher, acting as a sort of reverse monetary stimulus. But the bond markets seem to have largely reacted with a big ¯\_(ツ)_/¯, largely because the treasury market is enormous, and with the global economy in a shaky spot, there are ample buyers out there looking to purchase American government debt as a relatively safe place to put their money.
All of this drives home a very simple point that people who worry about our debt to China tend to overlook: Buying and selling treasuries is how Beijing manages its delicate exchange rate, which is essential to keeping the country’s all-important exports flowing. And if it were to actually dump enough of its treasury holdings to cause trouble, the likely end result would be a less valuable U.S. dollar, which would mean fewer Americans buying goods made in China. That would especially be the case if the U.S. Federal Reserve responded by printing money to buy up whatever bonds China sold in order to keep interest rates from jumping, which in this extended hypothetical, is a pretty likely scenario. Beijing would be cutting off its nose to spite its face, which isn’t typically how one subjugates a geopolitical rival.
Beijing Is Showing Us Exactly Why America’s Debt to China Isn’t a Problem (Slate)

So we see that right wing economics coalesces around three fundamental canards. The first is that debt is bad and that government should be run "like a business" and carry zero debt, which is odd since I doubt there is any major business in the world that does not carry a significant amount of debt. Or, related, that the debt is perennially "out of control" and that our "grandchildren" will be in debt servitude paying it off. But as we've seen, out "grandchildren" are the creditors as well as the debtors, and debts due to ourselves can be renegotiated or eliminated. And that debt is our money - no debt, no money. Also, the government's going into surplus means that the private sector must be in debt by an equivalent amount thanks to sectoral balances. Government can't be run like a business because it is the sum total of all businesses in the country, which must balance out.

The idea that the government is "broke" is absurd, as the government is the source of our money. If the government were broke there would be no money and no economy. Also, the idea that we can be bankrupt is absurd--the U.S is a sovereign government, not a business. What would it even mean to be bankrupt? The U.S. can only default on its debt. The only time that we have come close to that is the Republicans' refusal to raise the artificial debt ceiling.

The government can mint coins debt-free. This was the idea of "creating" a trillion dollars of debt-free money by the government mining a trillion-dollar platinum coin and giving it to itself by crediting its account. But we shouldn't have to go through these shenanigans. Our financial system needs an overhaul.

The second is that going into debt is bad because we need to borrow from foreigners. But this is generally due to trade deficits. Foreigners selling more to us than we do to them means they have a surplus of dollars, and they use this to buy treasuries. Yet we're simultaneously told that free trade is good and protectionism is bad. These are contradictory. Since we cant all run trade surpluses at the same time (unless we export to Mars or something), there will always be some countries in deficit, and some in surplus. This leads to a net outflow of dollars. These extra dollars must be accounted for, and bonds are how we do that.  We also see that if foreigners sell their debt, it will mean their currency becomes more valuable and ours less so. This will decrease their exports (which is how they got the surplus in the first place), and increase our exports (which will mean more exports and less of an outflow of dollars). So this buying and selling of national debt is really a factor of trade that self-balances. Yet it's constantly used as a scare tactic.

The third is the gold standard, which is getting some attention since several Republican presidential candidates advocate its return. Ads to buy gold are a standard of right-wing websites, radio programs, and hucksters like Glenn Beck. They are all based on fomenting a distrust of government institutions, which is a key part of the well-funded right-wing playbook. But as we've seen, money is debt and credit, and has been since its inception. Commodity money is an accident of history. Gold is just as variable as currency and has no "set" value. Historically, countries with commodity money have been less prosperous and more in hock to the authorities than those without, as we've seen. This is because that commodity is typically owned by the rich and the state (e.g. Fort Knox). By contrast, credit money can be created by anyone willing to accept an IOU. Credit money eliminates the artificial scarcity imposed by commodity money.
...Bretton Woods gave multiple currencies fixed but adjustable rates. Nations now had precisely the freedom the gold standard denied them, to use monetary policy to regulate their economies. (The United States dollar had a nominal value in gold of $35 an ounce but the country was not obliged to set monetary policy according to how much gold it had.)

Mr. [Ted] Cruz correctly notes that the world economy enjoyed decades of prosperity under Bretton Woods, but that happened without a gold standard, not because of one. Why is a discredited policy now attractive to Republicans? The gold standard suits a political moment. Tying the dollar to an arbitrary quantity of shiny metal binds policy makers’ hands, robbing them of their discretion to act: The central bank can’t adjust the money supply to counteract crises or prevent them. These limits, for many Republicans, are good things. The gold standard is essentially the monetary equivalent of a government shutdown.
Why Republicans Love the Gold Standard (New York Times)

By creating an artificial constraint on the government's money spending, it allows the wealthy to have more control.

In the Peak Oil Doomosphere, the gold standard was all the rage a few years back. Why was this right-wing policy advocated by so many peak oilers? My guess is 1.) If the government was lying about oil, surely it must by lying about financial matters. It comes from a (justified) mistrust of government institutions. But I think the real key is this:
Gold as currency has obvious problems. First, there is relatively little of it while there are more people and goods all the time. So in the long term, the gold standard exerts a downward pressure on prices as money becomes relatively tighter and its value increases. If prices continue to decline, people are less likely to spend their money. After all, if you believe that the price of, say, shirts will continue to drop, you’ll delay splurging on haberdashery.
Peak Oilers are opposed to the massive overconsumption of the the earth's resources, and believe that the gold standard will constrain the printing of money and reduce economic expansion. They believe that "printing money" allows government to produce the inflation which feeds the consumerist economy, and the gold standard will put a stop to it. By contrast, if goods and services are worth less over time (deflation), people will spend less and save more, and this is more moral. They see the gold standard as ushering in a "'hairshirt economy," which will throttle the grotesque overconsumption of Americans. Furthermore, a gold standard is in line with a shrinking economy. If you believe the goods and services the economy produces will inevitably shrink due to peak oil, you know that printing more dollars is counterproductive and will cause inflation and must be stopped.

I get the sentiment. It stands in contrast into the idea that we must expand every year or else. But I think this view is misguided and simplistic. Public provision of resources is the key to eliminating useless overconsumption. Public provision of resources assumes the government does not have artificial constraints, particularly those imposed by the rich and powerful. Note that Europe, with its universal healthcare, government-provided housing, reliable public transportation and free education uses a tiny fraction of the energy used in the U.S. per capita, with a higher quality of life. That's not a coincidence. High consumption taxes are a better solution. Remember, taxes are not needed to fund the government, so we can tax what we want less of. How about 100% percent marginal tax rates over 50 million dollars (which would mean that no one would have more than 50 million dollars)? How about high taxes on shitty food like corn syrup? How about high taxes on people who pollute? How about a carbon tax? All of these are subsidies for what we do want (more equality, healthier food, non-carbon energy sources).

