Karl Polanyi and the Modern World – Part 2

Before we go any further, we should take a historical detour. Is the picture I presented last time of the primordial economy according to libertarians an accurate one? Was it really all solitary individuals peacefully making mutually-beneficial exchanges in “free and open” markets using a mutually agreed upon medium of exchange until the state came along to “steal” money from everyone? Does the market economy spontaneously arise from thousands of people walking around bartering for what they need from other people?

As it happens, I’ve been doing research in this area recently. And the answer is, “not even close.”

As David Graeber, an anthropologist and author, has pointed out, in none of the cultures anthropologists have studied that resemble the ancestral past is life ruled by anything like markets as we know them:

[T]here’s a standard story we’re all taught, a ‘once upon a time’ — it’s a fairy tale.

It really deserves no other introduction: according to this theory all transactions were by barter. “Tell you what, I’ll give you twenty chickens for that cow.” Or three arrow-heads for that beaver pelt or what-have-you. This created inconveniences, because maybe your neighbor doesn’t need chickens right now, so you have to invent money.
The story goes back at least to Adam Smith and in its own way it’s the founding myth of economics. Now, I’m an anthropologist and we anthropologists have long known this is a myth simply because if there were places where everyday transactions took the form of: “I’ll give you twenty chickens for that cow,” we’d have found one or two by now. After all people have been looking since 1776, when the Wealth of Nations first came out. But if you think about it for just a second, it’s hardly surprising that we haven’t found anything.

Think about what they’re saying here – basically: that a bunch of Neolithic farmers in a village somewhere, or Native Americans or whatever, will be engaging in transactions only through the spot trade. So, if your neighbor doesn’t have what you want right now, no big deal. Obviously what would really happen, and this is what anthropologists observe when neighbors do engage in something like exchange with each other, if you want your neighbor’s cow, you’d say, “wow, nice cow” and he’d say “you like it? Take it!” – and now you owe him one. Quite often people don’t even engage in exchange at all – if they were real Iroquois or other Native Americans, for example, all such things would probably be allocated by women’s councils.[1]

In fact, in hunter-gatherer economies, there really are no such concepts as “property,” or “ownership.” making markets somewhat difficult. But what about societies that have both sedentism and surpluses, two preconditions for the development of the kinds of larger, specialized economies like the ones we are studying?

Polanyi distinguishes three concepts that define the primordial economy: reciprocity, redistribution, and householding. It is these three concepts that form the basis of the primordial economy, not money or markets.

Reciprocity is described by anthropologist Marvin Harris:

Reciprocity is the technical term for economic exchange that takes place between two individuals in which neither specifies precisely what is expected in return nor when they expect it. Superficially, reciprocal exchanges don’t look like exchanges at all. The expectation of one party and obligation of the other remain unstated. One party can continue to take from the other for quite a while with no resistance from the giver and no embarrassment in the taker. Nonetheless, the transaction cannot be considered a pure gift. There is an underlying expectation of return, and if the balance gets too far out of line, eventually the giver will start to grumble and gossip. Concern will be shown for the taker’s health and sanity, and if the situation does not improve, people begin to suspect that the taker is possessed by malevolent spirits or is practicing witchcraft [2]

…to really see reciprocity in action you must live in an egalitarian society that doesn’t have money and where nothing can be bought or sold. Everything about reciprocity is opposed to precise counting and reckoning of what one person owes to another. In fact, the whole idea is to deny that anybody really owes anything. One can tell if a lifestyle is based on reciprocity or something else by whether or not people say thank you. In truly egalitarian societies, it is rude to be openly grateful for the receipt of material goods or services.[3]

That sounds like the antithesis of market exchanges! Clearly individuals attempting to make a profit or to “get one over” on someone else, as capitalists regularly do (“gotcha” capitalism) would not work in ancient societies. This is because in such societies, one’s social standing was paramount. In ancient societies, hoarding the best for oneself and depriving other people of what they needed for survival would lead to ostracism, not admiration:

The outstanding discovery of recent historical and anthropological research is that man’s economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end.

The explanation, in terms of survival, is simple. Take the case of a tribal society. The individual’s economic interest is rarely paramount, for the community keeps all its members from starving unless it itself is born down by catastrophe, in which case interests are again threatened collectively, not individually. The maintenance of social ties, on the other hand, is crucial. First, because by disregarding the accepted code of honor, or generosity, the individual cuts himself off from the community and becomes an outcast; second, because, in the long run, all social obligations are reciprocal, and their fulfillment serves also the individual’s give-and-take interests best…[4]

Thus Homo economicus, the rational man constantly calculating how he will get ahead by cunningly trading in markets, is a fiction. Man is instead emerged in social relationships, and the economy grows out of that that, not impersonal market exchanges with an eye towards profit.

The second key to the primordial economy is redistribution. Nearly every ancient state was based in part on some sort of central player redistributing the collective fruits of the society to its members. Rather than a dirty word as it is in modern-day America, redistribution is what allowed primitive economies to form. Central repositories where food and goods were redistributed and stored were the earliest structures put up by ancient civilizations. Those who sought power did it by increasing production, first through exhortation and cajoling, and then through reinforcement of mutual obligations and tribute. They then gave away the surplus to their followers as a means of attaining prestige and status.

A well-known example of this phenomenon is the “big man” system of the Pacific Islands. In such societies, competitive feasts are held, with the organizer of the feast seeking esteem and prestige, and getting people to work harder to engender a surplus. But, the big man has no coercive power, and not only doesn’t get the best of everything, but sacrifices his own well-being to make sure others get the “meat and the fat”:

Early in the present century, anthropologists were surprised to discover that certain primitive tribes engaged in conspicuous consumption and conspicuous waste to a degree unmatched by even the most wasteful of modern consumer economies. Ambitious, status-hungry men were found competing with each other for approval by giving huge feasts. The rival feast givers judged each other by the amount of food they provided, and a feast was a  success only if the guests could eat until they were stupefied, stagger off into the bush, stick their fingers down their throats, vomit, and come back for more.

The big man can be described as a worker-entrepreneur–the Russians call them “Stakhanovites”–who renders important services to society by raising the level of production. As a result of the big man’s craving for status, more people work harder and produce more food and other valuables. p. 118

Among the Kaoka-speaking people of the Solomon Islands…the status-hungry individual begins his career by making his wife and children plant larger yam gardens…the Kaoka who wants to become a big man then gets his kinsmen and age-mates to help him fish. Later he begs sows from his friends and increases the size of his pig herd. As the litters are born he boards additional animals among his neighbors. Soon his relatives and friends feel that the young man is going to be a success. They see his large gardens and his pig herd and they redouble their own efforts to make the forthcoming feast a memorable one. When he becomes a big man they want the young candidate to remember that they helped him. Finally, they all get together and build and extra-fine house. The men go off on one last fishing expedition. The women harvest yams and collect firewood, banana leaves, and coconuts. As the guests arrive, the wealth is stacked in neat piles and put on display for everyone to count and admire… [5]

Such big men only arise in societies where intensification of effort produces surpluses. There can be no big men in hunter-gatherer societies, since additional work does not result in additional food. In fact, quite the opposite would occur. Hunter-gatherer societies would not be able to sustain such a surplus, and status-hungry individuals are kept in check. It is the survival of the group, not the individual, that is paramount. Thus, big men can only arise in societies where horticulture, animal husbandry, or agrarian agriculture is present:

Primitive hunters and gatherers work less that we do–without the benefit of a single labor union–because their ecosystems cannot tolerate weeks and months of intensive extra effort. Among the Bushmen, Stakhanovite personalities who would run about getting friends and relatives to work harder by promising them a big feast would constitute a definite menace to society. If he got his followers to work like the Kaoka for a month, an aspiring Bushman big man would kill or scare off every game animal for miles around and starve his people to death before the end of the year. So reciprocity and not redistribution predominates among the Bushmen, and the highest prestige falls to the quietly dependable hunter who never boasts about his achievements and who avoids any hint that he is giving a gift when he divides up the animal he has killed. [6]

In order to maintain their status, the big men must constantly throw new feasts or risk falling back to being a commoner:

The feast-giving days of the big man…are never over. On the threat of being reduced to commoner status, each big man is obliged to busy himself with plans and preparations for the next feast. Since there are several big men per village and community, these plans and preparations often lead to complex, competitive manuevering for the allegiance of friends and neighbors. The big men work harder, worry more, and consume less than anybody else. Prestige is their only reward.[7]

Competitive feasting may seem like some sort of crazy behavior, but as Marvin Harris points out, it serves a very important role in primitive societies:

Under conditions where everyone has equal access to the means of subsistence, competitive feasting serves the practical function of preventing the labor force from falling back to levels of productivity that offer no margin of safety in crises such as war and crop failures.

Furthermore, since there are no formal political institutions capable of integrating independent villages into a common economic framework, competitive feasting creates an extensive network of economic expectations. This has the effect of pooling the productive effort of larger populations than can be mobilized in any given village.

Finally, competitive feasting by big men acts as an automatic equalizer of annual fluctuations in productivity among a series of villages that occupy different microenvironments—seacoast, lagoon, or upland habitats. Automatically, the biggest feasts in any given year will be hosted by villages that have enjoyed conditions of rainfall, temperature, and humidity most favorable to production.[8]

For example, in the case of the potlatch among the fish-foragers of the Pacific Northwest:

Despite the overt competitive thrust of potlatch, it functioned aboriginally to transfer food an other valuables from centers of high productivity to less fortunate villages. I should put this even more strongly: Because of the competitive thrust, such transfers were assured. Since there were unpredictable fluctuations in fish runs, wild fruit and vegetable harvests, intervillage potlatching was advantageous from the standpoint of the regional population as a whole. When the fish spawned in nearly steams and the berries ripened close at hand, last year’s guests became this year’s hosts. Aboriginally, potlatch meant that each year the haves gave and the have-nots took. To eat, all a have-not had to do was admit that the rival chief was a great man.[9]

Redistribution has been observed in nearly every primordial society:

Redistribution has a long and variegated history, which leads up almost to modern times. The Bergdama returning from his hunting excursion, the woman coming back from her search for roots, fruit, or leaves are expected to offer the greater part of their spoil for the benefit of the community. In practice, this means that the produce of their activity is shared with the other person who happen to be living with them. Up to this point, the idea of reciprocity prevails: today’s giving will be recompensed by tomorrow’s taking.

Among some tribes, however, there is an intermediary in the person of the headman or other prominent member of the group; it is he who receives and distributes the supplies, especially if they need to be stored. This is redistribution proper.

Obviously the social consequences of such a method of redistribution may be far reaching, since not all societies are as democratic as the primitive hunters. Whether the redistributing is performed by an influential family or an outstanding individual, a ruling aristocracy or a group of bureaucrats, they will often attempt to increase their political power by the manner in which they redistribute the goods.[10]

That last part is important. Harris believes that redistributor big men eventually evolved into hereditary war chiefs. These war chiefs still accumulated surpluses and still played the role of “great provider,” but now they used a portion of the surplus to pay for an retinue that was dependent upon the chief for their livelihood, such as skilled craftsmen, administrators, and magicians. They began to engage in “image building” activities. They also used a portion of the surplus to support larger war parties and long-distance raiding activities that could not be carried out otherwise. The establishment of an entourage and the undertaking of military activity served to enhance their power and prestige. The “great provider” big men slowly transitioned to being warlords.

We begin to see differences emerging between the elite and the “commoners;” for example, only war chiefs can wear certain regalia of office, and no one can sit higher than them.  However, even these chiefs’ ability to exercise coercive power is still limited, because they cannot cut people off from their primary means of subsistence. In the case of the Trobriand Islands, for example, the chief cannot cut people off from the coasts and lagoons where they derive protein from shellfish and seafood. Also, the yams which form the principal crop cannot be stored for more than a few months. One recent paper argued that cereal crops would be more likely to lead to organized, hierarchical state-level societies because they can be appropriated, unlike roots and tubers which are less vulnerable to being appropriated by authorities and last only a few months.

Kula trade necklace (Wikipedia)

Trading of durable goods, as well, seems to have mainly functioned as a way to bind societies together, rather than trying to secure some form of profit. Not only was feasting competitive, but so was gift giving. Such gifts were not trades to exchange, but rather, gifts to give away. Polanyi uses the example of the Kula Ring maintained by the war chiefs of the Trobriand Islands:

The Kula ring spans 18 island communities of the Massim archipelago, including the Trobriand Islands, and involves thousands of individuals. Participants travel at times hundreds of miles by canoe in order to exchange Kula valuables which consist of red shell-disc necklaces  that are traded to the north (circling the ring in clockwise direction) and white shell armbands that are traded in the southern direction (circling counterclockwise). If the opening gift was an armband, then the closing gift must be a necklace and vice versa. The exchange of Kula valuables is also accompanied by the trade in other items known as gimwali (barter). The terms of participation vary from region to region. Whereas on the Trobriand Islands the exchange is monopolised by the chiefs, in Dobu all men can participate.

All Kula valuables are non-use items traded purely for purposes of enhancing one’s social status and prestige. Carefully prescribed customs and traditions surround the ceremonies that accompany the exchanges which establish strong, ideally lifelong relationships between the exchange parties. The act of giving…is a display of the greatness of the giver, accompanied by shows of exaggerated modesty in which the value of what is given is actively played down. Such a partnership involves strong mutual obligations such as hospitality, protection and assistance…a good Kula relationship should be “like a marriage”.

Kula valuables never remain for long in the hands of the recipients; rather, they must be passed on to other partners within a certain amount of time, thus constantly circling around the ring. However, even temporary possession brings prestige and status. Important chiefs can have hundreds of partners while less significant participants may only have fewer than a dozen.[11]

Polanyi identifies two central features to redistribution networks: symmetry and centricity.

Symmetry means that there is certain element of regularity and balance in the exchanges: “…each coastal village on the Trobriand Islands appears to have its counterpart in an inland village, so that the important exchange of breadfruits and fish, though disguised as reciprocal distribution of gifts, and actually disjoint in time, can be organized smoothly. In the Kula trade, too, each individual has his partner on another isle, thus personalizing to a remarkable extent the relationship of reciprocity.” (p 49) We see this continuing in our modern concept of money, which is a reciprocal obligation of debts and credits denominated in some socially accepted unit of account. For each debtor, there is an equal creditor, and so forth. It’s worth noting, however, the extreme lopsided nature of what economists today refer to “trade,” such as between oil-producing nations and the industrialized world, or in manufactured goods between China and the United States.

Centricity means that some sort of centralized institution is required for the redistributive network to function properly: “The institutional pattern of centricity…provides a track for the collection, storage and redistribution of goods and services. The members of a hunting tribe usually deliver the game to the headman for redistribution. It is in the nature of hunting that the output of game is irregular, besides being the result of collective input. Under such conditions as these no other method of sharing is practicable if the group is not to break up after every hunt. Yet in all economies of kind a similar need exists, be the group ever so numerous.” (p. 49). We see this today in the role of banks as central clearinghouses for debits and credits among members of society, whether it be a private or national bank, and central governments which perform redistributive roles, without which no modern society could function for long.

Polanyi concludes:

Symmetry and centricity will meet halfway the needs of reciprocity and redistribution; institutional patterns and principles of behavior are mutually adjusted. As long as social organization runs in its ruts, no individual economic motives need come into play; no shirking of personal effort need be feared; division of labor will automatically be ensured; economic obligations will be duly discharged; and, above all, the material means for an exuberant display of abundance at all public festivals will be provided.

In such a community the idea of profit is barred; higgling and haggling is decried; giving freely is acclaimed as a virtue; the supposed propensity to barter, truck and exchange does not appear. The economic system is, in effect, a mere function of the social organization. [12]

Redistribution is collecting the surplus produced by the society, and parceling out among the members of the society so that there is no want. Another example is given by the practice of the Cherokee in North America:

The Cherokee, like the Iroquois, had matrilineal and matrilocal institusions and practiced external warfare. Their principal crops were maize, beans and squash. At the center of the principal settlements was a large, circular “council house” where the council of chiefs discussed issues involving many villages and where redistributive feasts were held.

The council of chiefs had a supreme chief, or mico, who was the central node in the Cherokee redistributive network. Bartram reported that at harvest time a large crib, identified as the “mico‘s granary,” was erected in each field. “To this each family carries and deposits a certain quantity according to his ability or inclination, or none at all if he so chooses.” The mico‘s granaries functioned as a public treasury…to fly to for succor” in the case of crop failure, as a source of food “to accommodate strangers, or travelers,” and as a military store “when they go forth on hostile expeditions.” Although according to Bartram every citizen enjoyed “the right of free and public access,” commoners clearly had to acknowledge that the store really belonged to the supreme chief since the “treasure is at the disposal of the king or mico,” who had “an exclusive right and ability…to distribute comfort and blessings to the necessitous.”

The fact that the mico, like the Trobriand chief, was far from being a “king” shows up clearly in Bartram’s comment that when outside the council “he associates with the people as a common man, converses with them, and they with him in perfect ease and familiarity.”[13]

Harris argues that such redistributive networks are what likely bound the earliest proto-states together. Most likely a combination of feasting and redistribution networks, such as potlatch, were the foundation for the earliest proto-economies. These would have functioned thousands of years before the invention of anything resembling money or markets. He furthermore concludes that the ancient monuments we see in various societies are the remnants of such ancient redistribution networks:

Redistribution undoubtedly provides the key to the understanding of numerous ancient monuments and structures which for centuries have puzzled scholars and tourists. As we have seen…”big men,” headmen, and chiefs have the capacity to organize labor on behalf of communal enterprises. Among such enterprises was the construction, involving hundreds of workers, of large canoes, buildings, tombs, and monuments.

Colin Renfrew has drawn attention to the rather striking similarity between the circular Cherokee feast center council houses and the mysterious circular buildings whose wooden post-holes have been found within the precincts of neolithic ceremonial enclosures, or “henges,” in Great Britian and northern Europe. The increasingly elaborate burial chambers, earth mounds, and megalithic alignments characteristic of the period from 4000 BC to 2000 BC in Europe have rather precise parallels among the mounds erected by prehistoric inhabitants of the Ohio and Mississippi valleys, the stone burial platforms and monoloithic statues of Polynesia, and the monolithic tombs and memorials of modern Borneo.

All of these constructions played a role in the smooth functioning of pre-state redistributive systems, serving as the locus for redistributive feasts, community rituals dedicated to controlling the forces of nature, and memorials to the generosity and prowess of deceased “big man” hero chiefs. They seem enigmatic only because they are the skeletons, not the substance, of redistributive systems. Since we cannot see the investment of extra labor in agricultural production, monument-building appears to be a kind of irrational obsession among these ancient peoples. But viewed within the living context of a redistributive system, tombs, megaliths, and temples appear as functional components whose costs are slight in comparison with the increased harvests which the ritualized intensification of agricultural production makes possible.[14]

We know, for example, that feasting and monument construction went hand-in-hand in the earliest complex pristine states in the ancient Near East:

Michael Hudson:…The problem in these early periods was how to get labour to work at hard tasks, if not willingly? For 10,000 years there was a labour shortage. If people didn’t want to work hard, they could just move somewhere else. The labour that built temples and big ceremonial sites had to be at least quasi-voluntary even in the Bronze Age c. 2000 BC. Otherwise, people wouldn’t have gone there…There weren’t that many people in the world in 10,000 BC, 3000 BC or even 2000 BC. If a government got too oppressive, or when they would raise the contributions or taxes too high, people would just flee to another area. Or if they were too much indebted the debtors would flee, as they did from Babylonia around 1600 BC. We are talking about free labor, not slave labor.

We found that one reason why people were willing to do building work with hard manual labour was the beer parties. There were huge expenditures on beer. If you’re going to have a lot of people come voluntarily to do something like city building or constructing their own kind of national identity of a palace and walls, you’ve got to have plenty of beer. You also need plenty of meat, with many animals being sacrificed. Archaeologists have found their bones and reconstructed the diets with fair accuracy.

What they found is that the people doing the manual labour on the pyramids, the Mesopotamian temples and city walls and other sites were given a good high protein diet. There were plenty of festivals. The way of integrating these people was by public feasts. This was like creating a peer group to participate in a ceremonial creation of national identity…to begin with, you would have a beer party to get everybody friendly. You would have big feasts, and also these were the major occasions for socialization. All over the world, communal feasts were the primordial way to integrate societies.

Q: So they built a social contract around these feasts, around this sense of belonging by being at this public works event. It sounds like a fascinating way to keep society on track and organise labour so that civilisation would develop on some level. Have you found any indication of a managerial class and how they developed through the chieftains?

A (Michael Hudson): First the priesthoods, then the accountants and scribes. The calendar keepers were usually the chiefs (there may have been “sky chiefs” and “war chiefs” separately, or perhaps their roles were combined as dynastic rulers developed). Most of the religions were cosmological. They wanted to create an integrated cosmology of nature and society (“On earth, as it is in heaven”). Administration was based on the astronomical rhythms of the calendar, lunar and solar cycles. For instance, you typically find a society divided into 12 tribes, as you had in Israel and also in Greece with its amphictyonies. In a division of 12 tribes, each could take turns administering the ceremonial centre for one month out of the year.

The physical design of cities also was based on the calendar. Big cities would have 12 gates. Most cities had maybe four gates, representing the four seasons or the four quarters of the Earth. The outline of the land and the Earth was based on a calendrical cosmology, much like a mandala.

Ceremonial sites such as Stonehenge also were calendars in miniature, designed so that the light would fall on the stones in a particular way on a solstice or equinox. We have this going back into the Ice Age around 30,000 BC. Alex Marshak’s article in our volume on urbanisation found that these sites already in the Ice Age were usually sited on waterways, so that everybody could get to them. They often were located with mountains in the background and in between them the sun would shine in a particular way on the equinox or on the solstice in a particular alignment that occurred just at that calendrical time. They were recreating the cosmos on Earth….The great ceremonial sites from Stonehenge to Turkey were based on the particular equinox or solstice. Chieftains usually would be the calendar keepers. ..The job of the chieftain was to keep the lunar calendar, trace the waxing and waning of the moon to calculate how long the month would be, and to decide that, “Ah, in this month, six months after the equinox, here’s where we have to get together and have everybody come to the gathering and begin working on the big site”. [15]

Eventually, the redistributive war chiefs would become kings, and the payments in kind would become obligations, or as we call them today, taxes. The chieftainships would thus, little by little, evolve into the first “pristine” states:

The larger and denser the population, the larger the redistributive network and the more powerful the redistributor war chief. Under certain circumstances, the exercise of power by the redistributor and his closest followers on the one side and by the ordinary food producers on the other became so unbalanced that for all intents and purposes the redistributor chiefs constituted the principal coercive force in social life. When this happened, contributions to the central store ceased to be voluntary contributions. They became taxes. Farmlands and natural resources ceased to be elements of rightful access. They became dispensations. And redistributors ceased to be chiefs. They became kings. [16]

Essentially, the redistributive economy evolves into a tribute economy. In the tribute economy, a specified portion of goods are to be returned, or services rendered, to the ruling elite of the country in exchange for the ability to farm a certain piece of land. This is often accompanied by the transition of war chiefs and warlords to true kings.
In the tribute economy, rather than the leader by dependent upon the generosity of the food producers, the power relations are inverted: the food producers are dependent upon the generosity of the king.

For example, the potlatch chiefs eventually became supervisors, making others do the work for them, as Marvin Harris points out:

As I have said, the Kaoka redistributor big man works harder, worries more, and consumes less than anybody else in the village. This is not true of the Kwakiutl chief redistributor. The great potlatch chiefs performed the necessary entreprenurial and managerial functions that were necessary for a big potlatch, but apart from an occasional fishing or sea-lion expedition, they left the hardest work to their followers. The greatest potlatch chiefs even had a few war captives working for them as slaves.

Continuing along the evolutionary line leading from…the impoverished worker-entrepreneur big man, to the semihereditary Kwakiutl chiefs, we end up with state-level societies ruled over by hereditary kings who perform no basic industrial or agricultural labor and who keep the most and best of everything for themselves. At the imperial level, exalted divine-right rulers maintain their prestige by building conspicuous palaces, temples, mega-monuments, and validate their right to hereditary privileges against all challengers–not by potlatch, but by force of arms. Reversing  direction, we can go from kings to potlatch chiefs to big men, back to egalitarian lifestyles in which all competitive displays and conspicuous consumption by individuals disappear, and anyone foolish enough to boast about how great he is gets accused of witchcraft and is stoned to death. [17]

Harris uses the example of the Bunyoro of Uganda as a true kingship level society where the tribute economy is in full bloom:

Ruled over by a hereditary chief called the mukama, the Bunyoro numbered about 100,000, occupied an area of 5,000 square miles of that portion of the central lake area of East Africa which is now known as Uganda, and earned their living primarily by raising millet and bananas.

The Bunyoro were organized in into a feudal, but nonetheless authentic state society. Their mukuma was a king, not a mere redistributor chief. The privilege of using all lands and natural resources was a dispensation granted by the mukama to a dozen or so chiefs, who then passed on the dispensation to the commoners. In return for this dispensation, quantities of food, handicrafts, and labor services were funneled up through the power hierarchy into the mukuma‘s headquarters. The mukama in turn directed the use of these goods and services on behalf of state enterprises.

