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 no 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 then 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 upon the harvest, and constructed all sorts of artificial means like extensive irrigation works and terraces to keep annual plants growing in the same location 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 the 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 want 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 many and more power for the few 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!

Insanity!

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.