Taking back our institutions, not hamstringing them, is the key to successful degrowth. Otherwise you just create poverty and misery, which breeds right-wing sentiment, not environmental awareness. Hurting people vote for demagogues, as we're seeing right now in America and elsewhere. Believe me, the rich and powerful would not be supporting the gold standard unless they think it will make them wealthier (and you poorer and more desperate).

And finally, there is this good summary of financialization. It's a bit long, but it's a terrific summary of the transformation of the economy due to financialization:
Now, what is this financialization?...It’s a profound historical transformation that really began in the 1970s, and it’s now been running for about four decades.

So let me start with economic changes, the economic foundations of this transformation. I think there are three key root changes here...The first, funnily enough, doesn’t relate to finance itself, but it relates to industry and commerce...So what has happened to big business in particular?...First, big business has become increasingly capable of financing investment out of retained earnings. It retains its profits, and on a net basis it finances investment pretty much out of that. Of course, it still uses banks, but it doesn’t rely on banks on a net basis to finance investment. That gives it independence, a certain degree of independence from banks.

In addition to that, big business has made so much in retained profits–currently U.S. big business is sitting on piles of cash. It has made so much in retained profits that it can use those funds to play financial games, to engage in financial transactions and financial activities on its own account. So big business has financialized...Large enterprises have acquired some of the character of financial institutions, have become bank-like, and they engage in these transactions, and they change the structure of their own organization as they do that.

Second economic change, and very, very important, too, relates to banks. If big businesses is doing that, banks must do something else to make profit. Banks are profit-making institutions. So if big business becomes increasingly independent of banks, banks must do something else...They lend less to businesses for investment and so on, and they play more games in the financial markets. They become transactors in financial assets, and they make profits increasingly not from lending but from fees, commissions, and trading. They become traders in financial assets.

The third change has to do with households, workers, ordinary people...have become a very profitable activity of banks, a new activity...And what we see there in the last three to four decades is that ordinary people have been drawn into the former financial system like never before. Households have become financialized. Finance has become a fundamental part of household life...
Why is that? Partly because wages have been stagnant. And therefore–I mean, nowhere more stagnant than in this country. I mean, real wages have been absolutely flat in this country for decades. So partly because of that, people have turned to debt. But also people have got assets, financial assets...What is actually happening there, I think, is not simply that you borrow in order to consume. ... It’s a more complex story than that.

What is actually happening is people need access to health, education, housing, and a variety of other needs. Every country has systems of provision for these things. Each country differs from the next country, but pretty much there are similarities. These modes of provision have historically, traditionally, incorporated public provision, some methods of public provision, for everything–for housing, for health, for education, and so on. What we’ve witnessed the last three to four decades is a retreat of public provision. ...Private provision has taken its place. As this is happened, finance has emerged as the facilitator of that. So we turn to private provision to solve our housing needs, our health needs, our education needs, and finance makes profits out of that, basically, without having any skills in doing these things...

So non-financials have financialized, banks have changed, and households have been drawn into the financial system. These changes together have basically transformed the economy, transformed the foundations of the economy. This is a new type of capitalism.

At the same time, we’ve had changes in institutions and in ideology...We’ve had wave after wave of deregulation. Labor market has become more deregulated, and financial markets have become more deregulated.

And in addition to deregulation what we’ve had is the rise of the ideology of neoliberalism. Deregulation goes hand in hand with neoliberalism, the idea that the market is good, the state is bad. In this country, this is a very powerfully held idea, more powerfully here than anywhere else. Actually, it’s extraordinary how powerful this perception is and how a lot of social issues are understood in this way.

The point I want to make you is that neoliberalism is very, very powerful and sustains financialization, but neoliberalism is not really about asserting the merits of the market over the state. Actually, it’s more complex than that and it’s more crafty than that, because neoliberals are not the enemies of the state. Neoliberals want to take over the state. The actual content of neoliberal ideology is to take over the state and to use the state to protect the market, to make the market bigger, to effect market-favoring, market-conducive changes. So this has also been going on the last three to four decades. And that to me is the core of financialization.

So what have we got after four decades of this? These changes, seen very clearly in the United States, have created, firstly, a deeply unequal country, a deeply unequal society. Financialization is fundamentally about inequality. We see this inequality in terms of income, where the top 10 percent and the top 1 percent draw an extraordinary proportion of income annually. But we see it in terms of the functional distribution, the distribution of income between capital and labor, where labor has lost–and lost dramatically–during the last three to four decades in this country and in just about every other mature capitalist country that has financialized.

So this is a deeply unequal system. It generates inequality. Finance has acted as a key lever in increasing it inequality....And the rich in this country and elsewhere typically become rich through financial methods; the way in which you acquire great wealth and you cream off the surplus is basically through financial methods, through access to financial assets, privileged ways of trading financial assets, and privileged position in of the financial system that allows you to extract vast returns, which appear as salaries and wages, in other words, remuneration for labor. Come on. What kind of remuneration for labor is this allows someone to draw tens of millions of dollars annually? For what kind of labor? This isn’t labor. This is a kind of rent, this is a kind of surplus accruing because of power and position in the financial system or access to finance. And that is typical of financialization in this country and elsewhere.
The Financialization of Life (Naked Capitalism) The consequences of financialization were that indebtedness grew much faster than the ability to repay. The economy grew at 5 percent, wages went nowhere, and credit grew by fifteen percent! The same wages go less far because so much of it has to go to pay off debt.
Adair Turner: If you look back at the story of advanced economies over the 20 years before 2007, you see an interesting pattern. During that period, the total value of national income — what economists call “nominal GDP,” meaning income unadjusted for inflation —grew at about 5 percent per year in a reasonably steady fashion...Yet during all of that time, the value of all credit, unadjusted for inflation, grew at about 10 to 15 percent per year. At the time, it seemed like we needed that pace of credit growth, but when you think about it, if your credit is going to grow at 10-15 percent per year in order to get your 5 percent GDP growth per year, eventually you’re going to have a problem. This isn’t a stable system. In my view, one of the reasons that it seemed that credit had to grow faster than total income was rising inequality.

The richer people, when they get another $100,000, or another million, or 10 million, don’t tend to spend it as much as the poorer people would if they got another $100 or $1,000 or $5,000. All the empirical evidence suggests that the rich tend to consume a lower proportion of income than middle and lower-income people. So rising inequality can lead to a major problem with the demand for goods and services. The rich aren’t spending their additional money, so overall, more money gets taken out of the economy. Unless the richer people decide to invest their money, there would be a slowdown in the economy. This idea goes back to economists like John Maynard Keynes and Alvin Hansen.