Superficially, the mukama appears to be just another ‘great provider” redistributor chief….But a comparison of the mukama with the Trobriand of Cherokee supreme chief reveals that power relationships have been inverted. The Trobriand and Cherokee chiefs were dependent on the generosity of the food producers; the Bunyoro food producers were dependent on the generosity of the king. The mukama alone could grant or withold permission for blood vengeance, and failure to contribute to the mukama‘s income could result in the loss of one’s lands, banishment, or corporal punishment. Despite his lavish feast-giving and reputation as a “great provider,” the mukama used much of his income to bolster his monopoly over the forces of coercion. With his control over the central grain stores he maintained a permanent palace guard and heaped rewards on warriors who displayed bravery in combat and loyalty to his person. The mukama also spent a considerable portion of the state treasury on what we would today call “image-building” and public relations.

He surrounded himself with numerous officials, priests, magicians, and such regalia keepers as the custodians of spears, of royal graves, of the royal drums, of royal thrones, and of royal crowns, as well as “putters-on” of the royal crowns, cooks, bath attendants, herdsmen, potters, bark-cloth makers, and musicians. Many of the officials had several assistants. Other advisers, diviners, and retainers hung around the court in the hope of being appointed to a chieftainship. Also present were the mukama‘s extensive harem, his many children, and the polygynous menages of his brothers and of other royal personages. To keep his power intact, the mukama and portions of his court made frequent trips throughout Bunyoro land, staying at local palaces maintained at the expense of chiefs and commoners. [18]

In other words, they had become Immortan Joe from Mad Max.

How did such people usurp power? It’s critical to understand that this can only come about through surplus, not scarcity. While economics argues that is about allocating scarce means to unlimited wants, in early societies, all wants were taken care of. Thus, if some accumulated more, none had to go without. In such societies where everyone is provided for, what does it matter if some work a little harder and accumulate a little more, especially if they are sharing the fruits of their labor with the village?

In a study of the salmon-fishing villages of Keatley Creek in British Columbia, archaeologist Brian Hayden wondered how a hierarchy would form from what began as a village of equals. Over time, in these transegalitarian societies, central storage facilities become attached to people’s houses, and certain houses become larger and more elaborate. Certain fishing grounds become the property of prominent families:

As scarcity transitioned to plenty, the aggrandizers were freed to pursue their goals. Their selfish behavior was no longer grounds for excommunication, because everyone was able to get enough to eat — if they were willing to work. Slowly, through a variety of strategies such as bride prices and competitive feasts, aggrandizers consolidated their power. They developed new sorts of relationships based on debt and obligation. Eventually these strategies led to establishment of private property rights over valuable resources, such as the fishing rocks in the Fraser Canyon.[19]

 

Whereas the norms of fairness among hunter-gatherers are common to all members of the group, in transegalitarian societies fairness is essentially an agreement among a sufficient number of the wealthy and well-connected, who are able to enforce their version of fairness on the society as a whole.

If Brian [Hayden’s] theory is correct, the process is a slippery slope. What begins as favoritism within a small circle of friends becomes cronyism among the members of an in-group. It’s a system that tends to concentrate power in the hands of a few, but it’s simply a consequence of the natural variability in human personality evolving in conditions of surplus. [20]

Harris argues that one final element is required to tip things over the edge to state-level societies. As redistributor chiefs acquired more and more power and became kings, more and more areas came under their control. In places where people could not run away, they had no choice but to submit to increasingly despotic leaders:

Under what circumstances would a conversion of a redistributive chieftainship to a feudal state be likely to occur? To intensification, population growth, warfare, storable grains, and hereditary redistributors, add one more factor: impaction [21]

As Malcolm Webb has pointed out, all of [early state formation] regions contain fertile soils surrounded by zones of sharply reduced agricultural potential. They are, in fact, river valleys or lake systems surrounded by deserts or at very least dry zones.The dependence of ancient Egypt, Mesopotamia and India on the flood plains of the Nile, Tigris-Euphrates, and Indus is well-known. In ancient China conditions of climate, soil, and topography limited intensive forms of agriculture beyond the river margins of the Yellow River Basin. Central highland Mexico south to Tehuantapec is also dry and in addition “suffers from severe rain shadow effects in the highland basins and stream valleys that were the aboriginal population centers.” And finally, the Peruvian coast is notable for the stark contrast between the lush vegetation bordering the short coastal rivers that flow down from the Andes and the desert conditions that prevail everywhere else. All of these regions present special difficulties to villages that might have sought to escape from the growing concentration of power in the hands of overly aggressive redistributor war chiefs.[22]

The ancient Mesopotamian economy, the world’s first state, was organized as a tribute economy based abound centralized city-states and their associated hinterlands. These cities emerged at strategic places along the vast canal system which distributed water to farms across the alluvial plains of the Tigris and Euphrates river basin. All of the land theoretically belonged to the city’s patron deity, with the priests of the deity running a tribute/redistributive economy out of the temple complexes:

A tributary economy is characterized by a political elite extracting goods and labor from primary producers…The Ubaid economy was by and large a tributary economy: most households had to produce mundane goods such as food and cloth, with surplus being exacted by elites who may have couched this as a voluntary religious duty. Surplus may have been stored extra to guard against disaster, but records of this indicate that payouts in emergencies were a fraction of the total collected. By the Middle Uruk era in the 4th millennium, it had become the norm for mundane utilitarian goods to be centrally produced in cities. A larger pool of available specialized labor offered elites who could afford to employ it the opportunity to commission luxury goods; also, the laborers needed employment, as the cities were too densely populated and the fields too far away for the laborers to have grown their own food. Simultaneously, and likely as a result of this, tribute exactions were increasing. This may have precipitated sedentary agriculturalists to vote with their feet and become nomads or move to a different region (these outcasts were later targeted by governments and known as habiru), or else move into the city. [23]

A related concept is the palace economy. This term was coined to describe the economies of pre-classical (Mycenaean) Greece. In a palace economy, goods are also centrally allocated and redistributed. The palace is also able to keep a number of specialists on hand to produce certain goods that are not practical for the households to produce themselves in sufficient quantities. Palace complexes not only stored a large variety of goods for the society, but also exercised a degree of control over economic production:

The term ‘palace economy’ was coined by archaeologists and historians studying the Mycenaean and Minoan civilisations; that is, Bronze Age Greece and Crete. They noticed similarities to the temple-based city states of Mesopotamia, which had already been studied in detail at that point; but enough differences that a new term was desired. As such, strictly speaking the term only applies to that one historical culture. However, the expression is flexible enough that it has subsequently been applied to other societies which seem to share common features, from the stone-age Inca of Peru to the iron-age Kingdom of Dahomey in West Africa, and even the nuclear-age Democratic People’s Republic of Korea.

The most prominent feature of the Mycenaean and Minoan civilisations was the existence of large palace complexes in each major population centre, which were administrative centres and had vast storerooms attached to them. About one-third of the floor area of a typical Cretan palace was devoted to storage, with rooms lined with big clay jars. Another significant area was devoted to large, well-lit but utilitarianly decorated workrooms. Crete and Greece were the first cultures in Europe to introduce writing (although the Mycenaean alphabet, Linear B, was not deciphered until the 1950s and the Cretan alphabet, Linear A, remains a mystery to this day) and the palaces also contain extensive written records.

The palace economy was based on the principles of centralization and redistribution. This was a society which had already invented writing, but not invented money; and its economic and political system reflected that.
The palace collected contributions of staple produce from the surrounding districts – wheat, barley, figs, olive oil, wine, wool, and so forth. These were placed in storage and carefully catalogued by the scribes. They were then distributed back out again to the people, in shares which were apparently based on their social status and value to the community rather than necessarily being equal.

Some of the produce was allocated as rations to specialist full-time craftspeople, such as weavers or metal-workers, who were employed in workshops attached to the palace compound. The goods they produced would also go to the storerooms. Some would be distributed to the people; other items (the more high-status ones) would be given out by the king as gifts to neighbouring kings or rewards to loyal followers.

The stored foodstuffs would also provide a buffer against famine, since they could be kept in the royal granaries until required. As well as regular rations, some of the food would also be put towards grand feasts on ceremonial and/or religious occasions, to which the people would be invited. This seems to have been a key way of keeping their loyalty and cementing communal feelings.

At one point it was speculated that the palace controlled all aspects of the economy; that the people were required to hand over everything they produced to the king’s officials, and received back as rations everything they needed for subsistence. However, this would be impractical in any society larger than a single village, so it’s now generally accepted that local communities were still mostly self-sufficient, and the palace was collecting and redistributing the surpluses rather than the entire production.

There does seem to have been some degree of central control. The palace would tell certain districts to raise sheep for wool, others to grow grapes for wine, and so on, rather than leaving it to their own discretion. The craftspeople who wove cloth and made pottery and cast bronze were accommodated and fed by the palace – in modern terms they were State employees. As such, it could be called a planned economy, but I’m not sure how meaningful the phrase is in a mostly subsistence agricultural society. Farmers have always had to plan when to plant and when to harvest; and the choice of what to grow, at least in ancient times, was largely determined by “what the soil and climate will bear” and “what seeds I have available” rather than any sort of free choice.

It is suggested that the system of palace economy grew out of the principle of reciprocal gift-giving and sharing between rural communities once specialization took place. A single extended family group growing, say, barley on its farm would naturally consider their crop to be family property, and everybody in the family would be given a fair share of the barley. If the next farm over was growing figs, then it was an obvious idea to offer them half of your barley in return for half of their figs, so you could both eat a more varied diet. But when another nearby farm was growing olives, and another was growing grapes for wine, and another was raising sheep, it all got complicated.
At this point, so the theory goes, someone had the bright idea of suggesting that everybody bring their produce to a central point, and he would count it all up and put it into storage, and then give it out again in fair shares so everybody got a little bit of everything. Of course, since it was his idea and he’d be doing all the work, it was only fair for him to skim a little off the top of everybody’s contribution for his own use, wasn’t it? It seems a perfectly reasonable idea: but that’s how monarchy got started. (At least it’s different to the more usual theory of ‘big man with a gang of thugs beating everybody up until they promise to give him their stuff’!) [24]

As Polanyi notes, redistribution formed the basis of the early economies of both states:

All large-scale economies in kind were run with the help of the principle of redistribution. The kingdom of Hammurabi in Babylonia and, in particular, the New Kingdom of Egypt were centralized despotisms of a bureaucratic type founded on such an economy. The household of the patriarchal family was reproduced here on an enormously large scale, while its “communistic” distribution was graded, involving sharply differentiated rations.

A vast number of storehouses was ready to receive the produce of the peasant’s activity, whether he was cattle breeder, hunter, baker, brewer, potter, weaver, or whatever else. The produce was minutely registered and, in so far as it was not consumed locally, transferred from smaller to larger storehouses until it reached the central administration situated at the court of the Pharaoh. There were separate treasure houses for cloth, works of art, ornamental objects, cosmetics, silverware, the royal wardrobe; there were huge grain stores, arsenals, and wine cellars.

But redistribution on the scale practiced by the pyramid builders was not restricted to economies which knew not money. Indeed, all archaic kingdoms made use of metal currencies for the payment of taxes and salaries, but relied for the rest on payments in kind from granaries and warehouses of every description, from which they distributed the most varied goods for use and consumption mainly to the nonproducing part of the population, that is, to the officials, the military, and the leisure class. This was the system practiced in ancient China, in the empire of the Incas, in the kingdoms of India, and also in Babylonia. In these, and many other civilizations of vast economic achievement, an elaborate division of labor was worked by the mechanism of redistribution. [25]

The final element of the primitive economy was the household. The household was never about exchanges in markets, but production for the members of a nuclear or extended family for self-sufficiency. These were Marx’s “pretty commodity producers.” The household economy played a central role in societies from Mesopotamia to China to Ancient Greece:

The third principle, which was destined to play a big role in history and which we will call the principle of householding, consists in production for one’s own use. The Greeks called it oeconomia, the etymon of the word “economy.”…The individualistic savage collecting food and hunting on his own or for his family has never existed…the practice of catering for the needs of one’s household becomes a feature of economic life only on a more advanced level of agriculture; however, even then it has nothing in common either with the motive of gain or with the institution of markets. Its pattern is the closed group. Whether the very different entities of the family or the settlement or the manor formed the self-sufficient unit, the principle was invariably the same, namely, that of producing and storing for the satisfaction of the wants of the members of the group. the principle is as broad in its application as either reciprocity or redistribution. [26]

Scholars call this the oikos economy. The oikos is a self-sufficient household producing commodities for its own use. This type of economy was common in both ancient Greece and Mesopotamia. In the above examples, households would produce for their own use and give some of the tribute to the temple or palace where redistributors would distribute the surplus, tying together the society in webs of mutual assistance and cooperation.

Textual studies have revealed that the Sumerian é and Akkadian bîtum, roughly translated as household, subsumed various entities not included in the modern Western notion of a household. A household meant anything from a nuclear or extended family living under one roof, all the way to grand temples (a deity’s earthly residence), royal palaces and public officials’ wealthy estates. Temples, palaces and wealthy estates are in modernity referred to as oikoi, with each oikos serving as a socioeconomic unit with a dependent and not-kin-related workforce and management, in addition to animals, pastures, fields, orchards, storage facilities and workshops.

The oikos is identifiable as a large structure (or set of related structures) with evidence of: varied craft residues (bead-making, textiles) and sustenance-related production; storage of raw materials and goods; participation in exchange and accounting; and display and/or exercise of force. With its own accounting and production means, these oikos households must have relied on non-kin labor that was paid in rations, and maintained themselves with some measure of force.

What strongly distinguishes the oikos and tributary economies’ archaeological record is that in the oikos economy, non-elites could work in one or more oikoi and receive rations in exchange; thus, many small kin-based households lacked tools and resources for production, with these instead being held by the oikoi. [27]

So, rather than the state being an aberration, the state is primary, and the economy grows out of it, the exact opposite of what libertarians argue. And rather than the wealthy hoarding the best of everything and claiming “redistribution” is a dirty word, or “theft,” redistribution is at the heart of all ancient economies. Neither goods, not land, not labor, were rationed by prices in impersonal markets until the last few centuries in Western Europe. Finally, rather than scarcity which is emphasized by the modern discipline of economics (which forms a modern-day priesthood akin to the high priests of ancient Mesopotamia or the Aztecs), early economies were based on abundance and plenty, with an elimination of want or extreme poverty. People were not dedicating scarce means to unlimited wants; rather thy were dedicating essentially unlimited means to limited wants through the mechanism of the oikos and palace economies.

Polanyi concludes:

Broadly the preposition holds that all economic systems known to us up to the end of feudalism in Western Europe were organized either in the principles of reciprocity or redistribution, or householding, or some combination of the three. These principles were institutionalized with the help of a social organization which, inter alia, made use of the patterns of symmetry, centricity, and autarchy.

In this framework, the orderly production and distribution of goods was secured through a great variety of individual motives disciplined by general principles of behavior. Among these motives gain was not prominent. Custom and law, magic and religion co-operated in inducing the individual to comply with rules of behavior which, eventually, ensured his functioning in the economic system. [28]

Next time, we’ll take a look at some examples of ancient economies around the world and see how money and markets really emerged.

[1] http://www.nakedcapitalism.com/2011/08/what-is-debt-%E2%80%93-an-interview-with-economic-anthropologist-david-graeber.html

[2] Marvin Harris; Cows, Pigs, Wars and Witches, p. 122

[3] Marvin Harris; Cows, Pigs, Wars and Witches, pp. 123-124

[4] Karl Polanyi; The Great Transformation, p. 46

[5] Marvin Harris; Cows, Pigs, Wars and Witches, p. 117

[6] Marvin Harris; Cows, Pigs, Wars and Witches, p. 127

[7] Marvin Harris; Cows, Pigs, Wars and Witches, p. 118

[8] Marvin Harris; Cows, Pigs, Wars and Witches, pp. 118-119

[9] Marvin Harris; Cows, Pigs, Wars and Witches, pp. 119-120

[10] Karl Polanyi; The Great Transformation, pp. 50-51

[11] https://en.wikipedia.org/wiki/Kula_ring

[12] Karl Polanyi; The Great Transformation, p. 49

[13] Marvin Harris; Cannibals and Kings, p. 111

[14] Marvin Harris; Cannibals and Kings, pp. 111-112

[15] http://michael-hudson.com/2015/04/sovereignty-in-the-ancient-near-east/

[16] Marvin Harris; Cannibals and Kings, pp. 113

[17] Marvin Harris; Cows, Pigs, Wars and Witches, pp. 121-122

[18] Marvin Harris; Cannibals and Kings, pp. 113-115

[19] https://psmag.com/seeing-fairness-evolve-10c0443687f0#.s0hxg0tc5

[20] https://psmag.com/conclusion-the-judgment-of-fairness-3677740ed398#.lbfu4byme

[21] Marvin Harris; Cannibals and Kings, pp. 115

[22] Marvin Harris; Cannibals and Kings, pp. 117

[23] http://studentreader.com/tributary-and-oikos-economies-of-ancient-mesopotamia/

[24] https://www.quora.com/What-is-Palace-Economy

[25] Karl Polanyi; The Great Transformation, pp. 51-52

[26] Karl Polanyi; The Great Transformation, p. 53

[27] http://studentreader.com/tributary-and-oikos-economies-of-ancient-mesopotamia/

[28] Karl Polanyi; The Great Transformation, p. 55

Karl Polanyi and the Modern World – Part 1

Many readers are no doubt already familiar with the work of Karl Polanyi. Polanyi’s writings can be seen as the antidote to libertarian free-market dogma, which has been heavily pushed today by the wealthy via their takeover of much of the economics profession.

It’s a standard tenet of the modern “free market” economics secular religion that money and markets are somehow “natural” expressions of human behavior, and that governments are “unnatural” parasites that simply exist to insert themselves into humans’ instinctive urge to “truck, barter, and exchange.” In their conception, market exchanges are as natural to humans as schools to fish, gaggles to geese, or herds to buffalo. Governments are simply “thugs” who insert themselves into the process to steal from wealthy, productive ants to give to shiftless grasshoppers, and we would better off simply cutting government out of the picture entirely and establishing a pure “market society” where everything under the sun is for sale and traded in voluntary exchanges, with no coercion whatsoever. In fact, they argue, no coercion is even possible in markets, since all market exchanges are totally voluntary exchanges between equals. No one makes an exchange unless both sides will be better off, after all, since each and every one of us are “rational actors.” Economic freedom and political freedom are one and the same. Any restrictions whatsoever placed on the behavior of any market actor is tantamount to “tyranny,” they argue.

To facilitate the “natural” behavior of markets and trading, a neutral medium of exchange item was established long ago by some process of negotiation, absent the state, that would grease the wheels of commerce. This commodity was typically precious metals, the only “real” form of money, in their argument. Money was an invention to facilitate trading, the most “pure” form of human behavior imaginable, they say.

In their conception, in the “primordial economy” of the agricultural village, people traded and exchanged stuff between themselves in voluntary exchanges. Apples for pigs, shoes for chickens, and so forth. There was no coercion involved. The use of gold and silver came about because of the need to trade dissimilar things–the “double coincidence of wants” problem. People just decided to trade their apples for gold one day, with the expectation that they could then trade the gold for what they needed later on, say, chickens.

Then the “Fall” happened when governments were established. Government came along and started “stealing” from the productive elements of society at the point of a sword or a gun in order to feed an unproductive bureaucracy that did nothing but sit around all day and sponge off the hard work of the productive classes, while coming up with a bunch of useless laws and regulations that benefited only themselves. To keep up this state of affairs, they “paid off” the useless-eater classes with “free stuff” confiscated from the “Makers” in order to maintain their power.

Unfortunately for free-marketers, this story has absolutely nothing whatsoever to do actual economic history. Rather, governments are the creators and maintainers of markets, and have been since day one.

How do governments create and establish markets? Polanyi argued that it was by creating what he called “fictitious commodities” out of the foundational elements that arise from human social relations. Thus, rather than being somehow “natural,” markets were forced upon people from above by the commodification of things such as land and labor, and then subjected to the very “unnatural” pecuniary exchanges of these commodities in artificial markets subject to chaotic boom-and-bust cycles that constantly threaten to tear whole societies apart.

Polanyi studied not only economics, but also history and anthropology, two disciplines that have been banished from the modern study of economics. Modern economic “science”  takes the artificial system of money and markets as a given, despite being fairly recent inventions, and studies market exchanges and money flows as if they were some sort of natural phenomenon like gravity or the movement of electrons, rather than human  creations.

This article, Karl Polanyi for President, makes the argument that the campaign of Bernie Sanders, far from being rooted in idea of Marx, is actually rooted in the ideas of Karl Polanyi:

Here’s a story that we hear all the time. The free market is the most effective way of ensuring prosperity. We can ensure that the market is free by getting the government to simply get out of the way, or, at most, fix a few market failures here or provide some economic security. The more parts of life that become like markets, the better. That’s not just because markets are the best for ensuring the good life—it’s that free markets are also a foundation for liberty itself, because economic freedom is political freedom.

Polanyi’s work dismantles this argument in two important ways. The first is to show that markets are planned everywhere they exist. Economic organization is always the result of the state. “Laissez-faire,” he writes, “was planned. . . . [The] laissez-faire economy was the product of deliberate state action.”

Polanyi says that the economy is “embedded” in society—part of social relations—not apart from them. He believes that a pure free market society is a utopian project, and impossible to realize, because people will resist the process of being turned into commodities. In fact, he calls labor a “fictitious commodity,” along with land and money. And this process of turning fictitious commodities into market commodities can only be carried out by the state.

What does he mean by fictitious commodities? Simply that land, labor and capital are not things that people fundamentally traded at all, historically. In order to create a modern capitalist economy, they have to be transformed (hence the title) into things that can be traded like cowrie shells or lapis lazuli.

For example, ca. 7000BC, the residents of Çatalhöyük, one of the earliest Neolithic “proto-cities,” lived near a source of natural obsidian. The obsidian is rare, and residents traded it far and wide, for example, to Mesopotamia. Mesopotamia’s economy was kind of like Japan’s today: they had few natural resources, but a high population (thanks to their complex irrigation system), centralized governments, and a highly skilled workforce. Hence, they had to trade for nearly all the raw materials they needed, from timber, to gemstones, to metals for smithing and smelting (copper and tin). To produce items for trade, they became the earliest “value added” economy where craftsmen would transform the raw materials into valuable items for exchange, like this:

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The residents of Çatalhöyük would never have traded in things like land and labor, however. Such a thing would have been totally anathema to them. In fact, land was most likely passed down through generations via ancestral claims, as evidenced by plastered skulls found inside dwellings. They would not have sold their labor either; rather they would have worked cooperatively or in households to produce the food and goods they needed. The only labor “for sale” was due to debt bondage, not labor markets. Interestingly, Çatalhöyük apparently had no extreme class divisions, as evidenced by the identical plans of all the houses and absence of apparent government buildings or temples. People produced goods for their own use, or possibly to trade, yet any conception of capital – money traded for more money – would also have been utterly alien to them.

So how are land, labor and capital turned into commodities that can be bought and sold? By concerted, intentional government action. For example, the Enclosure Movement fenced off the commons and kicked people off their ancestral lands. This made land into a commodity to be traded. The farmers who could no longer support themselves became a landless proletariat who had to sell their labor power to the highest bidder in order to survive. Their labor, once used to sustain the existence of the village, became just another commodity to be bought and sold in a labor market. Necessary goods and services would have been provided for in any society even in the absence of a formal monetary system. Indeed, they have been since the dawn of history. This means that “capital” is just a designation for that which can be bought and sold; it has no independent reality outside of what we assign to it. It is entirely dependent upon a financial system that is created and sustained by the state. These things are embedded in any society’s fundamental social relations, and turning them into commodities for sale is anything but “natural.” This is the central argument of the book. He writes:

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.

Polanyi argues that a true Market society is a utopian project, as utopian as anything that the Communists of the twentieth century imagined, if not more so. This is because people will resist being turned into commodities. They will rebel, as Number Six did in The Prisoner: “I will not make any deals with you. I’ve resigned. I will not be pushed, filed, stamped, indexed, briefed, debriefed, or numbered! My life is my own!”

Polanyi says that the economy is “embedded” in society—part of social relations—not apart from them. He believes that a pure free market society is a utopian project, and impossible to realize, because people will resist the process of being turned into commodities. In fact, he calls labor a “fictitious commodity,” along with land and money. And this process of turning fictitious commodities into market commodities can only be carried out by the state.

As we know, markets are not inherently stable, but subject to periodic boom-and-bust cycles, manipulation, monopolies and so forth. “Stability is inherently destabilizing.” Rather than “freedom”, markets are a source of coercion and control. This is dramatically different than the libertarian conception of markets being the primary sources of freedom and stability. In fact, ancient societies did everything possible to insulate themselves from the vagaries of markets! Goods were centrally allocated and redistributed. Early societies were mostly self-sufficient. Trading was carried out for natural resources that could not be obtained locally, either by central governments (Egypt, Peru), or by independent actors (Mesopotamia, Canaan). In fact, the earliest trading areas were always kept outside the city gates.

This leads to Polanyi’s other very important insight: If you attempt to turn the fundamental aspects of peoples’ lives into commodities to be bought and sold, you will destroy the very fabric of society!

