Some Thoughts about Money

The decades since the Second World War have seen an explosion in the quantity of goods and natural resources consumed. In sheer material volume, it is unquestionably an era of unprecedented wealth. It has however been an unequal and unjust growth with more and more financial power becoming concentrated in fewer hands and a large majority struggling on a dwindling share of the pie. More recently, law-making in many areas of life has been taken out of the hands of citizens and placed into the hands of artificial persons � a.k.a. corporations � via so-called free trade agreements. Finally, since 2001, the US and subservient governments like Australia�s have been conducting a �war on terrorism� which amongst other things only incites more terrorism and fosters semi-totalitarian laws.

Mainstream (neoliberal) discussion of economic matters is either obsessed with or predicated on economic growth. Although it is never spelt out, this �growth� is in turn predicated on those who have capital (money to lend/invest) making even more money at the cost of those who have no excess capital. There is a simple dictum which a child can understand in its feeling life: money made from money is drawing on the totality of the body social and somebody has to pay for it. There is no free lunch in the body social as a whole.

Those familiar with the anthroposophical concept of the threefoldness of the soul should have no difficulty in comprehending that the obsession (primarily in the west) with growth is a symptom of will forces running wild. The will is connected to action, to youth, growth and expansion. It is also connected to our sense of individuality because one asserts oneself only through willing something.

Goethe observed �Nature created death in order to have life anew�. When we have a financial system that allows money to make money passively (�ever abundant life�), we not only have something that is unnatural, we have a life-expanding system that inherently has to create death. In the natural world, a part of the organism that grows without bounds is known as cancer. In the financial world, money that grows exponentially plays the same role as cancer and, as with all cancers unchecked, the rampant growth only stops with the death of the host organism.

Anyone who has ever farmed properly or observed nature properly knows that life is based on a sound death-life cycle. A one way input-output mentality as practised in chemicalised monocultures leads to death in more ways than one.

Money growing on money (labourless income) is founded on what economists call the three factors of production � land, labour and capital. Capital gives rise to banks and the labourless income generated is called interest. Labour � in the sense used here � gives rise to the share owned corporation (because they �own� the labour by paying for it) and the labourless income is the share dividend. Land gives rise to private land ownership with rent and natural resources as the labourless income. All other labourless incomes (capital gains on the value of land, shares, bonds and currencies) are secondary to, or derivatives of, the above primary labourless income.

Capital, labour and land are connected with the three great institutions that the anti-globalisation (now called global justice) movement has been fighting since the 1980�s � capital concentrated in the twin institutions of the World Bank (WB) and International Monetary Fund (IMF); labour in the corporations that make up the World Trade Organisation (WTO) and which has been pushing free trade agreements; land has been concentrated in the military (since the ownership of land and its natural resources is ultimately contested militarily) and in this case this means the Pentagon and the CIA. Chronologically the battleground has shifted from �capital� (the debt issues of the 80�s to mid-90�s) to �labour� (the anti-free trade protests of mid 90-s to 2001) to �land� (post September 11). As will be explored further in Part 2, this is connected to the fact that capital, labour and land are related to the threefold soul forces of thinking, feeling, willing � in that order, i.e. capital with thinking, labour with feeling, land with willing.

Before I continue, I should hasten to add that it is not up to individuals to forsake their various forms of labourless income if they are receiving any. The problem is a systemic one and it is not up to individuals to give up interest on their bank accounts in order to have a clear conscience. One cannot expect retired people to give up their shares if their only other income is a woefully inadequate pension.

The three forms of money

In European history, the earliest forms of money are commonly held to be metals � mainly gold and silver � stamped into coins to verify their content. The problem with money already starts here because it is difficult to see that such metallic money had two different values. One is that it has a physical/commodity value, meaning that gold for instance can be shaped into cutlery or jewellery or any number of tools, gadgets and ornaments. As a coin however, gold serves another function quite different from that of a commodity, namely that of a medium of exchange. As a medium of exchange, gold is a spiritual/intellectual substance. I will clarify this thought shortly.

Over time, paper bills replaced metal. In principle, the paper bill acted as a medium for gold. Each bill entitled the bearer to an amount of gold specified on the bill against the issuing agent.

Since the mid-nineteenth century, we have become familiar with a third form of money which can be called ledger money. Money held in an account which can be transferred by cheque or electronics is ledger money. The ledger money becomes a medium for paper money.

A few fundamental things should be noted. If we for a moment imagine the situation where money exists only in accounts (ledgers), is transacted only as a ledger and has no physical (notes or coins) counterpart, we have purely ledger money.¹We also have a �pure� money which has no physical/commodity value such as gold fully and paper marginally possesses.

It should not be difficult to see how the three forms of money correspond to mankind�s soul development � namely, gold to the sentient soul (Egyptian cultural epoch), paper to the intellectual soul (Greco-Roman epoch) and ledgers to the consciousness soul (Anglo-Germanic epoch). The three forms of money demonstrate humanity�s gradual detachment or abstraction from nature � and it is achieved by a development in its spiritual life centred on a more and more abstract intellectuality.

Gold gives the immediacy and vibrancy of the physical world that the sentient soul can relate to. Paper money only came to the fore after men came to recognise legal deeds on paper being politically enforceable � and this was achieved only in the Greco-Roman period. Ledger money became possible when humanity had immersed itself in abstract and mechanical theories (and learnt to deal in zeroes and negative numbers). Double entry book-keeping � a necessity for ledger money � was invented shortly after the beginning of our consciousness soul epoch in 1413.