But before 2007, we didn’t have a slowdown. Instead, the savings of the rich ended up going through the financial system and being lent to middle and lower-income people, who had 30 years of no real income increase whatsoever. The figures for the U.S. are really quite startling. If you look at the bottom 20 or 25 percent of the population, their real wages haven’t gone up for about 35 years! Meanwhile, the incomes of the top 1 percent have gone up 200 percent. This is a dramatic increase. The savings at the top have to go somewhere. At the bottom, there is a group of people who don’t feel that they’re participating in the growing prosperity, so they become very vulnerable to the delusion that if they borrow the money and buy a house, they’ll make up for their lack of real wages by house prices always going up.
To Fix Inequality and Steady the Economy, Think Radically (Naked Capitalism) David Graeber also points out that in order to grow the money supply, debt has to be psuehd onto those least able to afford it:
At the moment, Conservative policy is to create a housing bubble. Inflated housing prices create a boom in construction and that makes it look as if the economy is growing. But it can only be paid for by saddling homeowners with more and more mortgage debt...This takes us right back to exactly where we were right before the 2008 mortgage crisis. Do you really think the results will be any different?

But something along these lines has to happen when the government runs a surplus. Everyone will just keep pushing the debt on to those least able to pay it, until the whole thing collapses like a house of cards: just like it did in 2008.
Britain is heading for another 2008 crash: here’s why (Guardian)

So we see that the money from tax cuts gets plowed into financialization rather than innovation (which doesn't pay, because people are too poor to pay for innovative products). High marginal tax rates make it more likely for institutions to reinvest profits back in the company rather than engage in profit-taking, since money put back into the company is not taxed. Low taxes encourage looting. As I noted, companies rely on credit card debts to make profits, rather than providing high-quality goods and services at a fair price. This what capitalism is now.

And the lack of public provisioning means people turn to the banks. They turn to credit cards to fix their lack of wage increases. They turn to banks to fund their college debt because education is no longer free. They turn to auto loans because we don't have good, reliable public transportation. They turn to home loans because school funding is based on your local zip code. American companies don't need a prosperous middle class to buy from them anymore, so they don't care if it exists or not. They already have their hands in our pockets because we are permanently in debt. Or they control entire markets due to monopoly. We have no choice but to pay, or be locked up. Again, this is what capitalism is now.

Public provision is what they fear. That's why they are always claiming "the government can't create jobs" (er, the army is what, again?) and thing like Social Security and Medicare spending are "out of control" (but not military spending). That's why they decry "socialism." They want people poor and desperate so they have no alternatives but to take any jobs on offer, that is, it's a way of suppressing wages. They don't want the government bidding up wages by job creation, or providing welfare or unemployment insurance thus giving people a cushion to hold out for better opportunities.

Once you see which economic policies play into the hands of the one percent, and  which ones don't you see the economy in a different light. Our situation is not inevitable, like the economy, it is a social arrangement, and entirely a matter of choice. If we are suffering, it is because we choose to do so. The means to rectify this exist, if only we could implement them.

Saturday, November 7, 2015

The Rise of States, Inequality, and Economics - conclusion

So what have we learned during our tour of history of how societies went from egalitarian hunter-gatherer bands to complex societies where most people labor under coercion to support the lavish lifestyles of a small group of elites? We've looked at the role money and markets have played in this transformation. When personal, reciprocal relationships could not longer be supported due to population growth, we turned to "keeping score" of our debts with clay, and later, paper. Personal relationships receded in favor of abstract systems. Inequality emerged through the institution of private ownership. Those at the top used their power to organize the labor of others and used their access to specialized knowledge to establish a place of privilege and to funnel the fruits of that society to themselves. They used religion to construct narratives that justified their powers and created institutions such as the priesthood and kingship, along with impersonal bureaucracies.

We learned that the early formation of these systems was largely voluntary. The process began by voluntarily coming together in these societies and cooperatively building large stone monuments. These were connected with rituals and religious ideas that have been lost to the distant past (since they emerged before writing), but appear to be related to feasting rituals based on the movements of the sun and moon.

What this proves is that man was never "solitary and brutish," and that the idea that the state emerged by some sort of consensus to keep people from massacring each other isn't supported by evidence. Man has always lived in a social context ever since the emergence of our species.

We've seen that surpluses preceded population growth, not the other way around. It seems that we labored to produce surplus, and them plowed that surplus into more people. We did not turn to large-scale agriculture as a desperate measure to deal with population growth, at least not initially. However, once population growth did start because of this surplus, we were forced to engage in intensification, in particular the intensive cultivation of grains, originally a brunt against hardship and the feedstock for beer. We became dependent on the harvest, and constructed all sort of artificial means like extensive irrigation works and terraces to keep annual plants growing in the same place year after year. Nature abhors a surplus, and a constant battle began against famine, weeds, predators, drought, and soil depletion; a battle that was ultimately Pyrrhic and continues to this day. Agriculture became a process of backbreaking labor under the whip of a taskmaster. The more we intensified, the worse the lot of the average person became, and he more power the elites got. But by then it was too late to go back.

We learned that these religious ideas coalesced into temples, which became the nucleus of society. These temples formed the basis of redistribution, and it here that money first emerged as a way of keeping track of debt, and writing from money as a form of record keeping. In the early days, these temples must have smoothed over seasonal variations and eliminated poverty, much as they did in the Inca empire (who used knotted strings instead of writing on clay).

Eventually, those who redistributed surplus set themselves up as the rulers of society. This is a thread that emerges through human history. The institutions of debt and compound interest emerge at this time, in part to facilitate trade, along with chattel slavery. Since there is no limit on debt, debts always outgrow the ability to replay them. The wealthy take advantage of this, and use their differential access to wealth to put the rest of society in hock to them, distributing wealth upward away from the people who produce it. Eventually, this is used as a weapon, and periodic clean debt slates need to be proclaimed to keep societies from falling apart (which they occasionally do anyway). People fleeing from debt were a factor in the expansion of these farming/herding societies across the Mediterranean.

We've seen that once storable surpluses emerged, societies underwent a transformation everywhere, from the Pacific Northwest salmon-fishing cultures, to the wheat-and-barley cultures of the Middle East, to the rice-and-millet cultures of the Far East. Using examples of societies at various stages of development, we've gotten an idea of the steps taken along that road. We've seen that once this happened, for most people life got much worse. They were less healthy, they worked harder, and they fought more.