It’s easy to see why. People need land in order to live, whether as homes or farms. In our society, you need a job in order to survive, but markets are full of periodic gluts and shortages. If you turn land and labor, fundamental things you need in order to survive, into bought-and-sold commodities subject to the random whims of impersonal markets, you will wind up with societies always on the verge of destabilization, chaos and collapse; precisely what we have seen throughout the past one-hundred and fifty years of capitalism:

…the move to markets is inherently destabilizing. Rather than a font of liberty and freedom, markets are also a source of coercion, instability, precarity, and worse. Subjecting all of life to the market wouldn’t result in the freest society but instead one defined by the collapse of social life.

As Polanyi writes:

To allow the market mechanism to be the sole director of the fate of human beings and their natural environment . . . 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 the human being who happens to be [its] bearer.

. . . In disposing of a man’s labor power the system would, incidentally, dispose of the physical, psychological, and moral entity “man” attached to the tag. Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure [and] social dislocation. . . . Nature would be reduced to its elements, neighborhoods and landscapes defiled,

. . . 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 were in primitive society.

Finally, Polanyi argues that a market society like libertarians imagine is a utopian dream, because any attempt to build a market society will inevitably give rise to a backlash attempting to stop people from being turned into chattel who can be bought and sold like cattle, and land ownrship into a game of Monopoly.  Attempts to fight back against the market society have taken many forms, including socialism, communism, labor movements and periodic “back to the land” movements. These are not unnatural, but rather totally logical responses to attempts to build a “pure” market society on the part of elites:

Polanyi says that a market society is impossible to achieve, in any case, because people resist being turned into commodities. When they are exposed to too much of the market—when markets try to “disembed” from society—people resist, demanding protection from excessive commodification. Lives are more than commodities for those who are living them. This is what Polanyi describes as the “double movement”—the drive for laissez-faire inevitably produces a protective countermovement that insists on shelter from the damaging effects of the market. Welfare and different forms of social insurance are canonical products of this resistance; Polanyi believed fascism was another possible response

And people aren’t the only ones who want to insulate themselves from the vagaries of market forces. Polanyi also argues that enterprises like banks and corporations will always attempt to ensure their stability and continuation by distancing themselves as much as possible from the whims of the Market. This leads to phenomena like bailouts, cronyism, “too big to fail,”  monopolies, copyrights and patents, and so forth. It inevitably leads to a situation where the rich and powerful are protected from market forces, but the common people are exposed to it with no protection; in other words, “socialism for the rich and capitalism for the poor.” It also explains why the “pure” capitalism desired by libertarians is a fantasy. Any state strong enough to create markets is also strong enough to protect selected entities from its deleterious effects.

As Great Britain was the earliest society to undergo this transformation, Polanyi spends a lot of time discussing the Speenhamland system of early industrial England. He argues that markets weren’t created by a dismantling of the rules, but rather a rewriting of them:

In The Great Transformation, Polanyi spends a lot of time discussing the late eighteenth-century and early nineteenth-century English Speenhamland system of poor relief, which essentially provided a basic income, and its replacement with the New Poor Law of 1834, which removed that income support. Historians now doubt that Polanyi accurately characterized some of the problems of Speenhamland, but his core argument remains valid—that changes weren’t “natural,” but simply replaced one set of actors who have power with another. Taking away Speenhamland’s protections made labor a commodity, but that didn’t end state involvement: it was simply that governance was outsourced to the labor market and private actors after the New Poor Law.

The “commodification” of land, labor and goods the into capital can only be achieved by strong, centralized states.  Furthermore, these governments need to be able to provide things like legal support, military support, centralized currency, banking, exchanges, protection, and so forth. This is why capitalist states always have the biggest bureaucracies. The biggest government project in history wasn’t World War Two or the Moon Shot; it was capitalism itself. Marx understood this as well; he declared that governments were “committees for managing the common affairs of the bourgeoisie.”

Economists generally hold that land labor and capital are the three central factors for economic growth under capitalism, and yet, as we have seen, they are all fictitious commodities created by the state itself. Thus capitalism can not happen without the concerted efforts of strong, centralized states. States must carry out this transformation, and then create the conditions necessarily for “self-regulating” markets to be established and sustained form from above.

Thus, far from a “weak” state with as few laws as possible regulating the merchants, only a strong state can assure the transformation necessary to transition into a capitalist power. Furthermore, it takes a strong state in order to maintain it. Capitalism could never have taken off after the fall of Rome, for example. Instead the feudal system embedded the economy in social relationships of mutual obligation (fealty) and self-sufficiency in the from of Manoralism. Trade was once again confined to goods that could not be obtained locally. It was tightly regulated and controlled by the authorities in the form of Champagne fairs held at specific times and in specific places. The power of merchants was strictly circumscribed, just as it was in ancient times. Usury was curtailed.

And China, always a prime candidate for the Industrial Revolution, could never have become a capitalist power. This is not because the state was too powerful, but because it was too weak.

That’s the argument of a book by Peter Vries. Vries points out that, rather than the “weak state” and “free “markets that made Britain an industrial power, it was tightly regulating and controlling the economy that made capitalism possible. China was much closer to the “free market” ideal promoted by libertarians than was England, which is why capitalism could never have taken off there. Here’s a review of Vries by economist Branko Milanovich (emphasis mine):

…[Peter] Vries agrees with Bob Allen’s view that the key ingredients in British industrialization were expensive labor and cheap energy and money. This led to labor-saving innovations which were at the origin of the technological revolution. But England also had, Vries argues, a very strong “infrastructal” state that until 1830 followed protectionist policies and often manipulated tariffs and taxes to help domestic producers, engaging in what would be today viewed as “industrial policy”. Furthermore, England had a big government, high taxes, high government expenditures, “yuge” Navy, enormous debt to GDP ratio, and extravagantly highly paid government officials.

Externally, the country pursued  imperialist and mercantilist policies. Finally, and quite importantly, workers became the proletariat who had to go to the market to sell their labor (that is, lacked the cushion of working on own plot of land), and labor force became “commodified”.

England, in this short sketch, presents four distinguishing features:

  • Favorable factor endowments
  • Capitalism: rational profit-making and commodification of labor
  • Big government
  • Outside projection of power (“fiscal-military, mercantilist and imperialist state”, p. 433).

It is the addition (appendage, as it were) of an acquisitive, determined and big state that distinguishes Vries’ explanation from others which, as he points out, present an idealized Smithian picture of a government of low taxes, strong property rights, and tolerable administration of justice. His views on the importance of the use of force in international trade (on the open seas, “the distinction between peaceful, consensual trade and simple piracy was often very thin if not simply non-existent”, p. 148) makes his views close to Findlay and O’Rourke’s (whose work Vries cites very favorably) and even the world-system theorists. But with the latter, he agrees only that mercantilism and imperialism helped West’s take off but cannot explain it. Which brings us to why China has, as Vries several times mentions, “nil” chance of starting the technological revolution.

Why China did not take off? …Consider the four features that made England take off: they are all reversed in the case of China. China’s labor was cheap, energy and money were expensive. Chinese government was weak, paternalistic and unable to collect taxes. China had no army to speak about and was not engaged in military operations beyond its borders. And finally, production in China was organized in family units: it was the land of household mode of production (p. 204), or as Marx would have said, petty commodity production. Thus, workers could stay at home and work together with their families, often living [close] to the subsistence level. What was lacking was the reserve Army of the unemployed who in order to survive had to “feed” the capitalist engine in the West.

But while China was very unlikely to achieve a technological breakthrough, it was an equally or more market-oriented society as the West, at least as far as market for the consumption goods was concerned; China’s markets were more integrated than European, it conducted greater amount of long-distance trade, and its government was much smaller. So here we would, looking from a neoclassical angle, behold all the ingredients that should help China grow (integrated market, small government, low taxes). Yet  they did not. Qing China, in effect, in Vries’ rendering, sounds much more Smithian than Britain (p. 354) but precisely because it was more Smithian it failed to develop.

The origins of the Great Divergence (globalinequality)

Similarly, Gregory Clark writes:

Medieval England in the years 1200–1500 experienced little or no overall technological advance…Yet medieval England had extraordinary institutional stability. Most individuals enjoyed great security both of their persons and of their property. Markets for goods, labor, capital, and even land were generally free. Indeed if we were to score medieval England using the criteria typically applied by the International Monetary Fund and the World Bank to evaluate the strength of economic incentives, it would rank much higher than all modern high-income economies—including modern England.

A Farewell to Alms, p. 147

So the idea that capitalism and the state are somehow in opposition is the most basic kind of ignorance. It has nothing to do with historical reality. Thus we can see why the “market society” dreamed of by libertarians can never be achieved.

It’s ironic that libertarian followers of Ayn Rand who claim to celebrate individualism and character, are in fact arguing for exactly the opposite! In their conception of society, your value to the Market, reflected in your salary, becomes the only measure of your worth as a human being. And your behavior, rather than being determined your by character, is instead dictated by the impersonal demands of the Market. For example, If you are a CEO, your behavior is determined entirely by Market dictates. It is imperative that your enterprise must grow, and that shareholder value be maximized, and if you need to lay off employees to do this, or cut corners, or whatever, than that is what you must do, because that is what the Market dictates. Individual character has no bearing. If you refuse to do these things, you will be fired and replaced with someone else who will. Anyone who does not subordinate their lives, interests, and behaviors to the “discipline” of the Market will either die or starve (unless they are insulated somehow, such as by a large inheritance). No matter who you are, you are constantly under the obligation to make money, and to engage in the the actions that will make this happen. Can anything be more dehumanizing?

If you think about it for a second, it makes total sense why a market society is an impossibility. Joseph Schumpeter, one of the more influential economists of the twentieth century, persuasively argued that “creative destruction” was an essential feature of capitalist market economies. Yet, logically, this means that, if all of society is subject only to Market forces and nothing else, the entire society itself would be periodically destroyed! Clearly this cannot happen. People will not sit idly by and allow their lives to be periodically destroyed in the service of some abstract conception of the Market. In fact, Schumpeter also argued argued that capitalism was a system that could not be sustained indefinitely. But if capitalism  =  society, then clearly society would be liquidated as well. For example, during the financial crisis, you heard commonly libertarians arguing for Mellonism: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate; purge the rot from the system.” But think about it: this literally advocates for the wholesale demolition of society to preserve the Market! It’s clear why this did not happen, nor will ever happen (no doubt libertarians did not picture themselves losing their homes, or standing in the soup kitchen and bread lines).

Rather, Polanyi argued, the market is a tool that must be subordinated to the needs of society, not vice versa. In fact, this is the only realistic option. A true market society, such as the ones libertarians dream of, is an impossibility, a fantasy, a pipe dream. Any such society would quickly degenerate into chaos and tyranny, not unleash prosperity.

And this brings us back to the populist backlash against Neoliberalism around the world. That’s what we’ll be talking about next time.

Two Futures

Revelation 18:11-13New International Version (NIV):
11 “The merchants of the earth will weep and mourn over her because no one buys their cargoes anymore— 12 cargoes of gold, silver, precious stones and pearls; fine linen, purple, silk and scarlet cloth; every sort of citron wood, and articles of every kind made of ivory, costly wood, bronze, iron and marble; 13 cargoes of cinnamon and spice, of incense, myrrh and frankincense, of wine and olive oil, of fine flour and wheat; cattle and sheep; horses and carriages; and human beings sold as slaves.

A lot of people have been prompted to ask “what’s wrong with capitalism?”

This includes not just its traditional critics, but also its biggest boosters. Any number of prominent economists, ones whom one might think would never admit a flaw in the system, have been contemplating what went wrong. This ranges from prominent economists, to conservative think tanks, to institutions like the IMF and the Federal Reserve.

No one seems to be able to figure it out. For the financial insiders, the cause is always some sort of economic hiccup that can theoretically be cured by an interest rate hike here and there, or some sort of government program. In other words, just fiddling around the edges, or better technocratic management. Dare I suggest that this is a classical case of “cargo-cult thinking” by the high-priests of our capitalist age?

There are a few currently fashionable theories about what’s wrong:

Secular Stagnation. First postulated by Alvin Hansen, and newly championed by Larry Summers, This includes things like lowered population growth causing less demand for goods and services, with low interest rates unable to coax forth more investments.

Innovation Slowdown. Associated with Robert Gordon, this postulates that the “low hanging fruits” of innovation that have transformed the economy have been harvested, and that future innovations will provide lower marginal growth, and that the utility value of future innovations will be harder to monetize.

Resource Bottlenecks. This would include the Peak Oil ideas; that the resources underpinning our economy are simply not available or too costly. Shortages of water or other effects from climate change could be included here.

Debt Overhang. This means that high levels of debt need to written off before growth will resume.

All of the Above?

All of these are seen as just temporary hiccups in the 250 year trajectory of permanently higher growth and living standards by mainstream economists.

But what if the whole system is doomed? What if it’s simply not viable anymore? What if there are no marginal fixes at all? What if there is no cure besides a totally new approach to society, starting from the ground up?

And what if we’re incapable of making that transition?

I thought of this while reading the following passage about the origins of feudalism in the West:

Barbarization was but part of the rapid changes in Roman society, culture, and government that took place during the third and fourth centuries. Partially spurred by such internal problems as plague, a falling birthrate, constitutional instability, and the failure of the Roman world to develop from a labor-intensive system based largely on slavery to a more efficient mercantile or protoindustrial system, and partially by the increased creased external pressures on its overextended frontiers, the Empire had to seek a new equilibrium. (kl 205)

Origins of Feudalism in the West (Understanding Society)

These words struck me in particular: “the failure of the Roman world to develop from a labor-intensive system based largely on slavery to a more efficient mercantile or protoindustrial system.” What if we’re in a similar situation today? What if we face a choice between breaking through and falling back?

I’ve read a lot of discussion concerning our current predicament, from joblessness to automation to economic malaise. Such discussions usually end up in an acknowledgment, sometimes grudging, sometimes not, that capitalism as a system has outlived its usefulness. Or that capitalism is holding us back.

What do I mean by this? I mean the system where more and more people are rendered useless to the economic order. Where ownership is confined to a narrow circle of elites. One in which we pay out of own pocket to make ourselves viable for careers that may or may not exist by the time we’re done training, leaving us jobless AND in debt, unless we come from wealthy families. One where most of our salaries go to pay for the roof over our head, and we’re in debt from birth to death. One where much of new employment consists of providing low-wage on-demand services to a tiny clique of urban corporate technocrats. One where we are turned into economic migrants never able to put down roots. One where vast swaths of the country are dead zones devoid of opportunities besides low-wage service work, government jobs, nursing or drug sales.

I mean corporations peddling identical products designed to quickly wear out or become unfashionable, and flogging them incessantly with advertising. Centrally-planned oligopolies masquerading as “free” markets (cable monopolies etc.). People sitting in air-conditioned cubicles pushing paper all day in socially-useless “bullshit jobs” just so they can earn an income. The “nuisance economy,” where ads are shoved down our throat in order to fund our internet infrastructure. Part-time and temporary jobs with no benefits. Colleges as toll-booths to employment. Hospitals as a hostage racket. Draconian copyright laws. Artificial scarcity of software. And on and on.

We were told that the sequence of economic development is essentially the following:

Agricultural
Manufacturing
Service
???

Manufacturing has already been offshored and automated away. Consider:

Nike is to tackle rising labour costs at its Asian factories by “engineering the labour out” of its shoe and clothing production as it seeks to defend its profits. Don Blair, Nike’s chief financial officer, said its objective was to reduce the number of people making its products as he highlighted the impact of a sharp increase in wages in Indonesia.

The Future of Manufacturing Jobs in Developing Nations (Marginal Revolution)

More than 20 years after Adidas ceased production activities in Germany and moved them to Asia, chief executive Herbert Hainer unveiled to the press the group’s new prototype “Speedfactory” in Ansbach, southern Germany. The 4,600-square-metre plant is still being built but Adidas opened it to the press, pledging to automate shoe production – which is currently done mostly by hand in Asia – and enable the shoes to be made more quickly and closer to its sales outlets…Large-scale production will begin in 2017 and Adidas was planning a second “Speed Factory” in the United States in the same year, said Hainer.

Reboot: Adidas to make shoes in Germany again – but using robots (Guardian)

A Chinese government official told the South China Morning Post that a Foxconn factory has “reduced employee strength from 110,000 to 50,000 thanks to the introduction of robots. It has tasted success in reduction of labour costs. More companies are likely to follow suit.”

Smartphone maker Foxconn replaces 60,000 workers with robots (BoingBoing)

The “replacement” for these jobs was supposed to be service sector jobs. We’ve been simultaneously told that these jobs would replace the lost manufacturing jobs, and then when the low salaries are questioned, we are told that these jobs are only for teenagers or people living with their parents, despite these businesses being open year-round and during school hours, not to mention being the plurality of the newly-created jobs. Any attempt to raise salaries in this sector, we are told, would spur automation and joblessness, yet we are simultaneously told that “automation does not kill jobs,” and the “the amount of work to do is unlimited.” Left unsaid is that, by this logic, only by paying salaries that are so ultra-low that they are competitive with machines can we have sufficient jobs for people.

When you point out that once upon a time, people were paid enough to support a family on one income back when America was a manufacturing power, you are dismissively told that “those days are gone forever.”

Consider that all the calls for “more schooling” and “worker retraining” have been for naught. People dutifully marched off to get more education, but it has not saved the economy, nor the people themselves. The people who would have gone off to higher education years ago still do today, but now a college diploma is a “work chit” for any job at all. Many secondary schools are now nothing more than pre-prison holding cells. As for a path to a viable job, you are on your own. Good luck. Meanwhile, politicians like Hillary Clinton promise to make paying the onerous costs for college easier. Does anyone think that will solve anything?

In the 50 years from 1960 to 2010, the global labor force’s average time in school essentially tripled, from 2.8 years to 8.3 years. This means that the average worker in a median country went from less than half a primary education to more than half a high school education.

How much richer should these countries have expected to become? In 1965, France had a labor force that averaged less than five years of schooling and a per capita income of $14,000 (at 2005 prices). In 2010, countries with a similar level of education had a per capita income of less than $1,000.

The Education Myth (Project Syndicate)

Since 1991, we have done precisely what the education-focused poverty people said to do. Between 1991 and 2014, we steadily reduced the share of adults in the “less than high school” and “high school” bins and increased the share of adults in every other bin…By 2014, the share of adults in the “less than high school” bin declined 9 points from 20.6% to 11.6%. The share of adults in the “high school” bin declined 6.5 points from 36% to 29.5%. Meanwhile, the share of adults with an Associate degree went up 3.9 points, the share with a Bachelor’s degree went up 8.3 points, and the share with a post-Bachelor’s degree went up 4.8 points.

If the poverty rates for each educational bin remained the same, then the upward redistribution of adults from the lower bins to the higher bins would have led to lower overall poverty. But that’s not what happened. Instead, the poverty rate for each educational bin went up over this time and overall poverty didn’t decline at all. In fact it went up.

Why Education Does Not Fix Poverty (Demos)

Is it any wonder people are angry and getting angrier?

Consider that huge areas of the West are post-industrial “sacrifice zones” filled with people who have lost everything, and ready to embrace radical solutions. This includes everything from small towns to inner-cities.

Over the past 35 years the working class has been devalued, the result of an economic version of the Hunger Games. It has pitted everyone against each other, regardless of where they started…The consequences can be seen in nearly every town and rural county and aren’t confined to the industrial north or the hills of Kentucky either. My home town in Florida, a small town built around two orange juice factories, lost its first factory in 1985 and its last in 2005.

In the South Buffalo neighborhood of Lackawanna, homes have yet to recover from the closing of an old steel mill that looms over them. The plant, once one of many, provided the community with jobs and stability. The parts that haven’t been torn down are now used mainly for storage.

In Utica, New York, a boarded-up GE plant that’s been closed for more than 20 years sits behind Mr Nostalgia’s, a boarded-up bar where workers once spent nights. Jobs moved out of state and out of the country. The new jobs don’t pay as well and don’t offer the same benefits, so folks now go to the casino outside of town to try to supplement their income.

Mocked and forgotten: who will speak for the American white working class? (Guardian)

Meanwhile, it’s the same in Europe, where industrialism started, but has long since departed. Cities like Birmingham, Glasgow, Manchester, Belfast, Amsterdam, and many others that once had thriving manufacturing economies have been dealing with blight ever since the 1970s. It’s notable that the radical Jihadists targeting Europe are living in the blighted and abandoned neighborhoods cleared out by deindustrialization:

The sociologists tell us that the distribution of wealth in Brussels follows a pattern that is more commonly found in American cities — wealthy suburbs surrounding a hollowed-out center of poverty and blight. The European norm, exemplified by London and Paris, would have the most expensive and chic areas in the center. Molenbeek fits the American pattern in that it is an area blighted by derelict industrial buildings and is on “the wrong side of the tracks,” which in this case means the wrong side of the canal that splits Brussels into east and west.

Belgium is a failed state (Politico)

And it is a global problem. The capitalist economic model, the ongoing destruction of the agrarian way of life and sending the refugees fleeing to the overcrowded slums and chawls, is no longer viable. The deracinated rural people were assumed to get jobs in sweatshops where they would be producing cheap goods for rich western consumers (the twenty percent who aren’t just trying to get by, that is). We were told how much more fortunate these people were working their sixteen hour days in factories and sleeping in cinderblock dormitories than in their ancestral villages working outdoors and surrounded by their families. But now, the factories aren’t there anymore. Yet, agriculture is still no longer viable for them any more than is manufacturing, for a number of factors. What are these people supposed to do? How much is this contributing to collapse?

Global unemployment is expected to surpass 200 million people for the first time on record by the end of 2017, according a recent ILO study, and limitations of official statistics suggest that the problem is much larger . As conventional measures increasingly fail to produce tight labor markets and jobless recoveries become the norm, economists grapple with this new reality by calling it secular stagnation and by adjusting upwards the rates of unemployment deemed ‘natural’ — but the human, social and economic costs of this growing problem are rarely considered in economic modeling.

A Global Marshall Plan for Joblessness? (Naked Capitalism)

The thing is, we have no viable alternative for a deindustrialized (post-Fordist) economy. Dare I say that our current economic model is failing, and has been for over forty years? We have been in a concealed depression since approximately 1972. The responses to cover this up are running out of steam. And alternatives are being brutally suppressed by elites.

What if we are incapable of moving beyond the current economic model? Clearly, something else is desperately needed.

An alternative economic history

Even though technology is supposed to have no effect on employment, my own view is that we’ve lurched from overproduction crisis to overproduction crisis, with no real alternative. The two things that have saved us were 1.) World War Two, and 2.) Globalism. But now those have run their course.

I believe the Great Depression was caused by a massive labor shock, and this has covered up by economists ever since in the interests of preserving capitalism’s legitimacy. It was claimed that things like “financial panic” or “tariffs” or “not enough money” were the cause. But these were results of overproduction–of putting millions of people out of work and not having enough salaries to shore up the debt-driven economy. They were not the cause.

There was more production, but he salaries were not there to absorb it. The increase in output could not be absorbed at the time.

At the time, the economy was undergoing a great expansion, and new techniques were coming to the fore. The greatest of these were 1.) The electrification of the assembly line, and 2.) The mechanization of agriculture.

If you read the literature from the now long-forgotten Technocracy Movement, you will see statistics pointing out how much production had increased in various industries. I did this as part of a book project a while ago (sadly, abandoned) on the movement. I found some of their old books in the archive of the public library. Their arguments are remarkably familiar if you’ve read any of the current literature concerning automation and the workforce.

But what if they weren’t wrong? What if overproduction really was the cause?

Keep in mind, the Depression dragged on for an entire decade, despite the responses of politicians. This caused a tremendous amount of suffering and political chaos. Government programs ameliorated the worst of the suffering, but didn’t really put the economy on a firm footing, or put things back to the way they were.

For example, you always hear this mic-drop: “ninety percent of us used to work on farms (or whatever number they pull out of their ass), and now just two percent do, and yet we have plenty of jobs, hurr durr!” But that washes away a hell of a lot of history.

Of course, World War Two changed all that. But then again, World War Two was mostly a response to the economic conditions of the Great Depression. During the interwar years, governments took an active role in rebuilding their shattered economies in a way that is unimaginable today.

What really ended the Depression was, let’s not mince words here, government takeover of the economy from 1941-1950. There’s another word for that–socialism. Specifically, War Socialism. The economy under government management and control had eliminated unemployment virtually overnight. Everyone who wanted a job had one.

During this time, the government learned to control and manage large economies. This scared the shit out of the powerful industrialists, who feared they would not be needed anymore.

When the war ended, the industrialists cut a deal. “Give us back control of the economy,” they said, “and well make sure there are plenty of jobs to around, with good benefits.” For the next thirty years was what is called the “Long Boom” or “The Golden Age of Capitalism.” There was plenty of work to go around rebuilding the world, and the people who survived the war did not have to work very hard to ensure their survival. Unions were powerful, government took an active role, and the wealthy and the industrialists grudgingly accepted this state of affairs (while secretly working to undermine it)

The United States was the only industrial power whose industrial base survived the war intact. Work was plentiful. The U.S was the world’s factory floor. Even though manufacturing was never the majority of jobs in the economy, rising wages and unions had spillover effects in the wider economy. African-Americans were automated out of their farming jobs and headed north in the Great Migration. I told that story here.

