Intentional Money Revisited

For the past number of years I have been tweeting as Intentional Money (@GrahamJBarnes) [1]. Strapline: The first use of money and credit after it is created reveals a society’s essential values. Close attention must be paid to its strategic direction.

The proposition is that those with control over how money and credit are created and spent or lent into first use have enormous power and responsibility for where that money and credit is spent/ lent and for what purpose. This goes for governments who spend direct into circulation, central banks who spend indirectly by buying assets (QE) and commercial banks who loan as interest-bearing credit. Who receives how much of the first use of this money and credit reveals the underlying preferences of the issuing institution. The same is true for smaller scale credit issuers such as mutual credit schemes – but the amounts involved there are miniscule compared to that controlled by governments and banks.

Misuse of this power to direct spend takes different forms. Governments place contracts with political party donors. Big institutions tend to do business with big corporates. There is a safety in numbers mindset. At one time you would be told ‘no-one ever got fired for hiring IBM’ (read Capita or PWC nowadays). Big companies with preferential access to public contracts and (if they need it) to loan capital can take out more productive and innovative small competitors. The resulting tendency to monopoly is a well described feature of capitalism.

It isn’t just a matter of the quantity of money and credit lopsidedly issued to insiders. There is a problem in the use to which the money and credit is put – what I have hesitantly called the Quality of Money. The faith shown in laissez-faire capitalism to direct economic activity is misplaced. The environmental and ecological cost of misdirection is becoming clearer by the day.

There is some mainstream recognition of this line of thinking. For example some economists [2] have highlighted the different effects of money/ credit allocated to productive activity versus that which finds its way into asset purchases (eg property,shares, bonds). The former tends to create value which is re-spent repeatedly with a consequent multiplier of economic acivity; the latter boosts prices to the benefit of the minority owning such assets. It is becoming apparent that the impact on inflation is also very different for different qualities-of-money. It isn’t all about quantity.

Money and credit issued is (at best) value agnostic – it does not differentiate between spending on the stuff-of-life (health, energy, shelter, food) and nice-to-have consumerist fripperies; or between spend that cherishes the environment and that which poisons the planet. The existing scheme for allocation of first use money and credit is dysfunctional. It served its purpose while the rising tide facilitated by cheap energy raised all boats. But since 1970 or thereabouts any incremental benefit to the labouring classes has disappeared [3] and the return to capital accelerated causing massive inequality.

Having used this landslide of capital to acquire influence we cannot expect the doyens of banking, advertising and media, major corporates and revolving-door politicians to take the lead addressing the root problem. There will certainly be those within those groups who do see the light – indeed the most powerful and articulate critics of establshed practice are often former insiders. But the sheer imbalance of financial resource means that all but the most determined heterodox projects will be captured and reined in at some point.

I have tried to write before about different responses to this enormous power imbalance and the resulting loss of agency. In an attempt to remain positive (‘assume a virtue if you have it not [4]’) it is worth noting some glimmerings of a new understanding:

* Discussions of a Green New Deal imply a value-based redirection of investment. Similar thinking is now surfacing within central banks ( Green QE [5]) and some governments (Green Investment Banks [6] ).

* Mainstreaming of Unconditional Basic Income (UBI) [7] discussion promises to unite the left (free up people to work on things that matter) and right (boost effective demand by directing money to where it is repeatedly re-spent).

* Interest in alternative metrics [8] to GDP that recognise that the amount of economic activity is a very poor proxy for wellbeing and social progress (eg NWI, ISEW)

* A renaissance in public banking explicitly acknowledging the environmental benefits of funding the local as a partial fix to the overcentralised status quo

Governments and banks must get used to the outrageous idea that they should take a position on the Quality of money / credit that they issue and explicitly assert their responsibility for second-guessing an otherwise terminal ‘free market’ – especially for public goods and ‘stuff of life’ purchases. As they do so, they will meet a raft of bottom-up initiatives providing proof-of-concept but needing finance for scaling up.

The concept of an ecological interest rate [9] has recently been suggested – another interesting example of pro-planet differentiation. A key issue for innovations like this is the balance between metrics to inform and drive the ecological assessment and the selection of panels to make that assessment. Do you trust the science or the people ‘in charge’. Metrics can be gamed; people can be captured. This is a non-trivial core success factor. An optimist here might point to the work being done on consensus models for governance of blockchain based systems through projects such as Avalanche [10] and Holo [11] (other platforms are available).

If you are reading this article on Feasta’s website or my related 2018 piece on Resilience [12] then you are likely one of the people who has some time to read and research. Many do not – inequalities mean they operate close to subsistence mode. So those of us with a little more agency carry a somewhat disproportionate burden. A burden to discriminate as consumers, to recognise the extent to which we are captured by forces we deprecate and to take up opportunties that present themselves to do things differently.

References

[1]: https://twitter.com/GrahamJBarnes
[2]: For example https://twitter.com/scientificecon
[3]: see e.g. Disconnect between productivity and wages Fig 1):
https://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/
[4]: Hamlet dumbass
[5]: https://www.positivemoney.eu/2020/01/green-qe/
[6]: http://www.oecd.org/environment/green-investment-banks.htm
[7]: https://www.feasta.org/category/basic-income/
[8]: https://www.feasta.org/beyond-gdp-new-approaches-to-measuring-well-being/
[9]: https://www.primeeconomics.org/articles/the-case-for-an-ecological-interest-rate/
[10]: https://www.avalabs.org/whitepapers
[11]: https://holo.host/whitepapers/https://holo.host/whitepapers/”>https://holo.host/whitepapers/
[12]: https://www.resilience.org/stories/2018-03-28/the-environmental-consequences-of-monetary-dysfunction/

Featured image source: https://www.freeimages.com/photo/bank-1239842

Note: Feasta is a forum for exchanging ideas. By posting on its site Feasta agrees that the ideas expressed by authors are worthy of consideration. However, there is no one ‘Feasta line’. The views of the article do not necessarily represent the views of all Feasta members. 

2 Replies to “Intentional Money Revisited”

  1. Nice work Graham. It seems obvious to me that money as a currency is losing its worth. We’re in another financial crisis caused by issuing currency that isn’t backed by any form of value.

    The Central Banks have run out of ammo.

    Which institution should replace them?

  2. Thanks Mike. Not sure your friend Sir Chris would agree 🙂 He sees national debt as a form of equity. I dont think any institution will replace mainstream money in our life times because it’s so embedded but we can hope that those with the ‘exorbitant privilege’ will gradually take a more planet-responsible view. And in the meantime that the monetary ecosystem becomes more diverse and thus more resilient, providing more thought provoking ‘proofs of concept’ ready for upscaling when the penny drops.

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