We've seen that once alternatives were cut off, people had no choice but to accept these changes. Certainly some fled, but these were culled from the gene pool as collectivist societies (which, make no mistake, all complex civilizations are), marched across the planet over millennia. Dependence on elites fostered forms of slavery everywhere these societies went. As they needed ever-more land to feed their growing population, they took it from neighboring peoples through violence and tribute, feeding a cycle of imperial expansion and collapse that can be seen in the historical record.

We also saw that the road to hell was paved with good intentions. Each step along the path was a natural, seemingly inevitable development that, when combined with creeping normalcy and shifting baselines, led to situation where the vast majority could be kept in thrall by the few. Along each step of the way, narratives were constructed that made the step seem like a logical development, and conformity was enforced.

There are a couple of fundamental characteristics of Homo sapiens that bring this about. One is that we are hierarchical - we naturally like to form hierarchies, as evidenced from our closest primate cousins. The key difference is, high-ranking primates do not have coercive powers and cannot force others to labor on their behalf. For this we need institutions (corporations, governments, kingship, police, military, etc.). We also seem to have an inherent need to follow, which I've argued has been enhanced over the course of civilization. Both sociopathic and authoritarian personalities were well suited to this new world order, and to the extent that these are determined genetically, those genes propagated much more after the rise of civilization than before it, while the number of refuseniks dwindled.

During our long term as foragers, we developed systems to keep aggrandizing personalities in check; see this: Ayn Rand versus the Pygmies:
At an impromptu trial, Cephu defended himself with arguments for individual initiative and personal responsibility. “He felt he deserved a better place in the line of nets,” Turnbull wrote. “After all, was he not an important man, a chief, in fact, of his own band?” But if that were the case, replied a respected member of the camp, Cephu should leave and never return. The Mbuti have no chiefs, they are a society of equals in which redistribution governs everyone’s livelihood. The rest of the camp sat in silent agreement.
However, it is possible that this was actually an aberration - that once we gained control of weapons, we could enforce an equal balance of power, but once weapons became more sophisticated (chariots, cavalry, tanks), we reverted to type. That the thesis of this piece, which argues that our love of inequality actually predates such societies.
If Boehm is right, it is the egalitarianism of hunter-gatherers that is unusual from an evolutionary point of view, a mere phase between the dominance hierarchies of our primate inheritance and the social inequality brought on by the advent of farming. Far from being our natural state, the low levels of inequality in bands of hunter-gatherers might be a fragile achievement resulting from a certain stage of military technology, a temporary truce among creatures who are innately predisposed to hierarchical arrangements.
The evolution of inequality (Aeon)

It's worth noting that in societies where access to the means of force were relatively equal, like the Greek Hoplites or the early arrival of guns and mass conscription, societies were more equal. Where the means of force were concentrated in elite hands, like chariot warfare, stirrup-riding mounted cavalry, or high-tech engine-based weapons, those societies were more unequal. Technology can either enhance elite power, or reduce it, depending on how democratic the means of producing it are.

A number of experiments have shown that in games where players start out exactly equal, blind, random chance will produce unequal outcomes. Once these inequalities are present, those with the most can parlay them into even greater advantages, while those who stumble early on fall farther and farther behind. This is the Law of Cumulative Advantage (aka the Matthew Effect). Furthermore, the behavior of the "winners" actually changes to become more aggressive and arrogant over time in line with their winnings. Then they construct narratives to rationalize and justify their wealth, centered around the "just-world theory." They argue that they are morally superior, harder-working, etc., and that losers are lazy, inferior, etc.

The second is, we believe in concepts of reciprocity and fairness. If someone accepts a gift, they feel and obligation to repay the debt, without any sort of compulsion. We believe this is the "moral" thing to do. Unfortunately, inequality coupled with this impulse leads to debt slavery. If the rich simply took the wealth of society for themselves, we would perceive this as unfair, but since we are "paying our debts," we are tricked into believing this is fair.

Control of surplus and control of debt are the twin engines of inequality.

It cannot be overemphasized how much narrative plays in all this. If people see the "big man," whether a enthusiastic elder or a CEO as superior, they are likely to defer. If they see systems like hereditary kingship, absentee ownership, and financial gambling as legitimate, they are likely to defend the system, including via the use of violence against others. The more credulous the populace, the more easily they accept such narratives, which might explain the fact that highly religious societies are always more unequal and less developed, while less religious societies are more egalitarian, more equal, and more developed. Religious people seem more likely to accept inequality and defer to the existing power structures, as Marx noted, while rabble-rousers tend toward skepticism and atheism.

What strikes me is that, while the birth of extreme inequality is lost to the mists of time, it is very similar to what we've experienced over just a few decades in contemporary America. While we're an industrial society of millions of people, with institutions and built-in inequality, nonetheless we've went from a much more equal society to much more unequal one, yet no one seems to be able to do anything about it besides complain. People just shrug their shoulders and accept it. Inequality has risen to absurd levels, yet millions still accept the stories spun to justify it. And we see the construction of narratives by the winners to justify their position - the entire discipline of "economics" is an exercise in this, along with more absurd narratives such as Ayn Rand's brand of Libertarianism which portrays the wealth of society as emanating exclusively from a small core of elite "rainmakers" with the rest of use as useless parasites.  The wealthy are portrayed as having "earned" every penny, no matter how they got it. Outrage against the excesses of the wealthy, no matter how legitimate, is portrayed as mere "envy." Such attitudes are constantly reinforced by the media which is owned by those same wealthy.

Just in our lifetimes, student debt has been used to enslave huge numbers of our most intelligent citizens. Outrageous sums are just accepted as normal, even though virtually free college existed within our lifetimes (and still does overseas). Elites have shrunk incomes and extended credit (at very high interest rates) to make up the difference. You can't shop at a major department store without having the cashier try to shove a credit card offer down your throat (they are forced to do this). Cash-strapped governments have turned to entrapment to make up for budget shortfalls, victimizing the poorest members of society while cutting services. Backdoor debtors prisons have made a comeback. Prisons have become a massive profit center and a source of labor (enslavement for a criminal offense is legal under the U.S. Constitution). Schools prey on the desperation of the musical-chairs job market, forcing people to mortgage their future in a scramble for the few remaining jobs that still pay enough to live on. A new enclosure movement is selling off the commons to privateers. All of this is justified by "efficient markets," and its mirror image, "inefficient government." And all of this has taken place just in the span of few decades!

We need a third way too - control not of government or elites, but from the people who actually create value. This can take the form of worker self-directed enterprises, cooperatives, and peer to peer networks. Participatory economics and local economies offer ways to keep money circulating in the hands of those who create value, rather than the corporate octopus which sucks wealth into distant profit centers like Manhattan, Hollywood, Cupertino, and Bentonville, Arkansas.