Credit Creation and Loan Making

Most people think that when they get a loan from the bank it is similar to getting a loan from their grandmother or friend. Nothing is further from the truth. When one borrows money from a friend � let�s say $1,000 � that friend is �out of pocket� by $1,000. When one borrows from a bank � let�s say $1,000 again � the bank is neither lending $1,000 of its own money or depositors� money. How is this achieved? The bank has two columns to account for its debts/debits and its assets. When Jack borrows $1,000, the bank writes up in its assets column the $1,000 that Jack owes the bank. In its debts column, it writes up the $1,000 that Jack can withdraw in cash, cheque or electronically. Reconciling the newly created $1,000 in both the assets and debts columns gives a neutral effect on the balance sheet. Absolutely nothing else has changed. No $1,000 was taken out of anywhere � not like Grandma taking $1,000 out of the cookie jar to loan you. The $1,000 loan is a ledger money (or computer money) creation that is achieved with a written entry. All bank loans are made like this and the process is called credit creation (because the bank is increasing the amount of money/credit in the system). If one is struggling to pay back one�s mortgage and finding that one is paying much more in interest than originally borrowed (as in the Third World); and if one realises how loans are made, then maybe some frustration and anger is not out of place.

How much of our money supply is government (public) money and how much is created by private banks?

There are certain legal procedures that prevent banks from just �printing� money into existence without restrictions as described above. I won�t go into the mechanics of it here, but in essence we can say that present banking regulations allow the banking system to increase its holding of government money by a factor of ten. In other words, if the banks held an extra $100 million in government money,² they can then make an extra $900 million in loans. Some quick sums: 5% of $900 million = $45 million which is the (gross) interest made on the original $100 million deposit in government money.

The above figures can give some insight into how powerful banks are and how much in need of rethinking our banking system is. Through interest and debt, the banks and the money market have a headlock on our national and international economies. A number of governments have had to capitulate on their social policies when the banks and money market spelt out their capacity to create economic hardships for the incoming government.³

Why banking and loan making should be a community activity

There is, as far as I know, at the moment no currency that is on a gold standard. A gold standard means that there is a specified amount of gold to back up every unit of currency printed. When there is no gold standard a country � or any institution that issues a currency � can in principle print as much currency as it wants. What is it that gives a non-gold standard currency any substance or intrinsic worth? The value of a currency arises out of what I call a social contract. Thus, for example, we can say that in theory the Australian dollar (AUD) arises out of a community �consensus� whereby we authorise the government to set up a central bank that then prints our currency. Nothing supports its existence but a community consensus. The AUD is a pure abstraction that arises out of our spirit-filled intellectuality.⁴ It makes sense in more ways than one that if money is printed in the original sense by a social contract (i.e. community consent), then it is a travesty to allow private power to expand the quantity of money tenfold through credit creation. In Part 3, I will offer some thoughts as to how a community can regain the process of credit creation.

The world�s most powerful private bank

The farther west we go, the more we find the process of individuation accentuated. This individuation is marked by an emphasis on private ownership. If the concept of private banks is absurd enough, think then what it means to have a privately owned central bank. There is such a beast. The American dollar (USD) is not a community currency printed out of a social contract as described above. The Federal Reserve � the institution that prints the USD � is not a government agency. It is owned by a consortium of private banks. The USD is only printed into existence by the US government borrowing � with interest � the dollar into existence. Bear in mind that the USD in not on a gold standard, i.e. there is no gold backing for it, so that it is printed �out of nothing�. In a sense the US government and US citizens are using a foreign currency � only the �foreigner� is not another country but essentially a consortium of very wealthy men. The implications are profound. Try to imagine if the US government borrows say $100 billion from the Federal Reserve and over a few years (maybe two) owes $10 billion in interest alone (10% of $100 billion). That $10 billion can not be found except by borrowing more USD � with interest � again from the Federal Reserve. Thus the entire USD economy is running on debt from the start; and corporations, individuals and governments are forever ratcheting up their economic production to catch up with its debt. This capital �growth� forces capital to become more and more desperate in its search for profitable investments. Going to war for oil is one way.

1. I am not advocating the elimination of notes and coins. I am only using the hypothesis to clarify the idea of what money really is.

2. It should be added that government money is not just notes and coins � it also includes cheques drawn on the central bank account and government bonds. But we need not concern ourselves with these details here.

3. After winning the 1992 presidential election, Bill Clinton was told that if he antagonised the bond marketeers, they would make life miserable for him by dumping bonds and thus raising interest rates. He was reported to have exploded �You mean to tell me that my [social] programme and my re-election hinges on the Federal Reserve and a bunch of **** bond traders.�

4. An interesting symptom of how economic power is veiled from the public is the lack of knowledge by the latter as to who sits on the board of their central banks. It is largely made up of men connected to private banks and corporations. Genuine government representatives are effectively kept out.

� 2005 Gavin Tang

Gavin Tang was born 1961 in Papua New Guinea and currently lives a short distance from Sydney, Australia. He is particularly interested in agriculture and socioeconomic issues. He is a regular lecturer in the Sydney anthroposophical scene. He is writing a book titled 'The Death of Capitalism' (and incidentally would welcome sponsorship to finish it).
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Part 2 will appear in the next issue of Southern Cross Review