After the war ended, we invented “The Gospel of Consumption.” People would be encouraged to form nuclear families and consume as much as possible to absorb all the new production. Their appetite for novelty and status would be stoked to keep them buying all of the economic output that was being produced. The television set injected advertising into peoples’ homes and manipulated their desires and insecurities. Big business would create the wants it sought to satisfy.

The government’s creation of the Interstate Highway System and the subsequent buildout of the suburbs, along with the expansion of the internal combustion engine and all its attendant satellite industries (truck drivers, mechanics, drive-in and fast-food restaurants, auto-parts stores, towing, insurance etc.) contributed to a boom in employment from 1950-1970. This would be repeated to some extent with the creation of the “information superhighway” in the 1990’s-2000, which again created a variety of jobs (despite the comical insistence of libertarians that government is always a hindrance to economic growth and development).

The wheels started coming off from ’68-’72. Much of the world’s industrial base had been rebuilt. The Germans and Japanese were able to rebuild using the latest methods and techniques, while American industry had become sclerotic. We were once again facing a crisis of overproduction.

The spike in the cost of oil led to the stagflation of the 1970’s, which allowed the alternative economic theories of the Chicago School to come the fore. These generally fall under the rubric of Neoliberalism. To deal with the “excess of democracy” workers would need to be “disciplined.” To shore up profits, production was offshored to the third world, which would also crush unions. An “new enclosure movement” would sell off the commons to rentier investors. Citizens were relabeled as consumers, pensions were swapped for stock plans, and the market would rule all.

To distract from falling living standards, two tactics were used. In Europe a generous welfare state was provided. In the United States, racial enmity, appeals to religion, and issues of social and cultural affiliation were used to distract the working classes from their falling living standards.

Beginning in the 1970’s Women entered the workforce as men exited. Two incomes were needed where one used to suffice. Later, millions of impoverished workers from the hollowed out third world failed states fled to the Western industrial economies, further depressing wages, wages needed to buy up the overproduction.

After the 1980’s, financialization was another tactic used to deal with the faltering economy. Manipulation of money replaced actual productive growth. Companies were strip-mined for profits. Corporations consolidated to cope with this phenomenon, eliminating tens of thousands of “redundant” employees in the process. restrictions on monopolies were abandoned. Pensions were raided. Shady financial products like “junk-bonds” and “derivatives” created wealth out of nothing. A series of bubbles were inflated and popped. Boom-and-bust cycles became more pronounced. This had the effect of hollowing out the real productive economy and turning financiers into modern-day aristocrats for doing unproductive, socially useless labor which actually subtracted value from the economy as a whole.

In the 1990’s and beyond, globalism rode to the rescue, i.e. the colonization of foreign markets. And the biggest star was Communist China. But after becoming the World’s Factory Floor 2.0, and hollowing out the West in the process, it seems to be faltering:

The main engine of global growth since 2000 has been the rapid industrialization of China. By channeling the vast savings of its population into capital investment, and by rapidly absorbing technology from advanced countries, China was able to carry out the most stupendous modernization in history, moving hundreds of millions of farmers from rural areas to cities. That in turn powered the growth of resource-exporting countries such as Brazil, Russia and many developing nations that sold their oil, metals and other resources to the new workshop of the world.

The problem is that China’s recent slowdown from 10 percent annual growth to about 7 percent is only the beginning. The recent drops in housing and stock prices are harbingers of a further economic moderation. That is inevitable, since no country can grow at a breakneck pace forever. And with the slowing of China, Brazil and Russia have been slowing as well — the heyday of the BRICs (Brazil, Russia, India and China) is over.

There is really only one time-tested way for a country to get rich. It moves farmers to factories and imports foreign manufacturing technology. When you move surplus farmers to cities, their productivity soars — this is the so-called dual-sector model of economic development pioneered by economist W. Arthur Lewis. So far, no country has reached high levels of income by moving farmers to service jobs en masse. Which leads us to conclude that there is something unique about manufacturing.

But here’s the problem: manufacturing is shrinking. Although the total amount of physical stuff that humans make keeps expanding, the percent of our economic activity that we put into making physical goods keeps going down. This is happening all across the globe, even in China. This may partly be because manufacturing has been a victim of its own success — the sector has grown so productive that it’s now pretty cheap to make all the stuff we need. That is exactly what happened in agriculture, after all.

Will the World Ever Boom Again? (Bloomberg)

We now have a consumer society where the consumers are too poor to pay for much of anything. As more retail is disappearing thanks to the internet, those service sector jobs in retail are disappearing too. We’ve seen malls dying all over the country. The age of mall shopping is coming to an end. Good riddance.The retail sector is crumbling thanks to online retailers. Globalism has made goods so abundant that they are virtually free. People are doing their own services online (travel, law) for hardly any cost.

Now both manufacturing and retail are gone.

On the face of it, the economic superpower that is the American consumer should be having a party. Low interest rates and unemployment rates, low oil prices, a high stock market, healthy property prices – nothing it would seem, to put off doing what comes most naturally to them – shopping.

Yet they’re stubbornly refusing to do it – or at least refusing to do it in predictable ways – leaving consumer experts to wonder, as fashion bible Women’s Wear Daily recently did, if the consumer psyche, “bombarded by digital messages, stressed financially and overwrought emotionally”, has “finally exploded”.

Low sales even in healthy economy signal ‘complete shift in shopping’ (Guardian)

What’s killing us fixed costs. Education. Health care. Housing. The internet is not a solution to those, and the “free” market cannot fix the problems it caused in the first place. As those fixed costs head inexorably upward, it is squeezing out consumer spending. All of the wage gains are heading to the top due to superabundance of labor. The job market it broken – all incentives are to automate and create as few jobs as possible, and to poach workers from competitors rather than pay for necessary training. Employers hide behind online job search platforms and sit around refusing to hire anyone besides a “purple squirrel” candidate. Employers couldn’t care less about unemployment individually, but collectively, its reducing their margins. The comments to the above article get it:

So many companies thought they were super smart after keeping the wages so low… too bad that everybody had the same idea, and now they notice they have not enough clients.

A key economic principle is to supply the workforce with enough income to afford the products you want them to buy. Check these companies. I bet the work force is all part time minimum wage. You have to give money to the consumer in order for them to give it back.

Maybe it’s because much of what is being offered for sale in the shops is badly-designed, skimpily-made, short life-span, mainly Chinese-manufactured crap – stuff that 30 years ago would have been considered to be “counterfeit”. We have an entire system of production, distribution and exchange based on taking stuff out of the ground, turning it into junk in police-state China, and then, after a short, credit-financed interval, shoving it all into another hole in the ground. Who really benefits from this?

Its the internet. You can buy what you want, when you want, see reviews and most importantly you have breathing space between looking and buying. This space allows you think “do i actually need this?” Sometimes the answer is no. So many people are buying less stuff.

When people have high rents and mortgages to pay,or when they have to save up for years for a deposit then they don’t have much money for consumer spending. New properties have tiny rooms so there isn’t the space for all that consumer junk. Most of the stuff in shops is either junk or too expensive for most people.

If you live in a medium-sized town that’s not a tourist destination, you will see the same boring chain stores that you see in every other town. Shopping is boring if it’s just the same stores in every town and every mall, all selling the same stuff. Maybe in huge cities like New York there is some imagination to products and window displays but in most places shopping has gotten dull. Yes, I’d rather have an experience like seeing a National Park than seeing another chain store.

Informed consumers making rational choices – the marketing industry’s nightmare.

Yet our genius economists and politicians appear not to care. After all, they’re getting richer. They appear much like the clueless aristocrats of Ancien Régime France. Morris Berman:

The truth is that no system lasts forever; change is the only constant we find in the historical record. As one social critic argued a few years ago (Peter Frase), “humanity has never before managed to craft an eternal social system…and capitalism is a notably more precarious and volatile order than most of those that preceded it.” Wolfgang Streeck, in an article he published in 2014 in the New Left Review, wrote that “What we are seeing today…appears in retrospect to be a continuous process of gradual decay, protracted but apparently all the more inexorable.” Whatever stability capitalism had in the past, he goes on to say, was dependent on the presence of countervailing forces (e.g., labor unions). Today, no force is on hand to check capitalist expansion, balance it out; which suggests that it may undermine itself by being too successful. Everyone in these societies is mesmerized by consumerism, and thus dysfunctions in the system continue to accumulate, because there is not enough structural variety to cope with change. In a word, he concludes, “victorious capitalism has become its own worst enemy”; it is “dying…from an overdose of itself.”

As an example of this, Streeck points out that consumerist culture is absolutely vital for the reproduction of contemporary capitalism. The problem is that producers and consumers tend to be the same people. So when consumers hunt for the best bargain, they defeat themselves as producers, because they drive their own jobs abroad. In addition, corruption is now inherent in the system; it’s hardly a case of a few bad apples…

Dual Process: The Only Game in Town (Dark Ages America)

And automation has clearly presented a challenge to future expansion of the consumer:

The huge rise in automation in agriculture that drove so many people off the land created waves of discontent and dislocation, but eventually — during the Great Depression here in the US — that surplus agricultural labor was absorbed into the then burgeoning industrial sector. So not only did the economy benefit from rising productivity on its farms, but it produced higher paying jobs that enabled the newer working class to become upwardly mobile and aspire to something we have became to call the new middle class. The new jobs paid well enough to compensate for the dislocation of the prior automation. The economy took a step upwards.

Mind you the entire process of absorption took a full one hundred years if we go back and start the clock running at the start of industrialization. Not only this: along the way there were enormous political and social changes that made the end result — a generally higher level of prosperity — possible. This brighter future was not, contrary to the sunny arguments of the libertarian economists, a result of the magic of the marketplace, but was, rather, the result of generations of activism and social protest that eventually put in place truly democratic institutions to mitigate that more dire consequences of capitalism. It is no accident that modern democracy is a much newer arrival on the scene than is modern capitalism.

The advent of a new age of machines enabled the launching of what we know as modern capitalism. And its first notable consequence was to benefit a rise in returns on capital. It was this early history of industrialization that Kuznets so famously captured in his eponymous curve. But since Kuznets we have observed an enormous shift backwards. Not only has inequality risen to near historic levels, but there has been a decided bias towards returns to capital once more.

Here’s the issue: the service sector covers a very wide range of activities, from those remaining laundry washers to brain surgeons. Along the way it includes the hairdressers and bartenders that the Deloitte study highlights. It also includes the engineers, designers, and sundry bloggers…The problem is that many of theses jobs produce lower income than the manufacturing or industrial jobs being displaced by automation. So the new history is radically different from the older history.

Whereas the old displacement eventually created a more prosperous and plentiful middle class, this new displacement may not. Indeed if we take the studies of people like David Autor and his co-authors at MIT seriously, it certainly will not. At least any time soon. Worse as the pace of innovation accelerates automation seems to be working its way up the income scale. Not only are traditional blue collar jobs being automated, but many previously secure white collar jobs are going under also. The result is that we are experiencing a huge bifurcation in society unlike that of the last wave of automation. That last wave consolidated society around a fairly prosperous median. This wave is dividing society into two very different levels. The bulk of people are finding themselves compressed between stagnant wages and rising costs, with automation a major factor in the wage compression. Whilst, at the same time, a much smaller group benefit from the wages flowing to their skills.

Automation and History (Real World Economic Review)

Clearly our current economic model is failing. What will replace it?

What Next?

Karl Marx apparently thought that there were only two options available after the breakdown of capitalism: forward to socialism or backwards to barbarism. After reviewing the above, I’m inclined to agree. I would label these two futures as:

1.) Post Capitalism

2.) Neo-Feudalism

What would postcapitalism look like? Well, it might look a lot like what Paul Mason has written about in his book of the same name. Postcapitalism is not socialism, but it has certain socialistic aspects.

Mason looks at the inequality and unemployment situation. He also agrees that changes in technology call for a transformation of the economy, but he argues that the natural changes that should come about are being suppressed.

Mason argues that capitalism goes through Kondratieff waves of approximately fifty years, during which new inventions bring forth changes in the system. He argues that the needed changes right now are being suppressed and stagnated to maintain the status quo.

  • 1790-1848: the factory system, steam and canals. Turning point the late 1820s depression. Collapse with the 1848-51 revolutions in Europe, Mexican War and Missouri compromise.
  • 1848-mid-1890s: railways, the telegraph, steamers, stable currencies. Peaked in the mid-1870s with financial crises leading to the Long Depression of 1873-96.
  • 1890s-1945: electrical engineering, the telephone, scientific management and mass production. Turning point at the end of the First World War, ending with the Great Depression.
  • Late 1940s-2008: transistors, synthetics, factory automation, nuclear power and automatic calculation. Peaked with the 1973 oil shock, followed by extended instability but no major depression.
  • In the late 1990s, overlapping the previous cycle, the initial elements of the fifth wave appear: the internet, mobile phones and information goods.

But it has stalled. And the reason it has stalled has something to do with Neoliberalism and something to do with the technology itself.

Mason argues that the fundamental shift to information technologies:

Postcapitalism is possible because of three major changes information technology has brought about in the past 25 years. First, it has reduced the need for work, blurred the edges between work and free time and loosened the relationship between work and wages. The coming wave of automation, currently stalled because our social infrastructure cannot bear the consequences, will hugely diminish the amount of work needed – not just to subsist but to provide a decent life for all.

Second, information is corroding the market’s ability to form prices correctly. That is because markets are based on scarcity while information is abundant. The system’s defence mechanism is to form monopolies – the giant tech companies – on a scale not seen in the past 200 years, yet they cannot last. By building business models and share valuations based on the capture and privatisation of all socially produced information, such firms are constructing a fragile corporate edifice at odds with the most basic need of humanity, which is to use ideas freely.

Third, we’re seeing the spontaneous rise of collaborative production: goods, services and organisations are appearing that no longer respond to the dictates of the market and the managerial hierarchy. The biggest information product in the world – Wikipedia – is made by volunteers for free, abolishing the encyclopedia business and depriving the advertising industry of an estimated $3bn a year in revenue.

Almost unnoticed, in the niches and hollows of the market system, whole swaths of economic life are beginning to move to a different rhythm. Parallel currencies, time banks, cooperatives and self-managed spaces have proliferated, barely noticed by the economics profession, and often as a direct result of the shattering of the old structures in the post-2008 crisis.

And he argues that Neoliberalism is way of holding back change:

Neoliberalism…has morphed into a system programmed to inflict recurrent catastrophic failures. Worse than that, it has broken the 200-year pattern of industrial capitalism wherein an economic crisis spurs new forms of technological innovation that benefit everybody.

That is because neoliberalism was the first economic model in 200 years the upswing of which was premised on the suppression of wages and smashing the social power and resilience of the working class. If we review the take-off periods studied by long-cycle theorists – the 1850s in Europe, the 1900s and 1950s across the globe – it was the strength of organised labour that forced entrepreneurs and corporations to stop trying to revive outdated business models through wage cuts, and to innovate their way to a new form of capitalism.

The result is that, in each upswing, we find a synthesis of automation, higher wages and higher-value consumption. Today there is no pressure from the workforce, and the technology at the centre of this innovation wave does not demand the creation of higher-consumer spending, or the re‑employment of the old workforce in new jobs. Information is a machine for grinding the price of things lower and slashing the work time needed to support life on the planet.

As a result, large parts of the business class have become neo-luddites. Faced with the possibility of creating gene-sequencing labs, they instead start coffee shops, nail bars and contract cleaning firms: the banking system, the planning system and late neoliberal culture reward above all the creator of low-value, long-hours jobs.

The end of capitalism has begun (Guardian)

This article makes a similar point, our addiction to capitalism, our insistence that private ownership is good, social ownership is bad, everyone must work to live, and let the market decide, are actually holding back progress. We’re creating work for it’s own sake, and hobbling true innovation to preserve the status quo:

Here lies the greatest obstacle to human progress — the longstanding connection between work and income. As long as everything is owned and the only way to obtain access to that which is owned is through money, and the only way to obtain money is to be born with it or through doing the bidding of someone who owns enough to do the ordering around — what humans call a “job” — then jobs can’t be eliminated. As a worker, any attempt to eliminate jobs must be fought and as a business owner, the elimination of jobs must involve walking a fine line between greater efficiency and public outcry. The elimination of vast swathes of jobs must be avoided unless seen as absolutely necessary so as to avoid angering too many people who may also be customers.

…Google wants to advance technology but at the same time, it doesn’t want to answer the questions those advancements will raise. This appears to be a clear example of a major obstacle for human progress. It’s the same likely reason companies like McDonald’s haven’t dived in with both feet to greatly automate their operations and vastly reduce their labor forces. The technology exists, but they aren’t doing it. Why?

Perhaps it’s because as long as people need jobs as their sole source of income, companies have the potential of stepping onto a public relations landmine by automating their jobs out of existence, or being seen as responsible for others doing so. Eliminating jobs also means not only cutting employees, but demand itself.

Putting humans out of work should be a public relations win, not a loss, and so mankind needs to make sure no one left without a job, for any amount of time, is ever unable to meet their most basic needs. Everyone needs a non-negotiable guarantee of income security, so that the elimination of jobs breeds not fear, but excitement. The loss of a job should be seen as an opportunity for new real choices. And so some amount of basic income should be guaranteed to everyone — universally — as a starting point upon which all can earn additional income.

Humanity Needs Universal Basic Income in Order to Stop Impeding Progress (Huffington Post)

What does barbarism look like? Well, pretty much like today.

Is there any doubt that we live under increasing barbarism? Inner-city ghettos. Shuttered factories. Abandoned small towns. Opiate addiction. Social dysfunction. Child poverty. Mass shootings. Lowered rural life expectancies. Medical debt. Permanent wars in the Middle East. Terrorist attacks. Suspension of civil liberties. Militarized police. Mass surveillance. Austerity in Europe. Bailouts. Mass unemployment. Overcrowded prisons. For-profit prisons. Tent cities. Police shakedowns. Criminalization of poverty. Debtors prisons. Offshore tax havens. Empty apartments as safe deposit boxes for absentee wealthy in major cities while ordinary workers are priced out.The race to the bottom. Four hundred Americans having as much wealth as half the workforce. Sixty-five people owning as much as the world’s poorest 3.5 billion people. And a complaint media that tells us to ignore all of it – things have never been better!

I’ve called this concept Neofeudalism. This is the alternative, where a tiny slice of people own everything, and the rest of us are rendered largely redundant in the economic order and left to fend for ourselves. The strategy boils down to this: transfer the rest of ownership of everything important to the aristocrats/oligarchs. This has been the historic norm for thousands of years, and it’s time tested and proven. Almost everyone is poor and has no important prospects or say in society. Recall Cullen Murphy’s definition of Feudalism: “a dispersal of political authority amongst a hierarchy of persons who exercise in their own interest powers normally attributed to the state.” He adds:

My worry now is that we’re moving away from this great sense of government as a public calling—if you’re thinking benignly, in the interest of efficiency, or if you’re thinking malignly, in the interest of greed—and toward something very different, something market driven. In the end it amounts to getting the government that you pay for. Not just that you’ve paid for as a people, but that you’ve paid for as individuals. It’s happening all around us, usually in the guise of some deal that’s just too good to walk away from, and it’s happening in virtually every sector of public endeavor. Even if one can make the case that privatization makes sense in this instance or that instance—or even in every instance—the effect over time is going to be that there’s no government left, that all power of one sort or another is in private hands. Ultimately the result is to bring back feudalism. And we’re well on the way to it.

In this interview with Michael Hudson, he makes a similar point:

Michael Hudson: “Well, try reading books about how England was in the thirteenth century. We’re moving, essentially, [to] Neofeudalism to make a long story short. People are going to find that instead of free government services as before, now they have to pay for them. And if they pay for these essential services–and most public services are essential, that’s why they’re in the public sector to begin with; to keep them out of the hands of monopolies—now all of the sudden the public services that were provided on a subsidized basis or freely are going to be privatized without any price regulation for it, and all of the sudden people are going to have to pay market prices that include interest charges, Wall Street underwriting charges, the cost of dividends, exorbitant management fees, bonuses for management, political contributions, buying off judges, buying off the courts, buying off the politicians to make sure that the people are not able to stop your gouging them. That’s how the system is developing.”

And Paul Craig Roberts says that We Have Entered The Looting Stage Of Capitalism (actually, we entered it back in the 1980’s in the West, and the 1970’s in Latin America):

The banks don’t want Greece to be able to service its debt, because the banks intend to use Greece’s inability to service the debt in order to loot Greece of its assets and resources and in order to roll back the social safety net put in place during the 20th century. Neoliberalism intends to reestablish feudalism—a few robber barons and many serfs: the One Percent and the 99 percent.

The way Germany sees it, the IMF is supposed to lend Greece the money with which to repay the private German banks. Then the IMF is to be repaid by forcing Greece to reduce or abolish old age pensions, reduce public services and employment, and use the revenues saved to repay the IMF.

As these amounts will be insufficient, additional austerity measures are imposed that require Greece to sell its national assets, such as public water companies and ports and protected Greek islands to foreign investors, principally the banks themselves or their major clients.

So far the so-called “creditors” have only pledged to some form of debt relief, not yet decided, beginning in 2 years. By then the younger part of the Greek population will have emigrated and will have been replaced by immigrants fleeing Washington’s Middle Eastern and African wars who will have loaded up Greece’s unfunded welfare system.

In other words, Greece is being destroyed by the EU that it so foolishly joined and trusted. The same thing is happening to Portugal and is also underway in Spain and Italy. The looting has already devoured Ireland and Latvia (and a number of Latin American countries) and is underway in Ukraine.

We’re already seeing the fallout: Dynastic wealth being essential for a decent life. No class mobility. Poverty. People consigned to a huge “precariat” and “unecessariat.” School-to-prison pipelines. Militarized police forces. Eliminationism. It’s what we’re seeing right now in inner-cities, the Rust Belt, and Appalachia. Even non-poisoned water is a luxury while the elite retreat to cities and gated communities, and much of the country is transformed into an open-air prison, where desperation drives people to addiction, murder and suicide.

Barbarism indeed.

A society that condemns huge swaths of its members to penury is a failed society. A society where all the benefits of labor accrue to a tiny elite while things get harsher for the majority is a failed society.

A comment to this Marginal Revolution article about people not moving around like economic flotsam to seek “opportunity” made this salient point:

If a permanent feature of your civilization is that a large fraction of the population must leave their communities, families, etc. in order to have a chance at the basics of life, a family, home, some measure of security, it is evidence that YOUR CIVILIZATION DOESN’T WORK!

A lot of people have looked at increasing rates of automation and unemployment/underemployment and seen that, barring a change, this is where we’re headed. The ones not affected, such as engineers and other assorted STEM graduates, will adopt a “first they came for…” mentality, as they currently have, until it is far enough along, and by then no one will be left to be able to speak out for them.

So I believe we’re at a turning point, similar to the fall of Rome and the end of feudalism. Like then, we face a collective choice: break through to the new and better system which provides technological sophistication, lowered work hours, more leisure time, self actualization, and more democracy; or the alternative leading to social unrest, lower living standards, reactionary politics, desperation, authoritarianism, and environmental collapse.

Marx believed that a socialist society could only be realized out of the superabundance created by capitalism. The superabundance would bring about contradictions that would bring about its own demise. That’s exactly what we’re seeing. It is the the abundance of capitalism that is causing its demise. Automation naturally leads to the logical conclusion that the means of production should be collectively owned, rather than owned by a small circle of elites while the rest of humanity is excluded from meaningful participating in the economy.

In any case, the last time a change of this magnitude, i.e. a civilizational shift, occurred in the West was during the fourteenth and fifteenth centuries, during which time the medieval world began to come apart and be replaced by the modern one. In his classic study of the period, The Waning of the Middle Ages, the Dutch historian Johan Huizinga depicted the time as one of depression and cultural exhaustion—like our own age, not much fun to live through. One reason for this is that the world was literally perched over an abyss, something that emerges very clearly at the end of The Tempest, by Shakespeare, written as late as 1610. What lay ahead was largely unknown, and to have to hover over an abyss for a long time is, to put it mildly, a bit of a drag. The same thing was true of the collapse of the Roman Empire, on the ruins of which the feudal system slowly arose. It is also true of our situation today, which is why the “solutions” proposed by political figures are little more than bad jokes. These people have no vision because they can’t grasp what is happening, and therefore what is required.

So it seems we will either break through to postcapitalsm the way capitalism emerged from feudalism – a resource based society, with a much more equitable distribution, worker ownership, peer-to-peer transactions, participatory economics, much less work/worksharing, non-carbonized fuel sources, and a steady state economy centered around wellness.

Or, we will fail to make a transition clinging desperately to the old system as the living standards for the majority of the world’s workers converge at a third-world poverty level while individual people control more wealth than nation-states and distribute it by whim. Where hollow states exist solely to protect wealthy interests, including a digital panopticon enforcing the status-quo, while the former middle-class is left to fend for itself in violence-wracked economic dead zones. Where the absentee owners live in seasteads and vacation in outer space while formerly-prosperous citizens live in tent cities, shantytowns, or overcrowded prisons.

The choice is ours. I’m not optimistic, although the rising tide of opposition to Neoliberalism around the world (whether voters recognize it as such or not) indicates that the future is still in flux. Marx famously said that history repeats itself, first as tragedy then as farce. Can there be any better confirmation of this than the Donald Trump candidacy?