Lessons Learned

One thing we learned is that population growth strengthens elite control. It has done so since ancient China, Mesopotamia and Mesoamerica. We can see why the leaders of these societies always pursue natalist policies - it enhances their power. To this day, we see it argued that growth must be pursued at all costs in these societies, and population decline is portrayed as a crisis. Since wealth is distributed upward, more growth leads to ever more luxury for the elites, who will command the best of everything, with less to go around for the average person, leading to lower living standards.

This is common-sense. Give a birthday cake to a class of four students and a class of twenty. Each student in the former probably wont even be able to finish their portion. In the latter some may go away wanting more. The pseudoscience of economics has us convinced that the pie can grow forever ("make the pie higher"), but this is nonsense.

As we've seen from the historical record that population shrinkage has been associated with less power for elites and more for the average person, as in the Black Death in Europe. This translates into higher living standards for the average person. This is why they they don't what it to happen. China's long history of famines shows what happens when you are always pushing up to the edge of  subsistence. China never had an outlet, Europe did. I think that is a crucial difference. Note also that Tokugawa Japan is one of the few societies to pursue population control and environmental conservation, and they produced a society of great artistic achievement and little conflict. They even successfully banned guns and regulated trade before being opened up by force.

In a society where population is growing, each individual matters less. That is, the value of each individual life is diluted, not enhanced. Such societies insist that natalist policies are part of a "culture of life." It is exactly the opposite.

We've also seen that once people can not flee, they are forced to submit. The people in power are always trying to cut off places to flee. That could be the enclosure movement, or banning sleeping on the streets and camping on public land. The powerful don't want us to be able to have alternatives.

I'm convinced that the Enlightenment happened in Europe because people could finally flee to places free of kings, lords and masters. The people of Europe saw examples of societies with radically different social system for the first time. This gave them a freedom that they did not have before, and this led to the ideas we now call the Enlightenment. But--and this is crucial--once those places to flee are cut off, all of that could be reversed. That is, the Enlightenment is not necessarily a permanent development in the human condition, even though people like Steven Pinker insist that it is. We could easily lose it, and that appears to be happening. Slowly, yes, but as we saw, changes unfold over many human lifetimes, and creeping normalcy is hard to stop when combined with shifting baselines. It's worth noting that America transformed once the frontier was closed. It was at that point that the inequalities of the Gilded age reached a boiling point. That's not a coincidence.

Elites always do their best to create a condition where people can no longer fend for themselves and become dependent on the system. They want us to be "domesticated" like cows or sheep. Herd animals are easier to control, as even early rulers must have noticed.

We also see that intensification is a dead end! How people can not perceive the difference between genuine innovation and intensification is beyond me. Growing meat in a Petri dish, building skyscrapers to grow salad, aquaponically farming fish in artificial lakes, trolling the sea floor for antibiotics, harnessing every spare joule of waste heat, insect ranching and mining asteroids are measures of desperation, not prosperity! Yet because these things use technology in a novel way, we are told they are great innovations and testimonies to how clever we are and how we can solve any problem. They are really testimonies to how badly we've fucked everything up and how much our backs are against the wall.

We've seen that intensification leads to one road - poverty for the few and more power for those who supervise the intensification. They use their position to enhance their wealth and status, and then create institutions that pass this wealth and status along to the next generation, creating inequality of outcomes that persists for generation after generation. Instead of the natural wealth available for all, we become dependent on artificial substitutes controlled by corporations. We eat our laboratory-grown meat, drink our Soylent shakes, eat genetically-modified corn, drink desalinated seawater from Nestle, live in our superinsulated boxes or human anthills, and install air filters to keep the outside air breathable. And this is all considered "progress" because it adds to GDP!

We've seen the ratchet effect - with every step up the ladder we kick out the rung beneath us. We assume we will never reach the top rung. But every society has, as we've seen from the historical record. We will reach it too. Intensification and the ratchet effect work in tandem to push us into a progress trap - a situation where progress leads to downfall. We must pull back from the edge.

We also need to get over the idea that elites are somehow special. We've seen how "big men" are able to gain power. We're currently in a phase where big men are transforming into an aristocracy based on wealth. We must not allow this to happen.

We also see the disadvantages of bigness that Leopold Kohr warned us about. Once a threshold is passed, elites gain ever more control and the public has less of a say in the direction of society. Compare a  local city election to the current U.S. presidential charade. Compare Iceland's approach to bankers with America's. Compare the lifestyles of the U.S. President to that of Uruguay's. Compare sovereign control of money as in Japan and Australia, to control by multinational banks as in Greece, Ireland, and Puerto Rico. The closer people are to their representatives and political institutions, the greater control they have over them. And control over that governments should coincide with control over the money. If money is controlled by others with no democratic leverage, impoverishment of the masses results.

Over the course of the twentieth century, bankers did everything in their power to keep control of money out of the hands of government. To accomplish this, they promoted the "irresponsible government" meme - government will just print money to please its constituents leading to out-of-control inflation, but bankers are sober and rational and can be trusted.  But this is illogical - it is the government's taxation that gives money value. Money and banks are national institutions - they should, nay must, be under control of the public.
I have claimed that the public’s money must remain in public hands. But what do I mean when I call a monetary system – such as the US dollar system – “the public’s money”?

I don’t mean that each and every dollar literally belongs to the public as public property. The United States government is ultimately responsible for the oversight of the monetary system and the ongoing creation of new dollars. But as dollars are created they are exchanged for goods and services, and thereby become the property of the individuals who produce those goods and services.

Nor do I mean that each and every dollar that is created comes into existence as a direct consequence of some act of public or governmental choice. Clearly this is not the case. The main force driving the creation of dollars is the banking system. Banks bring new dollars into existence by making loans that support the economic activity of businesses and individuals in the real economy. These loans expand the total sum of bank deposits, and bank deposits are properly regarded as one form of money. Money in a more restricted sense – physical currency and bank reserves – primarily comes into existence only after the fact in conformity with central bank policies that accommodate the desires of ordinary banks and their customers to expand bank deposits.

But the dollar is the public’s money because the dollar system is the monetary system that US citizens, by right, control. Constitutionally, the people of the United States are sovereign over their government, and the power over the US money supply is vested in Congress, the political branch closest to the people. The bureaucratic engine of dollar control – the Federal Reserve System – was created by an act of Congress and possesses all of its monetary powers by delegation of Congressional authority. Congress and the Fed set the rules for the banking system, and thus govern the processes through which new dollars are created and existing dollars are destroyed. The US government can thus be viewed as a monopoly producer of the dollar, even though it has delegated operational responsibility for those monopoly powers to the Fed. And private sector banking plays the large role it does only because some of the government’s monopoly power has been chartered out to the banks, presumably to fulfill a public purpose.

And yet, there is good reason to believe that the public’s monetary system is broken, and that the public purposes for which it is supposed to exist are being thwarted. As we can now clearly see, banks and other financial institutions blew up a vast speculative bubble of financial products leading up to the crash in 2008, a bubble filled with airy, foolish and fraudulent promises leveraged and re-packaged many times over. The Fed did nothing to prevent this international-scale Ponzi scheme from unfolding, and we are all now dealing with the financial carnage that resulted. And, as I will argue, the powerful monetary tools that could now be deployed to restore full employment and prosperity are locked up in an outdated and elitist system designed more to protect the reckless financial institutions that caused the disaster than to serve the public that is paying the price of the disaster. This deeply undemocratic monetary system is still directly supervised by the Fed.
Public Money for Public Purpose: Toward the End of Plutocracy and the Triumph of Democracy (Naked Capitalism)

Money Lessons

We've seen that money is credit. Credit is the fundamental form of money, so there is no inherent scarcity. Money is credit.

David Graeber reflects on the dual nature of money:
Money has, for most of its history, been a strange hybrid entity that takes on aspects of both commodity (object) and credit (social relation.) What I think I’ve managed to add to that is the historical realization that while money has always been both, it swings back and forth – there are periods where credit is primary, and everyone adopts more or less Chartalist theories of money and others where cash tends to predominate and commodity theories of money instead come to the fore. We tend to forget that in, say, the Middle Ages, from France to China, Chartalism was just common sense: money was just a social convention; in practice, it was whatever the king was willing to accept in taxes. 
What is Debt? – An Interview with Economic Anthropologist David Graeber (Naked Capitalism)

We saw that periods of commodity money were associated with central states, war and slavery. Economic contraction as well - the gold standard contributed to the manias, panics and crashes from the Kipper und Wipperzeit, to the Banque General, to the Great Depression. Not that bubbles can't happen otherwise, from the Tulip Bubble to the contemporary housing bubble.

We've seen that when debts are owed the the collective, they can (and indeed must) be forgiven. If they are owed to private individuals, they are considered sacrosanct. The bankers demand their "pound of flesh."

We've seen that there is nothing "natural" about markets, and that they are always and everywhere an artificial creation sustained by institutions of our own creation. Laissez-faire was planned, as Karl Polanyi pointed out. But markets give power to the people with the most money, which is why the pseudoscience of economics has transformed into merely a justification of existing markets. They portray markets and usury as the fountainhead of all our prosperity, and not, for example, the compounding effects of innovation, a series of one-off developments like mass education and women entering the workforce, the exploitation of certain key technological breakthroughs like chemistry and electricity, population growth enabled by the same, or the harnessing of millions of years of solar energy stored in prehistoric plant matter. Because money can be quantified, they can use sophisticated equations to describe these artificial markets, and then claim to be the only valid social science because of the "rigor" and precision of those equations. Yet they ignore not only human psychology (paying lip-service via "behavioral economics"), but also the actual study of the real resources those prices describe!


Markets are but one way to coordinate human activity. Societies have operated without markets and have had many other ways of coordinating activity and distributing goods. The pseudoscience of economics is a propaganda exercise dedicated promoting markets as the only valid way of doing these things. This is because the rich and powerful control those markets.

And markets fail. Market anarchy has numerous companies all producing the same goods trying to drive one another from the field of battle via wasteful and deceptive marketing campaigns. Billions are spend on useless and wasteful competition. Deceitful campaigns encourage us to spend on trivial non-necessities by preying on our insecurities and desire for status. Markets naturally head toward monopoly without intervention, due to cumulative advantage and economies of scale. Markets are dependent upon externalities - they overproduce negative externalities and underproduce positive ones (since it is harder to capture monetary gains spread across the wider society). Gains are privatized while losses are socialized. In fact markets have all sort of perverse incentives - they encourage unemployment via their drive to efficiency, and yet insist that everyone not in the investor class work or starve. Any problems are written of by arguing that the market will somehow work it all out in the long run, as long as there is no human intervention. Since markets are dependent upon overproduction, they encourage both shoddy goods and planned obsolescence. Since capital is mobile and labor is not, it plays workers in every society against one other in a race to the bottom. Markets are easily gamed due to asymmetries of power and information access. They are based on "animal spirits;" on greed and fear, while claiming to be "rational."

Financial markets are not free – they're one of the last bastions of socialism (Guardian)

All of these downsides to markets are denied or hushed up by economics. Or, they are portrayed as minor aberrations in otherwise rational markets heading toward equilibrium. While market activity no doubt works on many levels, trusting all of society to the anarchic market is tearing society apart. Several commenters have warned of the dangers of suborning society to the market:
A market economy is a valuable tool for organizing productive activity. A market society, on the other hand, is a place where everything is up for sale, in which money and market values begin to dominate every aspect of life. From family and personal relationships to health, education, civic life, and politics. We need to step back and ask some fundamental questions about what the role of money and markets should be.

One severe danger of growing up in a thoroughly marketized society is that our identities as consumers crowd out our identities as citizens. If we think of ourselves only or primarily as consumers, then it becomes more and more difficult to demand a meaningful voice in shaping the collective destiny of society.

The idea that markets are natural forces rather than social institutions designed to serve certain purposes is mistaken. But it’s a deeply influential mistake. Markets are not ends in themselves and they are not forces of nature. What has happened in recent years is that we have forgotten that markets are tools.
The Dangers of Putting a Price on Everything (Vice)

Money is not a natural consequence of our desire to truck barter and exchange (exogenous). Markets and socialism are not in opposition, they are complimentary, as we've seen. Without a functioning society there is no Market, and yet markets alone cannot produce a functioning society. Market fundamentalism is just a technique to convince us that our impoverishment is "moral" and justified (hey, people in China are buying toasters!). As long as this malignant philosophy rules the day, we cannot make headway.

Removing all of this at a go is not feasible, or even desirable. But a few sensible policies may be in order based on our survey:

We need to get rid of policies that encourage population growth. This doesn't mean no one can reproduce, but it means that unlimited population growth is not desirable. Japan and Europe are leading the way here. Note also that these societies are also the world's most egalitarian. It is doubtful that this is a coincidence. Notice, though, that elites in these countries are getting worried, and rolling out policies aimed at reigniting population growth. China has ended its one child policy, and leaders in Europe are putting out all sort of carrots to breeders (extended time off, monetary subsidies, free child care, etc.)

By contrast, America, with it's vast chasms of inequality, promotes itself as a "culture of life," despite its rampant child poverty, substandard schools, overcrowded prisons and desperate ghettos. Note also the connection of baby fetishism to religion and authoritarian politics.