The Impossibility of Debt-Free Money

A few additional notes on the previous post.

One issue that always arises is that of “debt-free money.” I myself have raised this issue in the past. But, as we saw in the previous post, money is debt, therefore there can be no such a thing as debt free money. Money by definition is an IOU. As we saw, money is always a credit-debt relationship, recorded on government balance sheets. That’s simply a consequence our medieval double-entry bookkeeping system. If there were no debt, then there would be no money. Since money is debt, as we saw previously, it is even possible to say there is such a thing as debt free money?

Randall Wray, one of the leading economists working in this field, says “no way.” Debt-free money is an impossibility, like a one-sided coin. He writes: “…Money is always and everywhere else an IOU…All money… is debt. It is on the liability side of issuer and asset side of holder. You cannot change that through confusing semantics.”

Wray calls proponents of debt-free money “cranks” and wrote a series of posts last year pointing out the impossibility of debt-free money. I suppose proponents of debt-free money are just as misguided as those who claim that “the debt” will mean entire nations will all be living in abject poverty in the future due to paying off all their debts (to who, Martians?)

Randy Wray: Debt-Free Money and Banana Republics (Naked Capitalism)

Randy Wray: Debt-Free Money and Banana Republics, Part II (Naked Capitalism)

Randy Wray: The Value of Redemption (Debt Free Money, Part 3) (Naked Capitalism)

Randy Wray: American Colonial Currency (Debt Free Money, Part 4) (Naked Capitalism)

Some people wonder, can we not spend money into the economy without it being somehow recorded as a government debt?

The problem is simple – adding money into the economy under the current system adds to the “national debt” which as we saw, are only interest-bearing assets recorded by the Fed. Paying off the debt merely consists of exchanging securities for dollars by transferring between accounts. Nevertheless, “fiscal conservatives” can easily handicap any government measures by demagoguery over “the debt we’ll leave to our grandchildren!!!” It’s a powerful message to the average Joe Sixpack, and its hard to counter, especially with the eye-popping numbers used in the modern U.S. economy.

In other words, can the government spend on a bunch of stuff without it being a corresponding liability somewhere on the books that gets “fiscal conservatives” all hot and bothered?

The answer appears to be no.

Wray argues that we cannot suspend the rules of accounting, and have any validity to calling what would be issued under such a system “money.” He argues that redeemability is an essential feature of money. Issuing “stuff” as wealth with no corresponding relationship to pay it back, either as a loan or thorough taxes, is not issuing money. Sure, you can use a commodity, like gold or plastic or paper, but is is not money unless it is recorded on a balance sheet somewhere, and can be used to extinguish the tax liability. For example, if you hand your jacket to a coatroom clerk and receive a token in return, it is money. Why would you just get a coatroom token with a claim on nothing? That’s not money. What use is it? Wray argues that redeemability is a key feature of any money. If we did not record this debt against the government balance sheets, there would be no tax liability to “redeem” as money.

Imagine a cloakroom that issues “debt-free” cloakroom tokens. These look just like the normal token issued by a cloakroom, but they are not debts. You can return them to the cloakroom, but you don’t get a coat. The cloakroom attendant refuses to recognize the tokens as debt. They are your assets, but not cloakroom debts.

What is a “debt-free” cloakroom token? It is a piece of plastic, a piece of cardboard, a piece of paper. It is “wealth-based”, not “debt-based”. Its value is determined by the value of the plastic, cardboard, or paper.
Imagine a sovereign that issues “debt-free” coins. They look like normal coins, but when you take them back to the exchequer, your taxes are not paid. The exchequer does not recognize them as a debt—as a promise to redeem yourself in tax payment–but rather as a bit of base metal.

Why would you want the debt-free cloakroom token? Why would you want the debt-free coin? Only for its wealth-value (whatever that might be). It is not money.

As MMT says, “taxes drive money”. If you cannot use the sovereign’s token to pay your taxes, it is nothing but a piece of paper, hazelwood stick, or metal. If you cannot redeem the token for your coat, or for the taxes you owe, why would you want it?

A “debt-free money” would not be evidence of a debt. What would it be?

Wray goes on to argue that issuing a bunch of “stuff” with no credit-debt relationship is not money. They might just as well issue bananas:

…Maybe a banana? I like bananas. If the sovereign or cloakroom attendant offered me a token banana, I’d take it. I wouldn’t worry whether I could redeem it. I’d eat it. If I weren’t hungry, I might exchange it for a newspaper at the kiosk. Maybe the news agent is hungry for a banana.

But I don’t find it useful to call bananas money. Even if I can trade them for newspapers. Bananas are not “issued”. They are cultivated, harvested, transported, marketed. They’ve got value. But they are not money. Calling bananas money is a perversion of the language.

Instead of bananas, he might have better have used cacao beans as an example. Cacao beans were commonly used as money in the Aztec Empire. Potatoes are another great example. Stable and long-lasting, potatoes have been used as medium of exchange in peasant villages. One Russian farmer even tried to create potato-backed money.

None of these are likely to help us, though. I know in Life Inc., Douglas Rushkoff describes money being created by slips issued for grain delivered to a central repository and used as money. He argues against the idea of “centralized money.”

Towns that had been in shambles since the fall of the Roman Empire and had lived under strict feudalism were finally coming into their own. This all hinged on the use of local currencies — grain receipts — through which people transacted. They were what we would now call “demurrage” currencies that were earned into existence. Towns ended up creating more value than they knew what to do with! They started investing in their infrastructure and their windmills and their water wheels; and also in their future in the form of cathedrals and other tourist attractions…The Vatican and central Rome did NOT build the cathedrals. The funds came from local currency, which was very different than money as we use it now. It was based on grain, which lost value over time. The grain would slowly rot or get eaten by rats or cost money to store, so the money needed to be spent as quickly as possible before it became devalued. And when people spend and spend and spend a lot of money, you end up with an economy that grows very quickly.

Beyond Life Inc: Talking with Douglas Rushkoff (Reality Sandwich)

As much as I enjoy Rushkoff’s work, this is one area where I think he’s way off base.

I think people are still getting hung up on the “medium of exchange” aspect. They still see dollars as being like gold coins that we use to grease exchange operations and solve the famous “double coincidence of wants” problem. As such, they can be anything, including slips of paper. But as we’ve seen, money is more than that.

Imagine if we had a “super counterfeiting” machine. It somehow defeats all the checks put in place to verify the veracity of a dollar bill, from the inks to the serial numbers to the paper. We could then issue this “money” with no corresponding debt. We would, in effect, have “debt-free money.”

I think we can see why this is wrong. Sure, we can present this at a store, and the clerk might even take it, being none the wiser. But, by just being able to crank out this “debt free” money at will, we will almost certainly cause inflation, and if we run the “super counterfeiting” machine fast enough, we would probably cause a lot of inflation. All this new “money” would be floating around, but with no limit on its creation. There is no record of it on the books. That’s why it is illegal.

Imagine if some of these bills got back to the government. How would they account for all this new money? They would probably shred it. Or, if they were so impressed by the accuracy of our new machine that they decided our new money press was worth continuing to use (essentially turning us into a mint), they would record every dollar we printed on their spreadsheets, meaning we could use them to pay our taxes as well as pay for stuff. Thus, the system would be in balance again. But we would not have “debt-free” money.

So “debt free” money is sort of like counterfeiting as far as I can tell.

[The debt-free money cranks] argue that the irrational fear of government debt is what constrains our government spending; we cannot spend enough to get the economy growing because the outstanding stock of federal government debt prevents Congress from allocating more funding…Hence the conceit is that if we found another way—printing debt-free money—to finance spending without issuing more debt, Congress would jump at the chance to spend more.

And if government would spend more, then we wouldn’t need so much private debt to keep the economy afloat. While I’m somewhat sympathetic to this view of political realities (although I do not believe Congress would start up the printing presses), the operational realities are quite different from what is imagined.

Our debt-free money folks…believe that government first receives taxes, or asks banks for loans, and then it spends. They want to avoid sending government to banks to borrow bank money, for which banks charge interest. Government then supposedly spends the bank deposits created through the bank loans, and then has to either tax or borrow more bank money to pay the interest.

But that is not true. Government cannot spend “bank money”; it can only write checks on its deposit account at its central bank. What it spends is central bank reserves. Central bank reserves are the liability of the central bank—which is a branch of government.

When Treasury sells bonds to banks, it is not borrowing bank money. Again, it cannot spend bank money so there would be no purpose in borrowing it. Banks that buy bonds must use central bank reserves to purchase them; the central bank debits bank reserves and credits the Treasury’s deposit at the central bank. The Treasury spends central bank money, the liability of the central bank. As the central bank is a branch of government, it is the government’s own IOU that the Treasury is spending.

Indeed, the only way the Treasury can spend is by writing a check on its account at its central bank. All Treasury spending takes the form of spending central bank IOUs. It is always “debt-financed” spending, using government debt.

Telling the Treasury to stop selling bonds will not stop the government from going into debt…

Wray argues that what people are really upset about is having to pay interest to the bankers on the money we issue. He argues that since debt-free money is impossible, we just need to adopt a zero interest rate policy (ZIRP) forever to solve that problem:

Debt-free stimulus, or more generally a debt-free government finance spending proposal, actually requires interest payment on debt, unless the central bank adopts a permanent policy of ZIRP. Either the Fed or the Treasury must pay interest on debt to avoid ZIRP. We can have the Fed issue the debt rather than the Treasury, but it is still debt and it still pays interest. Or we have permanent ZIRP. This is why I made the claim that all debt-free money proposals reduce to permanent ZIRP.

Wray concludes:

My point is that we use double entry book-keeping, and if “money” (however defined) is someone’s financial asset then it is another’s liability. Call it a “credit” (from the point of the view of one holding it), or a “debit” from the other’s point of view; or a debt; or a liability. What debt-free monetary cranks insist is that the money they want the government to create will show up only on the holder’s balance sheet as an asset, with no liability on anyone’s balance sheet. That is what I object to. Some argue that the Treasury, itself, treats coins as “equity”, not “debt”. Fine. Equity is on the liability side of the balance sheet. Twist and mangle the language all you want. But at least do the balance sheets correctly.

Wray argues that a lot of the proposals about “debt free” money on the table rely upon a debt-for-equity swap at some point. The debt is merely relabeled as equity–voila, no more debt! After all, if we hold “equity” in something, that sounds a lot better than holding “debt.” Wray considers this as simply a matter of semantics, and not a serious “debt free” money proposal.

Changing the terminology from “debt money” to “liability money” is of course possible. By the same token we could instead invent a definition of “debt” that excludes Treasury liabilities, too. Treasury liabilities such as bills and bonds are much like the Fed’s liabilities: both are presumably backed by the full faith and credit of the Congress and both pay interest. We could invent a new term to cover all such liabilities, replacing the usual term, which is debt. I’m open to suggestions from our wordsmiths.

Yves Smith adds:

…any financial asset is someone’s else’s financial liability. This is ever and always true…Some readers sought to depict “equity” as a way to square the circle, that they could have an asset that is not a liability to some other party or entity.

The stock you hold (if you do [own] shares) is most assuredly a liability. Go look at any corporate balance sheet. It is not on the asset side of the ledger. Equity is a residual claim on a company’s assets and the cash flows they generate. They are the most junior. Equity is an extraordinarily ambiguous legal claim, to the degree that [entrepreneurship] expert, Professor Amar Bhide at Fletcher, has long argued that it is not appropriate to be traded on an anonymous basis…

Another issue, which seems to pervade discussions about “money” is that people want “money” to be a stable store of value over time. Na ga happen, ever. Any financial asset, and money is a financial asset, is subject to all sorts of vagaries. Physical assets are no safer. That prime [coastal] real estate may be under water in 20 years. Gold has been volatile (just look at its price chart in any currency from 2008 till now) and also has different values in different settings…The desire to have money be concrete seems to be linked in many cases to the enthusiasm for gold or gold-currencies. But gold’s value isn’t enduring or fixed in any way; it’s value depends on the structure of social relations…

Like anything else, “value” is what others are willing to pay for it. After 2008, that $500,000 house was now “worth” something more like $150,000. Where did that $350,000 go? And don’t forget entropy!

Another hang-up I always hear is that money can be created “out of nothing!” But as we see, money is not a “thing,” it is a social relation, and thus has always been created out of nothing, just like a new vocabulary word (“that word was created out of nothing!”), or points on a scoreboard. The U.S. government was created “out of nothing” too–essentially pieces of paper (the Declaration of Independence, the Constitution). The corporation was created “out of nothing” as well–it’s just a legal construct with an existence on paper.

If money were not created “out of nothing,” how else could it be created? Digging stuff out of the ground? It makes a bit more sense to index it to something like fossil fuels, which provide the energy that underpins our economy. The problem is, not everything in the economy is “stuff” made from energy; some of it is services, or ideas. If you pay me for busking on the subway or cutting your hair, we really didn’t use that much more energy. And if I invent a new type of engine, that knowledge is worth at least as much as the fuel poured into it. Just the name “Coca-Cola” and the recipe is worth more than all the bottling plants and office buildings of the company all over the world. The knowledge of how to build a fire is “worth” as much as the sticks or the kindling; the labor to build a house as valuable as the materials. We need enough money for the things we wish to transact with in money, not just for the amount of concrete durable goods we can produce. Don’t forget things like insurance and futures contracts.

Besides, the banks don’t create money out of nothing; they draw on their reserve accounts (checking accounts) at the Federal Reserve. Fractional reserve banking does create more money from deposits, on the idea that not everyone will want their deposits at once. The issue here, however, is what fraction can be lent out as deposits. It currently stands at 10%. If we were to up the reserve requirements, money creation would go down. Would that be a good thing?

The interest paid to the banks is the real issue. As we saw, we cannot spend money into the economy without creating debt. But is it necessary for students to go heavily into debt to fund their education, or homeowners to go broke paying for inflated real estate prices? Do borrowers have to pay usurious credit card rates to make up for their lost incomes? As Michael Hudson has argued, the interest money paid to the banks is a net loss from the productive economy, even though we register enormous bank profits as a net gain.

By the way, that’s another thing to consider the next time you hear about how the rich got there though “hard work.” As we saw, bondholders receive additional money for holding bonds through mere keystrokes. How are they getting rich through “superior talent and hard work?” In fact, financial instruments like this are the main way people get rich over time. Keep in mind that bonds can be passed own through generations tax-free.

Another issue might be actually offering negative interest rates. This would essentially be, as I understand it, demurrage currency as mentioned above–money that loses value over time unless it is spent. Demurrage currency was another popular proposal to deal with money shortages (the “Miracle of Wörgl”). Of course, this would apply only to money kept in bank accounts, not to pieces of paper, and such a proposal might invite hoarding. This is why it’s linked to ideas to get rid of cash entirely. But is seems to me that people would just flee to some commodity not controlled by government interest rates, such as gold and silver (where there really would be a huge spike in prices).

Fear of government is the hangup here. People don’t trust governments. No cash means a record of every transaction, and governments are now pushing this to make us “safer.”

A final issue involves the issuance of bonds. As I pointed out, future generations will not only be the debtors, but also the creditors, otherwise, who would we all the money to? But I conveniently glossed over the issue of who gets the money in the future. The redistributional effects are the real concern here, not the debt per se. Wikipedia has a good summary:

  • For every dollar of debt held by the public, there is a government obligation (generally marketable Treasury securities) counted as an asset by investors. Future generations benefit to the extent these assets are passed on to them.
  • As of 2010, approximately 72% of the financial assets were held by the wealthiest 5% of the population. This presents a wealth and income distribution question, as only a fraction of the people in future generations will receive principal or interest from investments related to the debt incurred today.
  • To the extent the U.S. debt is owed to foreign investors (approximately half the “debt held by the public” during 2012), principal and interest are not directly received by U.S. heirs.
  • Higher debt levels imply higher interest payments, which create costs for future taxpayers (e.g., higher taxes, lower government benefits, higher inflation, or increased risk of fiscal crisis).
  • To the extent the borrowed funds are invested today to improve the long-term productivity of the economy and its workers, such as via useful infrastructure projects or education, future generations may benefit.
  • For every dollar of intragovernmental debt, there is an obligation to specific program recipients, generally non-marketable securities such as those held in the Social Security Trust Fund. Adjustments that reduce future deficits in these programs may also apply costs to future generations, via higher taxes or lower program spending.

National Debt of the United States (Wikipedia)

Finally, we ought to wonder where the opposition to these ideas come from. After all, if the government injects more money into the economy, won’t most of that money end up in the pockets of wealthy people–the people who own all the companies and the businesses and so forth. Won’t they be the prime beneficiaries of increased private sector spending? Why are they so diametrically opposed to these ideas, then?

This is doubly disingenuous, since there can be no doubt that the wealthy have some conception about how the money system works, otherwise they would not be wealthy. Surely they know that government funds are unlimited, or that bonds are merely savings accounts at the Fed.

I think part of it is that fact that many businesspeople need to “balance their books,” so they naturally assume the government should too. This is especially true of small business owners who have to especially worry about servicing their debts. Trying to explain to them that the government does not operate under the same rules as they do is nearly impossible. From what I’ve seen, small business owners tend to fall into a distinct personality type. They don’t like to change their minds, are type-A workaholics, see themselves as martyrs and Atlases balancing the world on their backs, have chips on their shoulders, and are overwhelmingly Republican.

The other reason is simpler, and more cynical. They are willing to sacrifice the economic well-being of the country to achieve certain goals. What goals are those? Keeping workers in fear. Pushing down wages. Abusing workers and demanding more and and more from them for less pay. Keeping unemployment high to keep workers terrified of losing their jobs.

By claiming “the government can’t crate jobs,” and portraying government spending as “waste” and government-funded activities as somehow illegitimate, they increase their own power. If we realize that the government can buy and procure whatever it needs from the private sector on our behalf, so long as those resources are on offer, including unused labor, it reduces our dependence on the plutocrats. That’s why they fundamentally hate democracy:

I have often suggested here that a key characteristic of mainstream economics is its fundamental distaste for democracy. We read it in the way in which economics pours scorn on government – even democratic government – as an automatic and inevitable problem in the achievement of efficiency, whatever that is. The anti-social bias is palpable.

Why Trump? (Real World Economics Review)

Another reason is that they hate the social safety net. They hate Social Security, hate Medicare, hate welfare. They simply hate anything that makes the lives of working people a little bit less brutal and uncertain. Simply put, they are pure sociopaths.

So they are willing to suffer, so long as we suffer more! One is reminded of the old joke about the genie who promises his rescuer one wish, but with the caveat that his wish will be granted to his enemy twice over. He asks to be beaten half to death.

As I like to point out, the people who know how the money system operates have no qualms about using it for their own benefit. Want proof? Did anyone ask how we were going to pay for the Gulf War 2? Did anyone ask how we’re going to pay for the F-35 jet fighter? I didn’t hear that on the news. Yet they constantly proclaim that the government is “broke” and we need to raise the Social Security retirement age. Were there any qualms about using the power of money creation to make bankers and investors whole? That was deemed “necessary.” Yet making our crumbling and hurting communities whole leads to outcries of “we can’t afford it!!!”

Finally, why do the rich pay more in taxes if we do not need taxes to fund spending? This is simply because of the marginal worth of money. The wealthy will not notice the money removed from their accounts to the same extent people living closer to subsistence will.

In fact, much of their “wealth” is sitting idle and unproductive, doing nothing more than increasing the prices for housing and rare artwork. Recall that taxes are to remove purchasing power so that there is room for government spending. It makes sense to remove “unproductive” wealth. Salaries are almost all spent on necessities. On the other hand “unearned” wealth sits idle most of the time. Despite the propaganda that all of this money fuels investments that put us all to work, it is clear that this is not happening, and that there is far more money than is needed to invest in real productive activities. That’s should be removed as taxes to make room for government activity which really would invest in productive things, like a smart grid, new school buildings, or intercontinental high-speed rail.

Since we do not to tax to raise the funds we need, it is our choice what to tax. In our system, we tax earned wealth higher than unearned wealth! This is crazy!

Evidence from the social sciences demonstrates that beyond a certain income threshold, people’s sense of well-being depends much more on their relative purchasing power than on how much they spend in absolute terms. If top tax rates were a little higher, all homes would be a little smaller, all cars a little less expensive, all diamonds a little more modest and all celebrations a little less costly. The standards that define “special” would adjust accordingly, leaving most successful people quite satisfied.

Are You Successful? If So, You’ve Already Won the Lottery (New York Times)

Explain Like I’m Five: Modern Monetary Theory

A while ago, I came across a comment from someone on r/collapse describing Functional Finance (MMT) concepts to someone droning on with the usual misinformed “we’re borrowing from the future” rhetoric. I thought those comments did a very good, succinct job of explaining some of the concepts, so I thought about posting them here.

Then I thought, in that same spirit of brevity and simplicity, what if I fleshed out those comments a bit more?

As some of you may know, Reddit has a section entitled “Explain Like I’m Five.” I wondered if there was one about MMT. There was, but it wasn’t very fleshed out.

So, I thought, here was a challenge. What you see below is the result. It’s far more wordy than I wanted, and necessarily a bit more complicated than I would have liked (maybe more “Explain Like I’m Fifteen”). I wanted it to to be no longer then a (long) Reddit comment, but I couldn’t quite do the concepts justice in that space, although, with a bit of clever cutting and pasting, it could form the basis of a suitable Reddit comment. I actually did that myself to respond to a particularly idiotic posting, and that in return helped flesh it out. Nevertheless, brevity and simplicity were the key goals here. I used more examples than I would have liked, but I really think they help in explaining the concepts.

*Plagarism alert!* A lot of this is lifted from other sources. I tried to avoid copying text word-for-word as much as possible, but there are some instances where I fell back on that because it was clearer and more accurate. I took a lot from Warren Mosler’s definitive work on the topic– “Seven Deadly Innocent Frauds of Economic Policy,” rephrasing and simplifying along the way, as well at the “Introduction to MMT” at New Economic Perspectives. I also stole a bit from David Graeber about the nature of money, along with some other authors. So don’t accuse me of plagiarism, because I admit it! Still, I hope this collection and simplification of their ideas will be of some merit.  In that spirit, I hope  the original authors will not object.

Of course, if anyone spots any severe inaccuracies or errors (bearing in mind that this is a simplified explanation), please be sure and point them out. I’m not an economist, nor do I even play one on TV, I’m just someone sick of all the misinformation and scaremongering I see out there.

Without further ado:

Introduction

Modern Monetary Theory describes the way the monetary system works for sovereign governments who control the issuance of their own currencies. It simply describes how our international monetary system actually works and what the ramifications of that are.

The great virtue of modern, fiat money is that it can be managed flexibly enough to prevent *both* deflation and also any truly damaging level of inflation – that is, a situation where prices are rising faster than wages, or where both are rising so fast they distort a country’s internal or external markets. The trick is for the government to spend enough to ensure full employment, but no so much, or in such a way as to cause shortages or bottlenecks in the real economy. These shortages or bottlenecks are the actual cause of most episodes of excessive inflation. If the mere existence of fiat monetary systems caused runaway inflation, the low, stable rates of consumer-price inflation we have seen over the past thirty-plus years would be pretty difficult to explain.

The government has no money! It can only take money from the private sector by force!!!

The government has no money? The government neither has nor does not have money. It spends by changing numbers up in our bank accounts and taxes by changing numbers down in our bank accounts. And raising taxes serves to lower our spending power, not to give the government anything to spend. Taxes do not finance government spending. As a sovereign currency issuer, the government does not need to “get something” from the private sector first in order to spend. If the private sector has to “earn” dollars, where are they to get the dollars that they must earn?

Imagine if we had a brand new country with a brand new currency. No one has any. Then the government proclaims that there will be a property tax. How can it be paid since no one has any money? It can’t, until the government starts spending. Only after the government starts spending the currency does the population have the money to pay the tax. The funds to pay the taxes, from inception, come from government spending (or lending). We need the federal government’s spending to get the funds we need to pay our taxes.

As another example, imagine if parents wanted their children to do certain household chores, so they printed up a series of coupons and gave them to their children coupons for each task completed–mowing the lawn, taking out the trash, and so on. To create a demand for the coupons, they require each child to pay them 10 coupons at the end of the week to avoid punishment. The children can trade the coupons among themselves if they wish; thus Suzy can have Jimmy clean her room by “paying” him with one of the coupons “earned” from mom and dad.

This creates a demand for these coupons. These coupons now function as the household’s “money.”

Do the parents have to somehow get the coupons from their children before they can issue them to the children for doing their chores? Of course not! In fact, the parents need to “spend” the coupons by paying the children to do the household chores if they want to collect the coupons at the end of the week. How else can the children get the coupons that they need?

If government spends currency into existence, it clearly does not need tax revenue before it can spend. Further, if taxpayers pay their taxes using currency, then government must first spend before taxes can be paid.

If you went to the local tax office and wrote a check for $1,000 to pay your taxes, the government would deduct that $1,000 from your checking account and hand you a receipt, extinguishing your tax liability. The government did not “get” anything from you–it just transferred sums in various bank accounts. If you were to pay your taxes with all one-dollar bills, the government would also extinguish your tax liability, hand you a receipt, and toss the dollar bills into the furnace. The dollar bills in this case function like a $1,000 concert ticket – once the ticket taker takes the ticket from you, she tears it up and throws it away because it is no longer needed.