Redistribution is not a dirty word. Early societies all practiced redistribution on some level as a logical check to the law of cumulative advantage. Once elites can short-circuit redistributive policies, inequality takes off, and accelerates out of control. They couch this in the language of high morality: "It's MY money - I earned it!," or, 'They are stealing MY money!" Of course, they "earned" it via commanding the labor of others. Essentially they earned it via redistribution, just redistribution the OTHER way - up the chain. Wealth is produced by society yet hoarded by the few. This used to be common sense before the propaganda of economics became a quasi-religion and blinded us to the truth.

Money is a social arrangement. It is created collectively in order to accomplish the purposes of society, not for a tiny oligarchy to hoard. That is, we create money to mobilize resources and maintain social relations. Money is not a token in a game for the rich and powerful to play to see who can get the most points. Yet this is what it has become. And just like the "big men," the rich construct  narratives to justify this state of affairs. Religion played a role in this in the ancient world, just as it does today, with economics functioning as our secular modern religion; with the Market as our god, banks as our temples, and economists as our high priests.
This is what I mean by the fact that the economists have come to believe their own fictions. It is very strange stuff altogether. They build the models based on the a priori assumptions that they hold. Seemingly they then forget these assumptions. Then when they need an answer they consult the model which spits back at them what they already built into it. This output is then assumed to be Truth because it comes imbued with a sort of aura. In more practical, real-world sciences this has a name: its called GIGO which stands for Garbage-In, Garbage-Out. In more primitive societies this is similar to constructing altars to supposed oracles and then going to these altars to find out about the future, only to find a Truth that you yourself have already built into the altar. (For a more colloquial example think of when people read images into clouds).
Economists – An Anthropological View (Naked Capitalism)

We need to come up with other ways besides markets for distribution, especially the labor market. Letting the work we need to do to survive be determined by impersonal market forces is a recipe for social suicide. Karl Polanyi writes:
The crucial point is this: labor, land, and money are essential elements of industry; they also must be organized in markets; in fact, these markets form an absolutely vital part of the economic system. But labor, land, and money are obviously not commodities; the postulate that anything that is bought and sold must have been produced for sale is emphatically untrue in regard to them. In other words, according to the empirical definition of a commodity, they are not commodities. Labor is only another name for a human activity which goes with life itself, which in its turn is not produced for sale but for entirely different reasons, nor can that activity be detached from the rest of life, be stored or mobilized; land is only another name for nature, which is not produced by man; actual money, finally, is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance. None of them is produced for sale. The commodity description of labor, land, and money is entirely fictitious. 
Nevertheless, it is with the help of this fiction that the actual markets for labor, land, and money are organized; they are being actually bought and sold on the market; their demand and supply are real magnitudes; and any measures or policies that would inhibit the formation of such markets would ipso facto endanger the self regulation of the system. The commodity fiction, therefore, supplies a vital organizing principle in regard to the whole of society affecting almost all its institutions in the most varied way, namely, the principle according to which no arrangement or behavior should be allowed to exist that might prevent the actual functioning of the market mechanism on the lines of the commodity fiction. 
Now, in regard to labor, land, and money such a postulate cannot be upheld. To allow the market mechanism to be sole director of the fate of human beings and their natural environment, indeed, even of the amount and use of purchasing power, would result in the demolition of society. For the alleged commodity "labor power" cannot be shoved about, used indiscriminately, or even left unused, without affecting also the human individual who happens to be the bearer of this peculiar commodity. In disposing of a man's labor power the system would, incidentally, dispose of the physical, psychological, and moral entity "man" attached to that tag. Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation through vice, perversion, crime, and starvation. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts in primitive society. Undoubtedly, labor, land, and money markets are essential to a market economy. But no society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organization was protected against the ravages of this Satanic mill.
The Great Transformation, pp. 72-73

There should be a balance between public and private control. In my opinion, debt is too powerful a force to be left to private individuals. If the state did all the lending, the interest alone could pay for the costs of the state without any taxation! This could facilitate growth of socially necessary activities and new business ideas while keeping usury in check (central banks determine interest rates anyway). In cases where debt became too onerous it could be written down, since it is money we owe to each other, rather than a private banking oligarchy. Public banks have a proven track record of success, and they are less vulnerable to speculation and crisis. Money and banks are a public utility.

It is important to know that money is debt. therefore, we cannot have money expansion without expanding debt. This is a holdover from patrimonial states and double entry bookkeeping. And yet this debt is constantly used as a cudgel to strip society of its assets. I've mentioned the fact before that by lowering taxes, we are effectively borrowing from the rich instead of taxing them. And unlike taxation, the borrower is slave to the lender, as the Bible says. This is simply how the system is arranged. "Handbag economics" says that the government can just take a portion of what the "breadwinner" private sector produces, but in fact government, as the issuer of the currency, does not need to tax in order to spend. It needs to tax to prevent inflation and create a market for its own money.

We need debt free money. The national debt is simply a consequence of sectoral balances, as David Graeber points out:

Every government is in debt. To whom?

Every country's debt, mapped (Vox)

The global debt clock (Reddit)

We've seen that periods of credit money have been associated with local control and more freedom. That is, when the elites can impose scarcity on the rest of society, they have more control. This can be scarcity of food or scarcity of money. Elites can always go to the money window and get it as they please. They can use it to inflate their asset values. Meanwhile, the rest of us must "tighten our belts" and suffer austerity. This austerity can then be used to strip assets and bring resources under elite control. Or, cash-strapped governments can be forced to take out loans to cover the lack of money. They then take out new loans to pay of  the old ones (paying off MasterCard with Visa). When the loans come due, they are then stripped of assets to pay off the debts as Michael Hudson describes. And paying back the debt, effectively plunging millions into poverty, can then be couched as the "moral" thing to do!

We've seen during long cycles of history that commodity and coin money has been used during times of war and imperial expansion, while locally-created credit money has been used in periods of dissolution and collapse.
What’s been happening since Nixon went off the gold standard in 1971 has just been another turn of the wheel – though of course it never happens the same way twice. However, in one sense, I think we’ve been going about things backwards. In the past, periods dominated by virtual credit money have also been periods where there have been social protections for debtors. Once you recognize that money is just a social construct, a credit, an IOU, then first of all what is to stop people from generating it endlessly? And how do you prevent the poor from falling into debt traps and becoming effectively enslaved to the rich? That’s why you had Mesopotamian clean slates, Biblical Jubilees, Medieval laws against usury in both Christianity and Islam and so on and so forth.