Thus, the government does not need to “get” money from somewhere to give to someone else that they can then use to “spend.” The people at the U.S. Treasury who actually spend the money (by changing the numbers of bank accounts up) work in different offices than, and do not even have the telephone numbers of, the people at the IRS who collect the taxes (who change the numbers down), or the people at the U.S. Treasury who do the borrowing (by issuing Treasury securities).

Similarly, if the government owed you a tax refund of $1,000, it would simply add an additional $1,000 credit to your bank account.  It doesn’t take a gold coin or a dollar bill and stick in into a computer somewhere. All it does is change the number in your bank account by making data entries on its own spreadsheet, which is linked to other spreadsheets in the banking system. Government spending is all done by data entry on its own spreadsheet called “The U.S Dollar Monetary System.”

This is often referred to as “printing” money, although hardly any money exists in physical form such as cash or coins. Most of it exists in the various accounts through which money transferred from one account to the other via keystrokes, and the government can never “run out” of keystrokes. They are adjusting the numbers in various bank accounts either up or down.

In other words, the sovereign government that issues its own currency has unlimited spending power; it owns the currency. These credits/debits are recorded in various spreadsheets, so, the government can never “run out” of money, any more than a sporting event can run out of points, or a construction site can run out of inches. If the New York Yankees score twelve runs against the Boston Red Sox, and twelve runs get added to the scoreboard, they did not “steal” those points from the Red Sox. That is, the government is not “revenue constrained” (but does face other constraints)

If taxes are not used to raise the money the government needs to function, then what are they used for? Taxes create the demand for the government’s currency. Liabilities issued by the state will be considered ‘money’ if those are also the only thing you can use to satisfy tax obligations. The government can levy a general tax obligation on all citizens, and declare what it is payable in. That is sufficient to create a demand for their IOUs as money, and will basically drive its use even in most private transactions within the country.

To prevent the government’s spending from causing inflation, the government must also take away spending power via taxation not to pay for anything, but so that their spending won’t cause inflation. “Unprinting money” via taxation makes it more scarce and valuable, and leaves enough room for governments to spend without causing inflation.

Taxes can also regulate aggregate demand, and we can use taxation to modify market behaviors by taxing what we wish to discourage (like smoking and carbon emissions), and subsidizing what we wish to encourage (like health care and clean energy).  The amount of tax revenue has no effect on the spending power of the government. As previously stated, taxes function to regulate our spending power and the economy in general, and not to get the money for Congress to spend.

This is not to say that the government should just spend, spend, spend, without limit, but that the government’s budget constraint is the wrong constraint. The correct constraint is whether or not a particular budget position will raise inflation beyond an official target rate  (say, 2%, which seems to be the choice of most central bankers). The objective of the government should be to provide full employment while controlling inflation. This is done by investing (to increase employment) and taxing (to control inflation).  An inflation constraint provides more fiscal space than a budget constraint, but in no way does it provide unlimited fiscal space. Therefore, the government should not have deficits or surpluses as their primary objective. Rather, the conditions in the actual economy will dictate policy.

If the current economy has a lot of unemployment, than the government should invest to try and create jobs while taxing in a clever way to avoid inflation. In such a case, the government would possibly end up running a deficit. If, on the other hand, there is high employment and lost of revenue from the sales of goods abroad, then the government should tax a lot; it wouldn’t need to spend as much and might possibly run a surplus. In either case, the conditions of the actual economy determine the actions to take, not an artificial budget constraint.

The same goes for the overall amount of debt. When people say “future generations are going to pay for our debt,” they are really saying that in the future the government will be constrained and have less spending power because of the debts we run up today. This is not true; the government owns the currency and so the amount of overall debt has no impact on the government’s ability to spend. The government can always issue the money it needs to pay its liabilities.

But the National Debt is XXX TRILLION DOLLARS!!!!

The term “national debt” is deceptive, the “debt” is actually assets on the balance sheets of private entities. In the above example, are the parents, by issuing slips of paper to get their children to do their chores, in any sense “in debt” to their children by doing so? Of course not!

Similarly, in the property tax example, is the government now in “debt” as a result of issuing the coins needed to pay the property tax? Is the government how in hock to some third-party due to its “deficit spending?” Does it have to redeem those coins for wheat or pigs or anything else at some point in the future? Of course not. There’s just a bunch of money circulating out there that people can use for transactions. The treasury has made no promise to redeem those coins for anything. There’s really no reason to call those coins, or any other financial instrument the government chooses to manufacture out of thin air and swap for those coins, “national debt.” A debt that will never be paid off is a very questionable “liability.”

That’s essentially the situation with the U.S. national “debt.” The U.S. issues money by deficit spending. It puts more money into private accounts than it takes out via taxes. The private sector has more balance-sheet assets (but no more liabilities, so it has more “net worth,” the balancing item on the right-hand side of its balance sheet). The Treasury has made no promises to redeem that new money for anything (except maybe…different government-issued assets). It’s just out there. They, are only “liabilities” to the government in the most pettifogging accounting sense. If you “owed” some money that you would never, ever have to repay, would you put that on your balance sheet as a liability? Would it be anything beyond a pro forma entry designed to satisfy some obsessive impulse for accounting closure?

When government spends without taxing, all it does is change the numbers up in the appropriate checking account (reserve account) at the Fed. This means that when the government makes a $1,000 Social Security payment to you, for example, it changes the number up in your bank’s checking account at the Fed by $1,000, which also automatically changes the number up in your account at your bank by $1,000.

The U.S. and other sovereign currency issuers operate under a purely self-imposed accounting rule: their treasuries are required to issue bonds equal to that deficit spending. This is a straightforward asset swap: the private sector gives checking-account deposits (back) to the government, and the government gives bonds in return. Private sector assets and net worth are unaffected by that accounting swap; it just changes the private-sector portfolio mix — more bonds, less “cash.” In any case, issuance of these instruments represent a desire to save on the part of the private sector, otherwise they would not find willing buyers.

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It’s commonly said that the private sector is “holding government debt,” since the private sector is holding treasury bonds, but this is a misnomer. The private sector is holding assets on its balance sheet, whether they consist of bonds, “cash,” or reserves. But the “debt,” such as it is, only exists as an offsetting accounting liability on the right-hand side of the government balance sheet. It is not accurate to call these a “liability” since they will never be redeemed for anything. A better term to describe the things that we tally up on the left-hand side of our private-sector balance sheets might be “government-issued assets,” as opposed to ” government debt.” The private sector holds (owns) government-issued assets, not liabilities. And even the offsetting liabilities themselves are rather dodgy and iffy accounting entries. The government issues those assets as a public good.

The government has committed itself to issuing bonds for archaic reasons, and so it needs to roll over its “debt.” When old bonds mature, the government pays them off and issues new ones to replace them. The stock of government-issued assets grows over time, as it should and must in a growing economy. As the economy expands, the government issues more assets as a necessary lubricant, and to avoid transactional lockups for the operation of the private-sector economy (i.e. to avoid a ‘liquidity trap’). The “debt” grows over time as the economy expands. The U.S. and U.K. have been issuing debt for more than two centuries, and it has never been paid back. It cannot be, because otherwise there wold be no money. (see below)

The government should be run “like a household!!” If I ran my household budget the way that the Federal Government runs its budget, I’d go broke!!! We have to live “within our means,” so the government should too!!!!

A sovereign, currency-issuing government is NOTHING like a currency-using household or firm. The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency.

Government debt does not have to be paid back. It almost never is. To pay back government debt, you have to run a budget surplus, and while there may be modest surpluses from time to time, they don’t add up to more than a minuscule fraction of all the accumulated debt. Governments that issue their own money don’t have to pay off their debts. They actually can’t. In fact,as we saw above, they issue money — the money that’s necessary for a growing economy to operate — by deficit spending.

We have seen that money is a credit/debit relationship, and the relationship between various sectors of the economy (public, private and foreign) must always sum to zero due to an accounting identity. If the government reduces its debt, everyone else has to go into debt in exactly that proportion in order to balance their own budgets. Debt consists of issuing liabilities that others are willing to hold as financial assets.  If there were no debt, there would be no money!

You can think of this as series of interlocking balance sheets between the the major sectors of the economy: public (the government), private (business in aggregate), and foreign (balance of payments), where the total assets = total liabilities. The numbers are zero sum—a surplus in one sector necessarily means a deficit in another sector due to accounting identities.

Since income has to equal expenditure for the economy as a whole (which is the same things as saying that saving equals investment), the sums of the difference between income and expenditures of each of the sectors of the economy must also be zero—a rise in the deficit of one sector must be matched by an offsetting change in the others. These differences can also be described as “sectoral balances.” Thus, if a sector is spending less than its income it must be accumulating (net) claims on other sectors. When broken into sectors, government deficits are non-government surpluses, to the penny.

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If the government declares “we must act responsibly and pay off the national debt” and runs a budget surplus, then it (the public sector) is taking more money in taxes out of the private sector than it’s paying back in. That money has to come from somewhere. So if the government runs a surplus, the private sector goes into deficit. If the government reduces its debt, everyone else has to go into debt in exactly that same proportion in order to balance their own budgets.  People just assume that the government running a surplus will somehow make it easier for all of us to do so too. But the reality is precisely the opposite: the less the government is in debt, the more everybody else is.

Why does anybody have to be in debt at all? Why can’t everybody just balance their budgets? Governments, households, and corporations; everyone lives within their means and nobody ends up owing anything. Why can’t we just do that?

Because if there were no debt, then there wouldn’t be any money. Money is debt. An individual household or business needs to get dollars to pay it’s debts, that’s true. The same is not true of the economy as a whole. Your spending is my income. Your debt is my asset. Banknotes are just so many circulating IOUs. (take out a dollar bill and read what it says: “This note is legal tender for all debts, public and private”). Dollars are either circulating government debt, or they’re created by banks by making loans. That’s where money comes from. Obviously if nobody took out any loans at all, there wouldn’t be any money. The economy would collapse.

They money that we use are liabilities issued by the central government that others are willing to hold as financial assets. For most people and firms, others are only willing to value and accept our IOUs if they promise to pay something (redeemability in say, an equivalent amount of government currency) and that the extent that our promise to pay is credible (which the banks are in the business of keeping track of).

On the other hand, almost everyone is willing to value and accept the government’s IOUs, because everyone needs to collect government IOUs to pay taxes. That valuation is so ubiquitous, we’re willing to hold far more of the government IOUs than we even need to pay taxes, because they’re a safe bet for holding value for the foreseeable future. So the government can issue more IOUs (cash, coins, reserve accounts, treasury security accounts) than they require back in taxes, and end up perpetually running deficits to satisfy private savings desires. Our money is the government’s liabilities; if there were no debt, there would be no money!

There is going to be a cascading hierarchy of money based on the government IOUs, such as bank IOUs (checking/savings account balances) that promise to pay government IOUs, and personal IOUs (checks, etc.) that promise to pay bank IOUs, etc. And those will all tend to be denominated in the main unit of account made up by the government (dollar, Yen, Pound, Euro, whatever).

So there has to be debt. And debt has to be owed to someone. Let us refer to this group collectively as “the One Percent.” If the government runs up a lot of debt, that means the One Percent hold a lot of government bonds, which pay quite low rates of interest. The government taxes you to pay that interest.

If the government pays off its debt, what it’s basically doing is transferring that debt directly to the public sector as mortgage debt, credit card debt, student loan debt, and so on. Of course the money is still owed to the one percent, but now they can collect much higher rates of interest. And this debt is accumulated by those least able to pay. There were three times in recent decades when the government ran a budget surplus, and each time the surplus was followed, within a number of years, by a recession. Every depression in our nation’s history was preceded by a big decline in nominal Federal debt.

The government can always print the money it needs via keystrokes to pay its obligations as we saw above. Private levels of indebtedness are a much greater concern, and a greater drag on the economy. Private borrowers (and non-sovereign-currency states like Greece and Alabama, for instance) do have to pay off their debts (or default). That’s why the level of aggregate private debt, not sovereign debt, is the big money management problem.

Government deficit spending creates nongovernment sector saving in the form of domestic currency (cash, reserves, Treasuries). This is because government deficits necessarily mean the government has credited more accounts through its spending than it debited through its taxes.

Austerity through government surplus means taxing/extinguishing more money than is created and injected through government spending. That either means increased private sector debt or reduced private sector savings. This is simply a fact due to double-entry bookkeeping.

The government has a monopoly on the currency!!

The government really has no need for legal tender laws, and many countries don’t use them. Neither do they need to criminalize issuing alternative currencies. Once you have paid your taxes, you are free to hold your money in dollars, Euros, Yen, gold coins, Bitcoins, local currencies, or exchange value directly through time banking. No jack-booted government thug will take  your money away from you. However, it is unlikely the corner grocery store will accept your Yen or gold coins; most domestic transactions are denominated in U.S. dollars because it is easier, and because dollars are needed to pay the tax obligation. In fact, people trade currencies all the time and these values tend to “float” against one another. Only the Federal Reserve can issue U.S. dollars however; if anyone could “print” dollars in their basement in whatever quantity they desired, a dollar wouldn’t be worth very much, and inflation would very quickly be out of control.

We are stealing from our children!! Future generations will have to pay it all back with interest!!!

The amount of debt incurred today will not stop future generations from producing and consuming all the goods and services they desire and are capable of producing. In the future, just like today, whoever is alive will be able to go to work and produce and consume their real output of goods and services, no matter how many U.S.Treasury securities are outstanding. We will not have to send real goods and services “back in time” to pay off the debt. All things being equal, and if we do not mismanage the economy, the economy will be larger in the future than it is today. Our children will change numbers on what will be their spreadsheet, just as seamlessly as we do today. Also, future generations are not just the debtors, but also the creditors. Otherwise, who would we owe all that money to?

Currently, the U.S. economy is still running well below potential output. When we operate at less than our potential – at less than full employment – then we are depriving our children of the real goods and services we could be producing on their behalf. Likewise, when we cut back on our support of higher education, we are depriving our children of the knowledge they’ll need to be the very best they can be in their future. When we cut back on basic research and space exploration, we are depriving our children of all the fruits of that labor that instead we are transferring to the unemployment lines. This is the real “stealing from our children!”

When the cost to borrow is low, it makes sense to invest in things that will pay a greater return down the line. Every business does this, and any CEO who does not know this would be fired. Like individuals, a government can increase its means in the long run by borrowing to invest in things that will make the economy more productive, and thus increase the tax revenue. If a government invests in improving the transport system, it will make the country’s logistics industry more efficient. Or if it invests in healthcare and education, that will make the workers more productive.

More importantly, unlike individuals, a government has the ability to spend “money it does not have”, only to find later that it had the money after all. The point is that deficit spending in a stagnant economy will increase demand in the economy, stimulating business and making consumers more optimistic.  If nominal interest rates are below long-run trend real GDP growth, a dollar of debt more than pays for itself in the long-run.

As we saw above, “austerity” means reducing the amount of money available and driving up the level of private indebtedness. The irony is that in order to somehow “save” public funds for the future, what we do is cut back on expenditures today, which does nothing but set our economy back and cause the growth of output and employment to decline. Currently, the misplaced fear of leaving the national debt to our children continues to drive policy, and keeps us from optimizing current output and employment.

The debt burden depends on the ratio of debt to GDP as well as the interest cost in servicing it. The way to reduce this burden is to have a combination of real economic growth, inflation and modest interest rates. If you want to show your concern for the well-being of future generations, demand macroeconomic policies that will boost demand and raise inflation a bit, consistent with continued low interest rates.

When Congress first imposed a debt limit in 1917, its intent was to limit the amount the Treasury could spend to finance America’s entry into World War I, not to control overall government spending. The basic structure of the debt limit hasn’t changed since 1940, and as a result, the debt limit is both arbitrary and static. It doesn’t take into account inflation or economic growth, and it has no relevance to the nation’s economic output or circumstances.

The Chinese “own” us thanks to deficits!!!

As a sovereign currency issuer, we do not need the Chinese to “fund” our deficits. A sovereign government does not need to “borrow” its own currency in order to spend. Indeed, it cannot borrow currency that it has not already spent! Functional Finance sees the sale of government bonds as something quite different from borrowing. As we saw above, the “debt” is nothing more than government-issued assets held at the Fed.  Whether they consist of bonds, “cash,” or reserves, it is unrealistic to call the money originally spent into private accounts a “debt.”

As we have seen, government deficit spending creates equivalent nongovernment savings (dollar for dollar). Some of the savings created will accumulate in the hands of foreigners. For many years (during the Clinton and Bush II presidencies) the domestic private sector was also running budget deficits—so foreigners also accumulated net claims on American households and firms. The US current account deficit guarantees—by accounting identity—that dollar claims on government will be accumulated by foreigners.

Net savings of financial assets is held as some combination of actual cash, Treasury securities and member bank deposits at the Federal Reserve. Normally, the nongovernment sector prefers to hold savings in government IOUs that promise interest, rather than in nonearning IOUs like cash.

The commercial banks we use for our banking all have bank accounts at the Federal Reserve called reserve accounts. This is where they acquire the money they use for loans – they borrow it. Lowering the interest rate at which banks must borrow from the Fed lowers the “cost” of money and makes loans easier to get, theoretically stimulating the economy. A reserve account is nothing more than a fancy name for a checking account. It’s the Federal Reserve Bank so they call it a reserve account instead of a checking account.

Foreign governments have reserve accounts at the Fed also. Foreigners earn US dollars from selling us real goods and services. What do they do with those accumulated dollars? Just like you do with your dollars, they either hold them as cash IOU’s (reserve accounts), or stick them in a savings account (by buying U.S. Treasury securities).

Treasury bonds are sort of like savings accounts at the Fed. Just like your checking and savings accounts at your local bank, your checking account probably offers a very low rate of interest, but you can draw against it any any time (it is “liquid”). Savings accounts are typically held for a longer period of time and pay higher rates of interest. They key thing to understand is that both are methods of saving.

A U.S. Treasury security is nothing more than a savings account at the Fed. When you buy a Treasury security, you send your saved dollars to the Fed, and then some at point in the future (maturity), they pay back the dollars plus interest. It is just like a savings account at any bank–you deposit dollars and get them back plus interest.

When government sells bonds, banks buy them by offering reserves they hold at the central bank. The central bank debits the buying bank’s reserve deposits and credits the bank’s account with treasury securities. Rather than seeing this as borrowing by treasury, it is more akin to shifting deposits out of a checking account and into a saving account in order to earn more interest. And, indeed, treasury securities really are nothing more than a saving account at the Fed that pay more interest than do reserve deposits (bank “checking accounts”) at the Fed. The government simply changes numbers on its own spreadsheet – one number gets changed down and another gets changed up. It is much like a transfer from a “checking account” (reserves) to a “savings account” (bonds). This is a straightforward asset swap: the private sector gives checking-account deposits (back) to the government, and the government gives bonds in return. Private sector assets and net worth are unaffected by that accounting swap; it just changes the private-sector portfolio mix — more bonds, less “cash.” (Treasury “forces” the private sector to make that collective portfolio-adjusting swap through the simple expedient of selling bonds at an attractive price — a point or two below similar deals in the private sector.)

The government bonds take the form of an electronic entry on the books of the central bank of the issuing government. Interest is paid on these “bonds” in the same manner, whether they are held by foreigners or by domestic residents—simply through a “keystroke” electronic entry that adds to the nominal value of the “bond” (itself an electronic entry). The foreign holder portfolio preferences will determine whether they hold bonds or reserves—with higher interest on the bonds. Shifting from reserves to bonds is done electronically, and just like above, it is a transfer from a “checking account” (reserves) to a “savings account” (bonds).

If an individual bondholder needs cash for real-goods transactions or whatever else, the necessary asset-swap transaction happens with a mouse click. Likewise holders of checking-account deposits: if they want physical currency, their bank stands ready to make the swap; it’s called “withdrawing cash.” If the bank runs short on physical currency, the Federal Reserve provides it on demand in exchange for the bank’s reserves, its account deposits at the Fed.

When the U.S. government does what’s called “borrowing money,” either domestically or internationally, all it does is move funds from checking accounts (the reserve accounts held by the banks) at the Fed to savings accounts (Treasury securities) at the Fed. In fact, the entire $13 trillion national debt is nothing more than the economy’s total holdings of savings accounts at the Fed.

What happens when the Treasury securities come due, and that “debt” has to be paid back? The Fed merely shifts the dollar balances from the savings accounts (Treasury securities) at the Fed to the appropriate checking accounts at the Fed (reserve accounts) – that’s it. To pay off the national debt the government changes two entries in its own spreadsheet – a number that says how many securities are owned by the private sector is changed down and another number that says how many U.S. dollars are being kept at the Fed in reserve accounts is changed up. That’s all, debt paid. All creditors have their money back. Paying off the entire U.S. national debt is but a matter of subtracting the value of the maturing securities from one account at the Fed, and adding that value to another account at the Fed. These transfers are non-events for the real economy and not the end of the world, as some fear.

As we saw, foreigners buy government bonds when they are more attractive than reserves, which pay little or no interest. Let us presume that sizable amounts of government bonds are held externally, by foreigners. What if low interest rates mean that foreigners decide they would rather hold reserves than bonds?

If the day ever comes when China demands that the Treasury securities which it holds have to be paid back, the Fed simply changes two numbers on its own spreadsheet. The Fed debits (subtracts from) China’s securities account at the Fed. And then it credits (adds to) China’s reserve (checking) account at the Fed. That’s all – debt paid! It’s essentially an asset swap. Paying off China doesn’t change China’s stated $U.S. wealth. They simply have dollars in a checking account rather than U.S. Treasury securities (a savings account) of equal dollars. China now has its money back. It has a (very large) U.S.-dollar balance in its checking account at the Fed. We will not have to sell off the Statue of Liberty or Mount Rushmore to pay off our “debt” to China.

If China then wants anything else – cars, boats, real estate, other currencies – it has to buy them at market prices from a willing seller who wants dollar deposits in return. And if China does buy something, the Fed will subtract that amount from China’s checking account and add that amount to the checking account of whomever China bought it all from. Refusing to “roll over” maturing bonds simply means that foreign banks will have more reserves (credits at the issuing government’s central bank) and less bonds. Selling bonds that have not yet matured simply shifts reserves about—from the buyer to the seller. Neither of these activities will cause pressure on the government to offer higher interest rates to try to find buyers of its bonds.

From the perspective of government, it is perfectly sensible to let banks hold more reserves while issuing fewer bonds. Or it could offer higher interest rates to sell more bonds (even though there is no need to do so); but this just means that keystrokes are used to credit more interest to the bond holders. Government can always “afford” larger keystrokes, but markets cannot force the government’s hand because it can simply stop selling bonds and, thereby, let markets accumulate reserves instead.

Now the private and foreign sector’s portfolio mix certainly has economic import (and even more so, changes in that portfolio mix). But that mix is secondary and subsequent to the total stock of various government-issued assets in play — be they bonds, checking deposits, whatever. Without a sufficient pool of those lubricatory assets, the financial economy binds up and freezes, as does international trade.

What happens if foreigners decide they do not want to hold either reserves or bonds denominated in dollars, and sell them off?

For the rest of the world to stop accumulating dollar-denominated assets, it must also stop running current account surpluses against the US. Hence, the other side of a Chinese decision to stop accumulating dollars must be a decision to stop net exporting to the US.  This is not going to happen, as China is very much dependent upon exporting to the U.S. for a number of reasons.

Furthermore, trying to run a current account surplus against the U.S. while avoiding the accumulation of dollar-denominated assets would require that the Chinese off-load the dollars they earn by exporting to the US—trading them for other currencies. That, of course, requires that they find enough willing buyers to take their dollars. That is, the dollars earned by China’s export surplus have to go somewhere.

This could—as feared by many commentators—lead to a depreciation of the value of the dollar. That, in turn,would expose the Chinese to a possible devaluation of the value of their US dollar holdings—reserves plus Treasuries that total over $2trillion.

If China’s central bank ceases buying its $200 billion a year of dollar denominated assets, and if nothing shocks the behavior of other central bank or collection of private foreigners, two things will happen: (1) the value of the value of the dollar will fall, and (2) U.S. interest rates will rise. The fall in the value of the dollar will boost U.S. exports and diminish U.S. imports, and the trade deficit will shrink. And–as long as the Federal Reserve is successful in avoiding recession–the rise in interest rates will reduce investment inside the United States and also lower asset values, which will make homeowners and investors feel poorer and increase their savings. It will thus reduce the gap between savings and investment, and so diminish the capital inflow.

What happens if China says, “We don’t want to keep a checking account at the Fed anymore. Pay us in gold or some other means of exchange!” They simply do not have that option under our current “fiat currency” system. Governments do not typically ship pallets of paper money or gold bars across the ocean. If they want something other than dollars, then they have to buy it from a willing seller, just like the rest of us do when we spend our dollars. In this case, they must find holders of other currency-denominated reserve credits willing to exchange these for the bonds offered for sale. It is possible that the potential buyers will purchase bonds only at a lower exchange rate, so it is true that foreign sales of a government’s debt can affect the exchange rate. However, so long as a government is willing to let its exchange rate “float” it need not react to prevent a depreciation.