Since antiquity the worst-case scenario that everyone felt would lead to total social breakdown was a major debt crisis; ordinary people would become so indebted to the top one or two percent of the population that they would start selling family members into slavery, or eventually, even themselves.
Well, what happened this time around? Instead of creating some sort of overarching institution to protect debtors, they create these grandiose, world-scale institutions like the IMF or S&P to protect creditors. They essentially declare (in defiance of all traditional economic logic) that no debtor should ever be allowed to default. Needless to say the result is catastrophic. We are experiencing something that to me, at least, looks exactly like what the ancients were most afraid of: a population of debtors skating at the edge of disaster.

And, I might add, if Aristotle were around today, I very much doubt he would think that the distinction between renting yourself or members of your family out to work and selling yourself or members of your family to work was more than a legal nicety. He’d probably conclude that most Americans were, for all intents and purposes, slaves.
What is Debt? – An Interview with Economic Anthropologist David Graeber (Naked Capitalism)

These conflicts continue to this day, between credit money and commodity money, between debt slavery and debt forgiveness. Wealth concentrating into the hands of the few is once again a cause of social breakdown. These issues are intimately related to the conflicts we face today.
However, there are policy prescriptions that can be condoned to deal with the aftermath of financial crises. In a world where money is not readily available because the private sector is dealing with a painful debt deleveraging process (post-financial crisis), it is understood that the government (as the sole sovereign monopoly currency issuer) has the means to fully re-employ resources. This is called the functional finance approach that was first proposed by [Abba] Lerner. Lerner says that the role of government is to be like the steering wheel of a car: when the economy steers off course, government stands by to correct it. Lerner further argues that the question of whether government spending is “good” or “bad” is erroneous in terms of sustainability and affordability. The government, as the sole monopoly currency issuer, can always afford whatever it wants, as long as the debts are denominated in the sovereign’s currency. Lerner states, “We owe this money to ourselves and not to anybody else.” In this context, rather, government should be concerned with spending effects on the economy in terms of a primary determinant for a necessary course of action. As Lerner continued to write..., “the financial activities of government should be judged not by any traditional canons of fiscal propriety but by considering the effects of each act and deciding whether these effects are desired or not.”

Not only does the sovereign government have the means to adopt a full employment jobs program; this is desirable- output gaps are reduced very quickly while effective demand is restored. Lerner keenly states “It is unlikely that any other single way of increasing the efficiency of our economic system can add so much to the social output.” Put simply, the private sector is not in business to employ people simply for welfare’s sake; it is profit-motivated. In opposition to this understanding, however; government does not have to be concerned with profits. And as Godley originally explains in the sectoral balance approach, when the government has a deficit, the private sector has a surplus and the reversal. Additionally, the two can’t be in surplus at the same time because this process behaves according to accounting identity. This means that when the government is at a surplus, the private sector is in a deficit. Therefore, spending in terms of a full employment program that correlates with a government deficit is both affordable and desirable. It is affordable because of sovereign monopoly currency issuance; it is desirable for two separate reasons. The first is that government spending puts more money into the private sector than it takes out. The second is that a full employment program is superior to any monetary stimulus that “may suffer slips from the cup to the lip” as Keynes famously put it. It is also superior to fiscal policy such as infrastructure spending or tax cuts, which may or may not lead to increased effective demand; it depends on the marginal propensity to consume as Keynes delineated. Furthermore, monetary and fiscal policy actions suffer from inside and outside lags... A full employment program can be conceptualized and mandated very quickly; one only needs to review Roosevelt’s New Deal program for evidence- within two months, his plan was “articulated, proposed, and adopted in practical use”.
Essays in Monetary Theory and Policy: On the Nature of Money (Continued) (Naked Capitalism)

Of course, there are plenty of real resources which are scarce, and getting scarcer. We are brainwashed to think that the Market will naturally ration all commodities to their best use if only it is kept free from interference, despite all evidence to the contrary. This Theoclassical economics doctrine is more faith than fact. What really happens is the Tragedy of the Commons. Note, though, that the Tragedy only happens because every user of the commons is compelled to grow! Without the growth imperative, the commons can be managed adequately, just as it was in real history for centuries before the wealthy partitioned it off for their own use and created the "science" of economics to ex-post-facto justify it. Rationing is not a dirty word. It is a necessity. And neither is "commons." A commons is necessary for freedom to exist.

Working shorter hours is also a necessity. If we treat labor as just another commodity to be sold, why do we believe that the market for this commodity will expand infinitely and never be sated, unlike any other market? The market for cars and toasters may be large, but it is not infinite. Why do we insist that the market for labor is? And more labor produces more pollution, more stress, and uses more energy, even though energy per capita for the globe as a whole peaked decades ago, even with demographic momentum already projected to add billions of people and driving a refugee crisis of epic proportions (along with climate change). Note, though, that more free time is associated with self-actualization, with doing your own work instead of hiring it out (which lowers almighty GDP), and increased political participation. The people in power count on the apathy of the citizenry, and working them to the bone is one way to achieve that. More participation is the last thing they want, so will fight this one as well.
In my research I have found that countries with higher average annual hours of work have higher carbon emissions after accounting for other factors. The converse is also true: lower hours are associated with lower emissions. The main reason is that opting for shorter schedules puts a country on a trajectory in which production, with its associated energy use, is not maximized. There’s a leisure/GDP trade-off, and short-hour countries are opting for more free time. A second dynamic is at the micro level—households who are time stressed (due to long hours of work) tend to use more energy and have higher consumption. By contrast, acting sustainably typically requires more time. An obvious example is transportation. The faster one wants to travel, the more energy one must use. There’s an energy ladder from walking, through buses, trains, and planes. Existing models suggest the effect of hours on emissions is large. One study estimates that a modest 0.5 percent annual reduction in working hours through 2100 could eliminate between a quarter and a half of the projected warming that is not already locked into the system. My research also finds that shorter hours should be a key component of emissions-reduction strategies.

Right now this approach may seem infeasible. Employer-paid health insurance is a major barrier to shorter hours. When benefits are high, employers prefer a smaller number of long-hours workers. We are also in a political moment when working less cuts against a conservative, pro-work ethic. But if we could open our imaginations to a society in which good jobs did not come with killer schedules, we’d reap many benefits. In addition to reducing carbon pollution, both men and women could achieve that elusive “work/family balance.” Social and family life would improve, stress would be reduced. People would have time for hobbies and passions and to participate in political life.

How could we pay for it? Partly by the gains in lower pollution and less climate damage, and partly by slowing the upward ratchet of consumer goods and services.
The Future of Work and the Role of Climate Change (Naked Capitalism)

Finland prepares universal basic income experiment (Inhabitat)

While these proposals aren't going to solve every problem, we can say that they might help to turn the ship around before it hits the iceberg. As the saying goes, if you want to get to Canada and you're headed toward Mexico, speeding up the car is the last thing you want.