Depreciation of the dollar would increase the dollar cost of China’s exports, making them more expensive, and lower the value of China’s dollar-denominated assets. US exports would become more competitive globally, which would be a boost to domestic industries, lowering the trade deficit and boosting domestic employment. For these reasons, a sudden run by China out of the dollar is quite unlikely. A slow transition into other currencies is only possible if China can find alternative markets for its exports.

The Job Guarantee

One ramification of the above is that a currency-issuing government can purchase anything that is for sale in its own currency, including the labor of every last unemployed person who is looking for a job. This is known as the “job guarantee.”

The government already creates millions of jobs, from combat soldiers, to IRS accountants, to elevator inspectors, to U.S. Congressmen (who enjoy benefits denied to most citizens). It also purchases goods and engages the labor of numerous private sector entities to accomplish various things that suit the public purpose, from building roads and bridges, to protecting the country, to basic research and development.

One key factor is that the job guarantee would hire “from the bottom,” not from the top to ensure that such programs don’t create real resource bottlenecks by competing with the private sector for highly-skilled or specialized labor. The job guarantee could also put a floor under domestic wages without costly regulations. Whether the job guarantee makes fighter planes or wind turbines makes no economic difference–the workers employed by it will spend their wages on the same things other workers buy. When you hand money over to a convenience store cashier to purchase goods, do they ever squint or turn the dollar bill sideways and ask, “Are you sure this money came from work that was performed in the public sector?” They don’t, because the money governments pay to public employees is the same money everyone else gets paid in.

What matters, economically, is whether there are sufficient real resources and labor available to produce these goods and services in line with the increased demand for them. If there are, no additional government intervention is necessary in order to mobilize them. The same private profit motivation which induces a company to produce one widget can be relied upon to produce the production of another one. If there are enough real resources available to produce the goods and services that are equal in value to the government’s job guarantee spending–if they are not already being used to produce something else–then the increased demand that results from the payment of job guarantee wages will not be inflationary, regardless of what they go to produce.

The only time the American economy ever achieved an extended, years-long period with zero unemployment, low, well-controlled inflation rates and with no significant financial aftershock at the end was the World War II era – broadly defined to include the Lend-Lease buildup of 1940 and 1941. This solution to the problem of mass unemployment worked in the 1940s and it would work today. In the 1940s, of course,the jobs were almost all war-related. But, economically, this makes no difference. Increased government spending is what ended the Great Depression, not the War per se. The former British politician Tony Benn regularly noted that if you can have full employment killing Germans, then there is no reason why can’t you have it doing other socially useful activities.

But Weimar Germany! Greece!! Venezuela!!! Zimbabwe!!!!

It should be noted that the above applies only to sovereign governments with control over the issuance of own currency. A user of the currency who does not control its issuance has no such prerogative; it needs to procure the currency from another source. Greece, as a member of the Eurozone, does not have control over its own currency. Its currency, the Euro, is used by a number of other countries with different economic conditions and is not allowed to “float,” Regulation of the currency is controlled not by the Greek government, but by the European Central Bank.

In Weimar Germany, the government was forced to pay extremely large war reparations in foreign currencies which it didn’t have, so it had to aggressively sell its own currency and buy the foreign currency in the financial markets. This relentless selling continuously drove down the value of its currency, causing prices of goods and services to go ever higher in what became one of the most famous inflations of all time. By 1919, the German budget deficit was equal to half of GDP, and by 1921, war reparation payments represented one third of government spending. On the very day that government stopped paying the war reparations and selling its own currency to buy foreign currency, the hyperinflation stopped.

In Zimbabwe, the conditions for hyperinflation were caused by the destruction of nearly half of the country’s domestic food production via misguided land reforms, plus a civil war which eliminated much of the economy’s productive manufacturing capacity. In response to food shortages, the Bank of Zimbabwe used valuable foreign exchange reserves to buy imported food, leading to a lack of foreign currency to purchase essential raw materials. Manufacturing output collapsed, but the government used much of the remaining foreign exchange to dole out political favors, rather than adding to the country’s productive capacity. The end result was inflation and then hyperinflation.

A sovereign-currency issuer might “have” to pay back their debt if they have committed to redeem their money for something else. For instance Argentina (dollar-denominated debt) and whole host of other countries who were on a gold standard had promised to give gold in return for their money. If they can’t or won’t do so, that is a default on their promise. The U.S. and the U.K. (among others) do not face that situation.

Yes, once the economy gets to full employment, then extra government deficit spending can start driving up prices, but with high unemployment and unused yet functioning factories all across the country, there is plenty of room to cut taxes and/or increase spending to get us to full employment. This is true no matter what the size of the federal deficit. Ultimately, inflation (and then hyperinflation) is about competing distributive claims over real resources, such as oil, gas, water, etc.

It is perfectly true that a poorly managed monetary system, or one which is experiencing something like an oil-price shock, can experience inflation. But people today simply don’t realize how much bigger a problem the opposite condition can be. A little bit of inflation is useful and normal. It discourages people from hoarding money and encourages healthy levels of consumption and investment. It promotes growth, provided that a country’s fiscal and monetary authorities manage it properly. Under the gold standard, and largely because of the gold standard, the capitalist world endured eight different deflationary slumps severe enough to be called “depressions.” Since the gold standard was abolished, there have been none.

The dollar is not “backed” by anything!!! Fiat currency is not “real” money!!!

Many people are unnerved by the thought that money isn’t “backed” by anything anymore – backed by gold, for example. They’re afraid that this makes money a less reliable store of value. Hasn’t money always been gold or silver, or at least backed by it? Nope. In primitive societies, people typically participated in gift exchanges, where the receiver was placed under obligation to the giver, who would then receive something back in return at a later date. Such reciprocity has even been observed in non-human primates. As societies grew larger and more complex, and more interaction was between strangers, this relationship became more formalized. Writing was invented to keep track of these relationships. Historical studies confirm that credit/debit relationships recorded on clay tablets were the earliest known form of “money.”

Coinage was invented much later as a way of raising large armies and paying mercenaries. Governments found the easiest way to provision soldiers was to issue them standard-issue bits of gold or silver and then demand everyone else in the kingdom give them one of those coins back again. Because soldiers have the coins which everyone needs to pay the tax, trade with soldiers becomes a necessity. These coins started circulating as money. Promissory notes, which recorded an obligation on the part of a third party (an IOU), passed from hand to hand in the Middle Ages as an early form of paper money. Tally sticks, upon which were recorded a farmer’s tax obligations to the crown, also circulated as money throughout medieval Europe.

The Bank of England was created when a consortium of forty London and Edinburgh merchants — mostly already creditors to the crown — offered King William III a £1.2 million loan to help finance his war against France. To this day, this loan has never been paid back. It cannot be. If it ever were, the entire monetary system of Great Britain would cease to exist.

One problem with defining the value of the dollar in terms of gold is that gold’s value fluctuates relative to all other goods and services as the supply or demand for gold changes. When economic growth was not accompanied by an increase in the supply of gold, it put downward pressure on prices. The result was deflation and rising real debt burdens. For example, news in April 1893 that the government was running low on gold was followed by the Panic in May and a severe depression involving widespread commercial and bank failures. As a result of the panic, stock prices declined. 500 banks closed, 15,000 businesses failed, and numerous farms ceased operation. The unemployment rate hit 25% in Pennsylvania, 35% in New York, and 43% in Michigan. Soup kitchens were opened to help feed the destitute. Facing starvation, people chopped wood, broke rocks, and sewed in exchange for food. In some cases, women resorted to prostitution to feed their families.

Functional finance emphasizes the role of money as a”unit of account,” and a “store of value,” rather than as a “medium of exchange.” Money is primarily a credit/debt relationship and always has been. There would scarcely be enough gold bars in the world to run a modern industrial economy. Besides, even though gold and silver have a long history of use as a medium of exchange, it is still a social convention based upon “faith” that gold and silver are valuable–rarely do people need actual gold or silver for anything, any more than they need pieces of paper. In fact, commodities used as a medium of exchange typically do not have very many practical uses, otherwise they would be far too valuable as commodities to be used for money!

Money is primarily a social tool that we use to mobilize real resources to ensure our collective long-term health and prosperity. It is not a “thing” that is inherently scarce like diamonds or gold bullion. It is not something for the rich and powerful to hoard in their bank accounts, or to hide in offshore tax havens. It should be noted that the reverse is also true: no amount of money creation can substitute for actual resources which do not exist in the real world. Used wisely, however, it can allow us to manage our existing resources more carefully, including making the best use of our natural and human capital.

Conclusion

To sum up, sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, nor can they be constrained, by purely financial limits because, as issuers of their respective currencies, they can never “run out” of money. This doesn’t mean that governments can spend without limit, or overspend without causing inflation; or that governments should spend any sum unwisely. The government cannot mobilize resources that do not exist. What it does mean is that no sovereign government needs to tolerate mass unemployment because of the state of its finances–no matter what that state happens to be. Nor does it require foreign entities to finance its deficit. What this further means is that a prolonged slump or depression is, ultimately, a political choice.

Sources:

(I encourage you to read the original texts at the following locations):

https://www.reddit.com/r/collapse/comments/472285/sweden_on_the_brink_an_interview_with_dr_tino/d09ttyp

https://www.reddit.com/r/AskSocialScience/comments/3mhh05/eli5_modern_monetary_policy_mmt_the_economic/cvs1pbz

The 7 Deadly Innocent Frauds of Economic Policy (PDF)

What is Modern Monetary Theory, or “MMT”?

Britain is heading for another 2008 crash: here’s why

‘Living within our means’ makes no economic sense. Labour is right to oppose it

MMT Primer

MMP Blog #24: What if Foreigners Hold Government Bonds?

China and the Trade Deficit

Martin Wolf On Wynne Godley’s Sectoral Financial Balances Approach

Isn’t it Time to Stop Calling it “The National Debt”?

The Meme that Refuses to Die: Government Debt Must Be Paid Back

4 Ways to Fix the Debt Limit – Forever

Crisis Chronicles: Gold, Deflation, and the Panic of 1893

Panic of 1893

Randy Wray: The Value of Redemption (Debt Free Money, Part 3)

The Deficit: Nine Myths We Can’t Afford

Jane Jacobs and America’s Dysfunctional Urban Design

It’s the 100th anniversary of Jane Jacobs birth, even celebrated with a Google doodle, despite Google going against literally everything she believed in and wrote about.

So, it’s time for a quick overview of the urban environment.

Data mining has confirmed what Jacobs knew through observation:

Back in 1961, the gradual decline of many city centers in the U.S. began to puzzle urban planners and activists alike. One of them, the urban sociologist Jane Jacobs, began a widespread and detailed investigation of the causes and published her conclusions in The Death and Life of Great American Cities, a controversial book that proposed four conditions that are essential for vibrant city life.

In her book, Jacobs argues that vibrant activity can only flourish in cities when the physical environment is diverse. This diversity, she says, requires four conditions. The first is that city districts must serve more than two functions so that they attract people with different purposes at different times of the day and night. Second, city blocks must be small with dense intersections that give pedestrians many opportunities to interact.

The third condition is that buildings must be diverse in terms of age and form to support a mix of low-rent and high-rent tenants. By contrast, an area with exclusively new buildings can only attract businesses and tenants wealthy enough to support the cost of new building. Finally, a district must have a sufficient density of people and buildings.

Data Mining Reveals the Four Urban Conditions That Create Vibrant City Life (MIT Technology Review)

Lloyd Alter points out that this contradicts the dictums of the “market urbanists” who claim that building as many tall, dense buildings as we can in urban areas will solve all our house-pricing problems (who can afford them anyway?):

[Jane Jacobs’] words are an anathema to many in the so-called market urbanist school, who see all of this preservation of older buildings as an impediment to development; as Steve Waldman explains, these market urbanists…

…argue that cities should eliminate restrictive zoning and other regulatory barriers to development, then let the free-market create housing supply. In a competitive marketplace, high prices are supposed to be their own cure. Zoning restrictions, urban permitting, and the de facto capacity of existing residents to veto new development are barriers to entry that prevent the magic of competition from taking hold and solving the problem.

Which is where we are today, with economists like Ed Glaeser, Ryan Avent and writers like Matt Yglesias and Alex Steffen persuading many that Jane Jacobs was wrong, and Felix Salmon defending crappy towers filled with rich people by saying “Better we have a living city with a couple of less-than-perfect buildings, than a stifled one governed by nostalgists and Nimbys.” Glaeser has written that “An absolute victory for Jacobs means a city frozen in concrete with prices that are too high and buildings that are too low.”

In fact, in Toronto, the city where Jane Jacobs lived the last 37 years of her life, you can see what happens if you let this happen. Yes, there is a boom in housing, with lots of relatively affordable small units that are full of a monoculture of childless young people, with the ground floor plane filled with a monoculture of chain restaurants, banks and drugstores…

Someone posted this video on Reddit: Most of the problems that we face today in the United States, whether they are cultural, economical, social or environmental are rooted in poor urban design and planning. Due to America’s unique experience of economic growth during the 20th century (2015)

Okay, that’s clearly hyperbole. But despite that, it is a good overview about how badly our built environment contributes to a large number of problems. Every facet of living has become separated by miles and miles of land due to zoning restrictions originally intended to separate people from polluting industries. Here are just a few of the problems the video puts on poor urban design:

  • Corporate control and the loss of small business. Mom-and-pop stores which depend on social connection to the community were eliminated, because there was no more street life or mixed-use communities. Less stores mean less buying options and more power to the large corporations. Barriers to starting businesses are put in place by restrictive zoning and high rents.
  • Obesity  and food deserts As people had to drive everywhere, they relied on drugstores and gas stations for food. Fast food made it easy to get drive-through food. People were unable to walk anywhere, obesity rates increased.
  • Loss of community and civic participation With gas making it too expensive to drive, and unable to walk anywhere, people stayed in their houses, eliminating a sense of community. Children are poorly socialized since they can’t play or bike anywhere, and must be driven around.
  • High crime rates and incarceration. As people moved to sububs, urban areas lost revenue, tax base, and businesses. Those unable to move became trpped in cities. Loss of revenue caused jobs to disappear, leading to desperation and crime. This led to an expanded police presence, overcriminilization and mass incarceration.
  • Fragmentation of society. Americans are becomeing ever more segregated by income, race, and class, leading to more conflict mistrust, and suspicion.

“There is a populist notion that sprawl and suburban setting disperse people in such a way as to make things more peaceful between them. Simply separating people and resources from one another doesn’t make for a more peaceful society. Separating people and destroying the chance for social connection and communities makes people more stressed. Humans are inherently social creatures. If you try to take that away from them it makes for a tumultuous society.”

Let’s not forget other deleterious effects on health too. Maybe this is why our health care spending is so high: Commuting Takes Its Toll (Scientific American)

To the above list, we might add ADD. Boring buildings have a cost as well:

A growing body of research in cognitive science illuminates the physical and mental toll bland cityscapes exact on residents. Generally, these researchers argue that humans are healthier when they live among variety — a cacophony of bars, bodegas, and independent shops — or work in well-designed, unique spaces, rather than unattractive, generic ones. In their book, Cognitive Architecture: Designing for How We Respond to the Built Environment, Tufts urban policy professor Justin Hollander and architect Ann Sussman review scientific data to help architects and urban planners understand how, exactly, we respond to our built surroundings. People, they argue, function best in intricate settings and crave variety, not “big, blank, boxy buildings.”

And studies show that feeling meh can be more than a passing nuisance. For instance, psychologists Colleen Merrifield and James Danckert’s work suggests that even small doses of boredom can generate stress. People in their experiment watched three videos — one boring, one sad, and one interesting – while wearing electrodes to measure their physiological responses. Boredom, surprisingly, increased people’s heart rate and cortisol level more than sadness. Now take their findings and imagine the cumulative effects of living or working in the same oppressively dull environs day after day, said Ellard.

There might even be a potential link between mind-numbing places and attention deficit hyperactivity disorders. In one case, physicians have linked “environmental deprivation” to ADHD in children. Homes without toys, art, or other stimuli were a significant predictor of ADHD symptoms. Meanwhile, the prevalence of U.S. adults treated for attention deficit is rising. And while people may generally be hardwired for variety, Dr. Richard Friedman, director of the pharmacology clinic at Weill Cornell Medical College, makes the case that those with ADHD are especially novelty-seeking. Friedman points to a patient who “treated” his ADHD by changing his workday from one that was highly routine — a standard desk job — to a start-up, which has him “on the road, constantly changing environments.”

The Psychological Cost of Boring Buildings (New York Magazine)

As this Atlantic article points out, our dependence upon automobiles is insane from a practical standpoint:

What are the failings of cars? First and foremost, they are profligate wasters of money and fuel: More than 80 cents of every dollar spent on gasoline is squandered by the inherent inefficiencies of the modern internal combustion engine. No part of daily life wastes more energy and, by extension, more money than the modern automobile. While burning through all that fuel, cars and trucks spew toxins and particulate waste into the atmosphere that induce cancer, lung disease, and asthma. These emissions measurably decrease longevity—not by a matter of days, but years. ..53,000 Americans die prematurely every year from vehicle pollution, losing 10 years of life on average compared to their lifespans in the absence of tailpipe emissions.

There are also the indirect environmental, health, and economic costs of extracting, transporting, and refining oil for vehicle fuels, and the immense national-security costs and risks of being dependent on oil imports for significant amounts of that fuel. As an investment, the car is a massive waste of opportunity—“the world’s most underutilized asset,” the investment firm Morgan Stanley calls it. That’s because the average car sits idle 92 percent of the time. Accounting for all costs, from fuel to insurance to depreciation, the average car owner in the U.S. pays $12,544 a year for a car that puts in a mere 14-hour workweek. Drive an SUV? Tack on another $1,908.14
Then there is the matter of climate. Transportation is a principal cause of the global climate crisis, exacerbated by a stubborn attachment to archaic, wasteful, and inefficient transportation modes and machines…Total passenger miles by air are miniscule compared to cars. In any given year, 60 percent of American adults never set foot on an airplane, and the vast majority who do fly take only one round trip a year. Unfortunately, air travel is not the primary problem, contributing only 8 percent of U.S. transportation-related greenhouse gases. Cars and trucks, by contrast, pump out a combined 83 percent of transportation carbon.

And that’s not even counting cars’ most dramatic cost: They waste lives. They are one of America’s leading causes of avoidable injury and death, especially among the young. Oddly, the most immediately devastating consequence of the modern car—the carnage it leaves in its wake—seems to generate the least public outcry and attention…Car crashes are the leading cause of death for Americans between the ages of 1 and 39. They rank in the top five killers for Americans 65 and under (behind cancer, heart disease, accidental poisoning, and suicide). And the direct economic costs alone—the medical bills and emergency-response costs reflected in taxes and insurance payments—represent a tax of $784 on every man, woman, and child living in the U.S.

The numbers are so huge they are not easily grasped, and so are perhaps best understood by a simple comparison: If U.S. roads were a war zone, they would be the most dangerous battlefield the American military has ever encountered. Seriously: Annual U.S. highway fatalities outnumber the yearly war dead during each Vietnam, Korea, Iraq, Afghanistan, the War of 1812, and the American Revolution. When all of the injuries from car wrecks are also taken into account, one year of American driving is more dangerous than all those wars put together.

The Absurd Primacy of the Automobile in American Life. (The Atlantic) Considering the constant fatalities, rampant pollution, and exorbitant costs of ownership, there is no better word to characterize the car’s dominance than insane. But what isn’t insane about the way we live in America, hmmm?

The freeways clearly facilitated sprawl and cut the heart of America’s formerly-prosperous and glorious cities. So why were they built? A lot of it was intentionally destroying African-American neighborhoods in the interest of “urban renewal”:

State and city politicians accepted these plans for a variety of reasons. In an era when suburbs had just begun to grow, DiMento says, “local politicians saw urban freeways as a way of bringing suburban commuters into city.” Some local businesspeople supported them for similar reasons.

But an unmistakable part of the equation was the federally supported program of “urban renewal,” in which lower-income urban communities — mostly African-American — were targeted for removal.

“The idea was ‘let’s get rid of the blight,'” says DiMento. “And places that we’d now see as interesting, multi-ethnic areas were viewed as blight.” Highways were a tool for justifying the destruction of many of these areas.

Highways gutted American cities. So why did they build them? (Vox). A must-read on the history:

City planners…saw the crowded African American areas as unhealthy organs that needed to be removed. To keep cities healthy, planners said, these areas needed to be cleared and redeveloped, the clogged hearts replaced with something newer and spiffier. But open-heart surgery on a city is expensive. Highway construction could be federally funded. Why not use those federal highway dollars to also tear down blight and rebuild city centers?

The urban planner Robert Moses was one of the first to propose the idea of using highways to “redeem” urban areas. In 1949, the commissioner of the Bureau of Public Roads, Thomas MacDonald, even tried to include the idea of highway construction as a technique for urban renewal in a national housing bill. (He was rebuffed.) But in cities across America, especially those that didn’t want to—or couldn’t—spend their own money for so-called urban renewal, the idea began to take hold. They could have their highways and they could get rid of their slums. With just one surgery, they could put in more arteries, and they could remove the city’s heart.

The Role of Highways in American Poverty (The Atlantic) Syracuse, New York as case study. The fallout from this is what I touched on in my last posts on automation.

Lloyd Alter proposes the bringing back the Euroloaf building concept. I have to admit when I first saw this, I assumed Euroloaf referred to how Europeans spend their typical August.

Back in the 1970s a remarkable housing project was built in Toronto; The St. Lawrence neighbourhood has been described by journalist Dave LeBlanc as the “best example of a mixed-income, mixed-use, pedestrian-friendly, sensitively scaled, densely populated community ever built in the province”. Designed around principles espoused by Jane Jacobs (some even claim she had a hand in designing it; she didn’t), it was a mix of low street facing townhouses and long mid-rise apartment blocks of a relatively consistent height. They looked a lot like buildings from Paris or Scandinavia and were nicknamed “Euroloaf” because they are kind of shaped like loaves of bread.

Coincidentally, I was working on a post about Swedish prefab and looking at all their Euroloaves, still pretty much the standard typology…Right now wood is having a renaissance, and the point man is Vancouver’s Michael Green, with his Tall Wood…But perhaps he is trying to push a square wood peg into a round hole; perhaps it’s the wrong planning model for wood, where the Euroloaf is probably more appropriate…I have been arguing for Euroloaf planning for years without calling it that. I called it the Goldilocks Density,

 …dense enough to support vibrant main streets with retail and services for local needs, but not too high that people can’t take the stairs in a pinch. Dense enough to support bike and transit infrastructure, but not so dense to need subways and huge underground parking garages. Dense enough to build a sense of community, but not so dense as to have everyone slip into anonymity.

That’s what the Euroloaves are. The trouble with them is that developers like to build tall and thin; better views, (especially in Michael Green’s Vancouver) more repetition of elements vertically and cheaper costs per square foot (because of things like one plumbing stack serving more units).

When those Toronto developments were proposed in the seventies, the codes limited wood to three floors and they were built out of concrete. But now, building codes are changing to allow for six storey wood buildings. This changes the economics changes making low rise construction more affordable. Suddenly Euroloaves make a lot more sense.

Instead of Tall Wood, Let’s Bring Back the Euroloaf (Treehugger)

Various other readings:

Deferred in the ‘Burbs (Mike the Mad Biologist)

Finally! Tiny home subdivisions and developments are becoming a reality. (Treehugger)

How Burglars Commit Crime and Take Advantage of Cities by Hacking Architecture (Vice) Hey, I know architecture and programming! Is this my next career move?

Welcome to the Future: Middle-Class Housing Projects (New Yorker)

What Architecture Is Doing to Your Brain (Citylab)

Geography is making America’s uneven economic recovery worse (Quartz) Not geography, but urban planning.

Urban population growth and demand for food could spark global unrest, study shows (Los Angeles Times)

And finally, if you haven’t been reading the excellent series from The Guardian on the history of cities, it’s basically the equivalent of an entire book on urbanism in the proud tradition of Lewis Mumford:

The story of cities (The Guardian) Here’s the Jane Jacobs entry: Story of cities #32: Jane Jacobs v Robert Moses, battle of New York’s urban titans More here: Celebrating Jane Jacobs’ Birthday ’round the net (Treehugger)

Neoliberalism Shows Its Face

Neoliberalism is the ruling ideology of the post-Communist world, and yet no one knows what it is.

That’s the thesis of this George Monbiot column, who sheds light on the doctrine and its history. It’s a great explanation; it ties together the ideological construct of Neoliberalism with the political rhetoric which uses it as a justification, even as it denies it is an ideology at all.

Why is the private sector big business “efficient” but government spending always “waste?” Why must we turn everything over to “market forces?” Why must we always blame individuals for failure rather than systems? Why are regulations always seen as “distorting” the market? What’s up with all the “public-private” partnerships? Why should schools, hospitals, and governments be run “like a business?” Why are we forced to “shop around” for healthcare and fund our own retirements by gambling in the stock market? Why is education looked at through the prism of “return on investment?” Why have “citizens” been replaced by “consumers?” It’s all underpinned by a single ideology; an ideology maintained and elucidated by the economic priesthood:

So pervasive has Neoliberalism become that we seldom even recognise it as an ideology. We appear to accept the proposition that this utopian, millenarian faith describes a neutral force; a kind of biological law, like Darwin’s theory of evolution. But the philosophy arose as a conscious attempt to reshape human life and shift the locus of power.

Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions, that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counter-productive and morally corrosive. The market ensures that everyone gets what they deserve.

Neoliberalism – the ideology at the root of all our problems (The Guardian)

That’s a good summary. Neoliberalism is often referred to as “free market fundamentalism,” which is a good summary of its doctrine. This article details some of the history of how it became so predominant:

Free market economists believe that markets work best when left alone, and any type of government intervention to help the economy can only have harmful effects. Even after the Great Depression, they continued to argue that the government intervention would only cause further harm, and the free market would automatically resolve the problems. However, it was obvious to all that the massive amount of misery called for urgent action. [The Quantity Theory of Money] was discredited and mainstream economists accepted Keynesian ideas, rejecting free market ideologies. US President  Franklin Delano Roosevelt (FDR) started his campaign with orthodox promises to balance the budget but converted to Keynesianism when faced with the severe hardships imposed by the Great Depression. He later said that “to balance our budget in 1933 or 1934 or 1935 would have been a crime against the American people.” In the 1960’s, the aphorism that “We are all Keynesians now” became widely accepted.

Free market ideologues like Friedman and Hayek patiently bided their time, while preparing the grounds for a counter-attack. Their opportunity came when stagflation – high unemployment together with high inflation – occurred in the 1970’s as a result of the Arab oil embargo. They skillfully manipulated public opinion to create the impression that economic problems were due to Keynesian economic theories, and could be resolved by switching to free market policies. The rising influence of free market ideology was reflected in the election of Reagan and Thatcher, who rejected Keynesian doctrines. Milton Friedman re-packaged old wine in new bottles, and the [Quantity Theory of Money] went from being a discredited eccentric view to the dominant orthodoxy… monetarists succeeded in persuading many academics and policy makers of the pre-Keynesian ideas that money only affects prices, and has no long run effects on the real economy. Central Bankers were persuaded to abandon the Keynesian idea of using expansionary monetary policy to fight unemployment. Instead, they started to focus on inflation targets. Forgetting the hard learned lessons of the Great Depression led to The Global Financial Crisis. Excess money creation for speculation led to a boom in housing and stock markets, followed by a crash very much like that of the Great Depression. Chastened Central Bankers remembered Keynes and took some actions necessary to prevent a collapse of the banking system. A deeper understanding of money could have prevented the Great Recession which followed. The truth is exactly opposite of the QTM idea that money does not affect the real economy. In fact, money plays a central role in the real economy.

The Veil of Money (WEA Pedagogy Blog)

Chris Dillow thinks that defining Neoliberalism as any sort of coherent ideology is giving it too much credit. He points out all the inconsistencies between Neoliberalism’s supposed purpose to let the Market decide, and the huge salaries and profit margins of well-connected insiders and their political cronies. “It might be that “neoliberalism” is not so much a coherent intellectual project as a series of opportunistic ad hoc uses of capitalist power.”

Most leftists, I reckon, would describe all the following as distinctively neoliberal policies: the smashing of trades unions; privatization; state subsidies and bail-outs of banks; crony capitalism and corporate welfare (what George calls “business takes the profits, the state keeps the risk”; the introduction of managerialism and academization into universities and schools; and the harsh policing of the unemployed.

What do they have in common? It’s certainly not free market ideology. Instead, it’s that all these policies enrich the already rich. Attacks on unions raise profit margins and bosses’ pay. Privatization expands the number of activities in which profits can be made; managerialism and academization enrich spivs and gobshites; and benefit sanctions help ensure that bosses get a steady supply of cheap labour if only by creating a culture of fear. Ben’s claim that neoliberalism is happy with a big state fits this pattern; big government spending helps to mitigate cyclical risk.

All this makes me suspect that those leftists who try to intellectualize neoliberalism and who talk of a “neoliberal project” are giving it too much credit…. Perhaps neoliberalism is simply what we get when the boss class exercises power over the state.”

Over-estimating neoliberialism (Stumbling and Mumbling)

Dillow points out that many recent phenomena have nothing to do with markets, and everything to do with enriching a small elite. In fact, truly free markets would compete away excess profits. But if you sell off the commons to rent-seeking investors who can depend on taxpayer money and game the system, you would see guaranteed high profits supported by state money. And if markets were run by monopolies and oligopolies where barriers to entry and regulations kept out competitors, you would see excess profits as well:

…one feature of the neoliberal era has been the soaring wages of those claim to deny the power of markets. CEOs – who are in effect central planners – and financiers who aspire to beat the market have seen their pay increase massively since the 80s. That’s not something that would have happened if market ideology has triumphed.

That’s the point of this article: High Profits Mean Capitalism is Cooked (BoingBoing):

The efficient markets hypothesis holds that high margins attract competitors, who whittle them away to next to nothing, spurring firms to innovate to create new products, services, and methods that are more efficient, benefiting the wider society. This process is the whole moral and utilitarian basis for “free market” capitalism, the idea that if you let companies compete without limitations, they will force one another to ever-greater heights of innovation, efficiency, and productivity, giving all of us more for less.

When firms — and sectors — enjoy consistent high margins, there’s something wrong. The only way that’s possible is if the companies are cooking the process: securing monopolies, conspiring to fix prices, capturing their regulators and using regulation to keep new entrants out of the market. Collectively, these activities are called “rent-seeking” and preventing them is, in free market ideology, the most important function of the state. Without an extra-industrial referee to police rent-seeking, it will grow to dominate every industry, since investors and managers and employees tend to prefer to lay down their arms and use collusion and capture to secure their positions, rather than constantly striving. Without constant vigilance, there’s no markets, only crony capitalism.

So Neoliberalism in real life has been a way of cooking the markets, a way for managers to gain control of the state. But herein lies a paradox: capitalism needs a state strong enough to maintain it, but such a strong state can by captured. “Because Markets” is just an ideological smokescreen for the looting of society, what David Harvey calls a “new enclosure movement,” where the commons is sold off to the investor class for profits, and access is restricted to those most able to pay.

No doubt libertarians would be quick to label this as “crony capitalism”–their catch-all for when the market delivers lass than optimal outcomes for the majority of people.
As for the crony capitalism charge, this Reddit user makes some good points about the use of that all-purpose, “get-out-of-jail-free” card by defenders of the status quo:

I’ve been reading a lot of comments by people who wedge the word “crony” before “capitalism,” as if it somehow constitutes a meaningful defense of the neoliberal religion.

Capitalists seek profit by almost any means necessary. If it means corrupting the state (assuming the state wasn’t corrupt in the first place…), siphoning off money from “entitlement spending,” (ex: Walmart administering food stamps or hospitals over billing patients on Medicare/Medicaid), lobbying politicians for local development subsidies for the ostensible purpose of creating jobs and revitalizing industry, etc. (basically, whatever the fuck will help them realize additional profits), that IS the essence of the system. It’s not some distorted, deviant version of it; ergo, crony capitalism is the logical outcome.

If they want to play the “well, that’s not REAL []” game, perhaps they should accept the argument that the USSR/Maoist China didn’t represent “real communism.” I’d love to see how that goes.

Second, crony capitalism is the symptom, not the problem. Laws from a century ago in America were designed to curb/regulate the problems of capitalism. Those regulations did not cause the problems themselves. (Need to stress this point over and over again, some people seriously think it was unicorns and fairies before the evulllllll gubminttt stepped in)

An apt analogy for this level of delusional thinking is if someone contracts tuberculosis and visits a doctor, who prescribes antibiotics. The antibiotics work for a while, but a few resistant strains survive and return with a vengeance. The antibiotics no longer work…of course, nobody reasonable would say “yeah, the solution is to roll back on the meds, because then the Mycobacterium tuberculosis will die off.”

Or as I put it, crony capitalism IS capitalism. It always has been. But since history was purged from the field of economics in favor of abstract math and ideology, we are told to forget that fact. Michael Perelman’s “Railroading Economics” tells much of this sad story. Crony capitalism is the default mode.

A trenchant example of this is the dismantling of health care and higher education in the United Kingdom. The bleeding of higher education is described in this article by Trainspotting author Ian Welsh:

As with the economy, so too with higher education; Thatcher might have set up the Student Loans Company, but it was Blair’s government who introduced tuition fees with the Teaching and Higher Education Act of 1998. This was followed by the draconian act of 2004, which increased fees from £1,000 [$1,400] to £3,000 [$4,300] pounds.

Since then, paid higher education has remained a political consensus in English politics (a Liberal Democrat pledge to abolish fees when in coalition partnership with the Conservatives was swiftly reneged upon), though not in Scotland, where remarkably, in the devolved parliament, the SNP administration still supports free tuition.

So student loans and debts are not an incidental strategy. They represent the starting point of inducting people into a life package of debt-servitude, which includes mortgage and car loans. In more innocent and economically buoyant times, we used to call this credit. In the words of leading American-Canadian critic and social theorist, Henry Giroux: “Higher education is viewed by the apostles of market fundamentalism as a space for producing profits, educating a docile labor force, and a powerful institution for indoctrinating students into accepting the obedience demanded by the corporate order.”

When the US media, such as the New York Times or the Wall Street Journal, discuss student debt, it’s from a neoliberal perspective, with the question being: how can politicians prevent the banks from losing money on these debts? The invariable answer: by tightening the screws on the debtors. The banks got the government to guarantee such loans, which gives politicians the leverage to contend that they must protect the taxpayer and make these shiftless students pay. Even if the taxpayers in question are often the parents of the indebted students.

The Wall Street Journal recently described student loans as just another example of Obama’s socialism. A fairly ludicrous contention, as the American state neither runs the education system nor provides its financing. As in the UK, tuition fees in the US have risen steeply over the last decade. The socialism is reserved for the banks who benefit from this and other scams, as they are deemed “too big to fail” by Anglo-American capitalism. For everybody actually in the education system, the story is one of privatization and financialization.

How the Banks Stole Higher Education (VICE)

And the dismantling of Britain’s National Health system is described well by this comment to a Reddit discussion of the walkout strike of England’s emergency room doctors:

Step 1: Intentionally under-fund the NHS, transforming surplus creating hospitals into debt ladden hospitals ‘un-able to manage themselves’.

Step 2: Divide the workforce, for example a bad new contract for some staff.

Step 3: Push hospitals into crisis and paint staff in a negative light to gather public support.

Step 4: Effectively degrad personal morale to initiate highly skilled migration out of the NHS to value appreciating organisations (Private Practice and Overseas health services) with aim for a critical mass of vacant positions.

Step 5: Portray the NHS as failed and ‘not a fit for modern society’.

Step 6: Sell easily saleable/profitable hospitals to private management companies.

Step 7:Split the NHS emergency and elective services and allow private companies e.g. ABC Healthcare sell priority to healthcare for a price (Need a operation? Pay or have insurance to get operation straight away and not wait 12 months until it’s an emergency).

Step 8: Engage TTIP laws to allow American medical/pharmaceutical companies to force contracts under threat of lawsuit against the British Government, Crown and People.

Step 9: Keep the worst performing assets and hospitals, and proclaim that ‘We have saved the NHS’.

Step 10: Retire and profit.

To which some commenters added:

It really is phenomenal how much and how fast the conservative government strips and cuts through all that has been painstakingly built over the years. Afterwards one can then claim to have solved the deficit issue and help your friends in the private sector, while the average Joe is left with unaffordable, inadequate services. Yay…

Yep, the strategy is called “starve the beast” and has been used for decades by US Republicans.

England’s Doctors Walk Out of Emergency Wards in First Ever All-Out Strike(Reddit)

So Neoliberalism is still destroying and dismantling the world, heading us forward to a kind of neofeudal order. And it seems unstoppable. Yet we’re finally seeing a backlash all over the world:

The greater the failure, the more extreme the ideology becomes. Governments use neoliberal crises as both excuse and opportunity to cut taxes, privatise remaining public services, rip holes in the social safety net, deregulate corporations and re-regulate citizens. The self-hating state now sinks its teeth into every organ of the public sector.

Perhaps the most dangerous impact of neoliberalism is not the economic crises it has caused, but the political crisis. As the domain of the state is reduced, our ability to change the course of our lives through voting also contracts. Instead, neoliberal theory asserts, people can exercise choice through spending. But some have more to spend than others: in the great consumer or shareholder democracy, votes are not equally distributed. The result is a disempowerment of the poor and middle. As parties of the right and former left adopt similar neoliberal policies, disempowerment turns to disenfranchisement. Large numbers of people have been shed from politics.

Chris Hedges remarks that “fascist movements build their base not from the politically active but the politically inactive, the ‘losers’ who feel, often correctly, they have no voice or role to play in the political establishment”. When political debate no longer speaks to us, people become responsive instead to slogans, symbols and sensation. To the admirers of Trump, for example, facts and arguments appear irrelevant.

Judt explained that when the thick mesh of interactions between people and the state has been reduced to nothing but authority and obedience, the only remaining force that binds us is state power. The totalitarianism Hayek feared is more likely to emerge when governments, having lost the moral authority that arises from the delivery of public services, are reduced to “cajoling, threatening and ultimately coercing people to obey them”.

Like communism, neoliberalism is the God that failed. But the zombie doctrine staggers on, and one of the reasons is its anonymity…

Fun Facts

In the first decade of this century, America lost 56,190 factories, 15 a day.
http://inthesetimes.com/working/entry/18911/murdering_american_manufacturing_TPP

The scale of workers’ insecurity since the economic crisis is revealed in research showing that 32% believed that there was a risk of losing their jobs and 38% were anxious that their pay would be cut. Many workers also feared arbitrary dismissal and loss of autonomy and pay, as well as discrimination and victimisation by management.
http://www.eurekalert.org/pub_releases/2016-03/s-aat030116.php

China accounted for just 3 percent of global manufacturing output in 1990. Today it produces almost a quarter, including 80 percent of all air conditioners, 71 percent of all mobile phones, and 63 percent of the world’s shoes.
https://www.technologyreview.com/s/601215/china-is-building-a-robot-army-of-model-workers/#/set/id/601326/

Chinese steel production has expanded hugely. Over the past 25 years, output has grown more than 12-fold. By comparison, the EU’s output fell by 12% while the US’s remained largely flat.
http://www.bbc.com/news/business-36099043

Beijing now had 100 billionaires living in the city, 5 more than New York. China now has more billionaires than any other country
http://www.bbc.com/news/blogs-magazine-monitor-35672287

GM paid $904M more in taxes to China than the US in 2015
http://www.foxbusiness.com/markets/2016/03/31/wheres-presidential-debate-on-gms-crony-capitalism.html

About 16.1 percent of China’s land is polluted. This amount of land is equal to more than twice the size of Spain. 19.4 percent of arable land in China is polluted. 82.8% of contaminated lands are polluted by pollutants like Arsenic, Cadmium, and Nickel.
http://guardianlv.com/2014/04/pollution-a-huge-problem-in-china/

More than 80 percent of the water from underground wells used by farms, factories and households across the heavily populated plains of China is unfit for drinking or bathing because of contamination from industry and farming.
http://www.nytimes.com/2016/04/12/world/asia/china-underground-water-pollution.html?_r=2

Delhi has 8.5 million vehicles and with car sales soaring in India, 1,400 extra cars are added to the capital’s streets every day.
http://www.bbc.com/news/world-asia-india-36051628

Syria’s drought has likely been its worst in 900 years.
http://www.climatecentral.org/news/syrias-drought-worst-900-years-20087

Water availability in India’s 91 reservoirs is at its lowest in a decade, with stocks at 29% of their total storage capacity. Some 85% of the country’s drinking water comes from aquifers, but their levels are falling.
http://www.bbc.com/news/world-asia-india-35888535

Children spend less time outside than prison inmates.
http://www.treehugger.com/culture/children-spend-less-time-outside-prison-inmates.html

The United States’ Largest Public Schools Have More Police Than Counselors.
https://www.colorlines.com/articles/study-nations-largest-public-schools-have-more-police-counselors

The two largest private prison operators made a combined $361 million in profits in 2015.
https://twitter.com/SenSanders/status/703366272726208518

In 1988, 0.20% of the population of the USSR was police, and the US had 0.24%. Today, the US has 0.35% of the population acting as police.
https://www.reddit.com/r/collapse/comments/49jyor/in_1988_020_of_the_population_of_the_ussr_was/

At the current rate of decline in prison population (~1.8 per year), it will take until 2101 —88 years — for the prison population to return to its 1980 level.
http://marginalrevolution.com/marginalrevolution/2016/02/america-fact-of-the-day-5.html

The NFL makes more than $9 billion annually, is projected to make more than $25 billion a year by 2027, and pays its CEO more than $30 million a year. Yet sixty-eight percent of NFL stadium construction costs since 1923 have come from taxpayer money.
https://www.reddit.com/r/todayilearned/comments/43os83/til_that_despite_the_nfl_making_more_than_9/

Michael Jordan makes more money from Nike than all of the Nike factory workers in Malaysia combined.
http://www.letsrun.com/forum/flat_read.php?thread=5125929&page=1

Almost no industry would be profitable if environmental costs were included.
http://www.trucost.com/_uploads/publishedResearch/TEEB%20Final%20Report%20-%20web%20SPv2.pdf

When adjusted for inflation, wages for investment bankers and securities-industry employees, including salary and bonuses, increased 117 percent from 1990 through 2014, according to U.S. Bureau of Labor Statistics data. Over the same period, wages for all other industries rose 21 percent, to $51,029 in 2014, about one-fifth of the $264,357 that bankers and brokers earned that year.
http://www.bloomberg.com/politics/articles/2016-04-11/wall-street-wages-double-in-25-years-as-everyone-else-s-languish

The U.S. individual income tax will raise about four times as much as the corporate income tax ($1.8 trillion vs. $419 billion).
http://www.investopedia.com/articles/markets/042616/what-all-candidates-tax-plans-are-missing.asp

The first architect ever to appear on television was Albert Speer.
http://www.newcriterion.com/articles.cfm/The-architect-of-the-Reich-8384

A successful campaign for the Best Picture award could spend around $10 million to influence just 6,000 Academy members.
http://www.bbc.com/news/entertainment-arts-35613630

According to a 2012 survey in El Tiempo 82% of Colombian men and 42% of women say they have been unfaithful at least once in their lifetime.
http://www.bbc.com/news/magazine-35660047

Scientists in 1916 felt America was degenerating into a second rate nationality. They listed the Top 20 threats to USA: #8 America leads all nations in murders #12 Hearty eating without exercise #18 Remarkable cancer mortality increase.
https://www.reddit.com/r/todayilearned/comments/43zif0/til_that_scientists_in_1916_felt_america_was/

Collapse, Race, and Class

I’ve often been struck by the extent to which collapse-phobia is a predominantly white, middle-class phenomenon.

It seems that whites, many of whom have very comfortable lifestyles and significant dynastic wealth, are the ones most terrified of collapse, however defined – stock market crash, empty shelves in the stores, civil order breakdown, panics, natural disasters, resource depletion, etc. They are the ones in panic mode–buying gold, stockpiling guns, buying rural land, hoarding supplies, learning how to forage, installing solar panels, stocking up on rice and beans, etc. Many of the people I have met who are concerned about economic collapse and environmental unsustainability have advanced degrees (not cheap), and live comfortable lives that I could only dream about in terms of expensive houses, families, and job security. By contrast, most lower-income people I have dealt are totally were unaware of the issues surrounding collapse–economic fragility, environmental destruction and climate change, our dependence on fossil fuels for everything, the creeping police state–and probably wouldn’t care too much if they did know about them.

Now, you would expect the poorest people in society to be the ones most afraid of a potential collapse, not people who are quite privileged and well-off. After all, they are society’s most vulnerable people. Any collapse would surely hit them hardest, right? But that’s not what you see.

The reason I think poor people are not very well-represented in the collapse community (to the extent that there is one) is because for them, the wealthy, white, middle-class fears have already been realized in their day-to-day reality.

That is, they’re already living in the post-collapse world that middle-class collapsniks fear so much. The poor aren’t concerned about collapse because they’re already living it.

Unable to get a job, any job? Check. Random acts of violence? Check. Living out of your car? Check. Cash transactions in the underground economy? Check.

People in inner-cities are already growing food in urban gardens on abandoned lots all over the place–a perennial “future” scenario for collapsniks. The buildings around them are already decrepit and falling apart due to neglect. Copper wires are already being stripped from the local buildings. They already can’t afford to put gas in the tank, even at today’s prices. They are already squatting in abandoned houses and trying to avoid eviction and foreclosure. They are already wearing second-hand clothing and foraging in trash-bins for recyclable glass and aluminum. They are already out begging on the streets. They are already dumpster-diving for food. They are already routine victims of state violence via militarized police. As for stocking up on guns to defend yourself from theft and violence, well, for a lot inner-city folks, that’s been a reality for quite some time now. Gangs are already a feature of daily life there in the absence of a working economy. The inner-city already has warlords; they’re called gang leaders.

Now it’s true, there is still gas in the pumps and still food on the shelves. The issue is affording it. The food on the shelves isn’t much consolation if you can’t afford it. Poor people often live in so-called “food deserts”–places where the only food on offer and affordable is corn-syrup laden, heavily-processed human dog food. They’re alive-but sick. Getting healthy, nutritious food, especially protein, is difficult.*

I think it boils down to this:

You can’t be loss-averse if you have nothing to lose.

It’s also why it’s pointless to argue about when collapse will happen: for may of us, it’s already happened, as I’ve pointed out many times before. That’s why blacks, and poor people of any race, are more concerned with getting a job that pays the bills and staying one step ahead of the debt collector than whether humans are going to go extinct a hundred years from now.

This realization is what prompted my last series of posts.

See, most white people don’t ever set foot inside an inner-city, so they don’t know the extent to which a inner-cities already reflect a post-collapse reality. The government has already abandoned these people (except for locking them up, that is). I think that’s because of the racial divide. I’ve spent some time in places like these, so to me, collapse is a much more real phenomenon.

African-Americans have already been living with collapse for generations. That’s why collapse-phobia is largely a white, middle-class phenomenon. A lot of immigrants to the U.S. also come from collapsing countries, so, to them, the fears of most North Americans seem foolish given the conditions where they came from (Latin America, Subsaharan Africa, the Middle East, etc.). A common question you often hear in collapse forums is “how can I preserve my assets in the event of collapse?” For people who’ve never had any assets, this question is absurd. “What should I invest in given my collapse knowledge,” seems rather detached from people who are already living with it and who have nothing.

How did it get this way? Was there a war? Economic collapse? Secession? Natural disaster? Fuel shortage?

Well, in the case of Milwaukee, none of the above. In contemplating how the inner-city got to be the way it is, it’s pretty obvious that it was economic trends which caused the damage. Black people just aren’t needed in the economic order anymore. And, as I detailed in the last series of posts, automation is the ultimate culprit. It’s true that deindustrialization unfolded in different ways, including sending factories to China, Bangladesh, Vietnam, Honduras, etc., in addition to automation and suburbanization. But even when you suggest bringing factory jobs back, experts point out that manufacturing just won’t employ that many people anymore no matter what. There are already “lights out” factories that employ only a handful of technicians. The robot future is already here when it comes to making stuff.

So if automation caused America’s urban areas to become post-collapse hellholes, what does that bode for the rest of America? Blacks were only the first victims; the blind eye turned to that fact means that probably nothing will be done to help the latest series of victims who are being made equally redundant to the economic order.

You already see this attitude all over the place. The economists blithely assuring us that automation will create more jobs than it destroys. The “low” unemployment rate of five percent in the official government statistics. The redefining of more and more people as “not in the workforce.” The constant reports in the media of the economy “getting better.” The sneering derision of anyone without a STEM degree. The constant efforts to demonize and humiliate people on public assistance to the greatest extent possible. The fomenting of resentment toward “entitlements” and people “dependent upon government.”

What it ultimately means is that, to once again paraphrase William Gibson, collapse is already here; it’s just not evenly distributed. But just wait. If you want to know how to cope, my suggestion is to look at inner-cities. If you want to “collapse now and avoid the rush,” there are more places than ever to choose from.

It also means that the more lurid “zombie apocalypse” fantasies are just that–fantasies. People aren’t killing each other over gasoline (but do like to use the old “I just need a dollar for gas” line when begging). They aren’t starving, for the most part (but are living on McDonald’s and frozen pizzas). There’s no cannibalism in sight (unless you’re that bath-salts guy in Florida).

I think people want collapse to be a great reset applying to us all. That’s a lot more sexy than a life of poverty on the margins of society while a smaller and smaller number of privileged people continue to enjoy comfortable lives with all the modern conveniences for some time to come. Getting harassed by bill collectors and being unable to get (still available) medical treatments is a lot less enticing than fantasies about abandoned cities overgrown with weeds, bankers hanging from lampposts, and growing vegetables in your own self-sufficient homestead. I think the anxiety is really less about collapse than about falling into the poverty trap that white people have stubbornly ignored for so long in a feeling of misplaced superiority. I think a lot of collapse fear is really just fear of marginalization and poverty, and the idea that everything will burn when you do, so you don’t have to worry about it, is a comforting salve.

* Here, organizations like the Victory Garden Initiative and Will Allen’s Growing Power have helped in this regard. Both are pioneers in urban farming.