Instead of our usual series of questions to think through an issue, this week and the previous week we are studying an article written by Darius Guppy for the Telegraph, a British newspaper, that was published in February, 2010.
I’ve made a summary of the article for us to discuss, as he uses quite complex English to make his points. The original article can be found here.
Darius Guppy was educated at Eton and was a member of the Bullingdon Club, of which David Cameron (prime minister of Britain) and Boris Johnson (Mayor of London) were also members. He was once a close friend of the brother of Princess Diana, Charles Spencer, but later Guppy became angry at him and broke the friendship. Guppy now lives in South Africa. The articles he’s written have been dismissed since he was once put in jail for insurance fraud, but I think they’re the clearest descriptions I have yet read about what is going on in the finance system.
The summary:
We don't grow our economies because we want to, we're forced to do so because of how banks work. In my previous article I argued that because of the fact that banks can lend out 10 times the money that's actually in their vaults--that they can in effect lend out 10 bars of gold for every bar of gold in their bank--is in effect a hidden fraud that separates finance from the real world, and creates a virtual economy based on debt that is bound to implode.
Moreover, the real economy has become subservient to the virtual one. We should not be facing a crisis in our real economy at all. What has actually changed in the past 2-3 years? There are still minerals in the ground and crops in the fields, there hasn't been any tangible reason for the economic collapse. It's not like the salinization of land in ancient Mesopotomia, or a decline in population because of the Black Death, nor have people become less smart.
All of our problems are on the virtual level, and actually the only thing that has been threatened is the cultural mechanism by which our community's wealth is controlled. And this is a good thing. A real economy is human activity in the creation of goods and services for the benefit of the community, not financial instruments that don't have any relationship to the wealth they're supposed to represent. If the crash realigns money with reality, it can only be a good thing.
In my last article I argued that banks have basically been allowed free license to print money as they see fit, due to the fact that they can lend out many times more money than they actually possess ('fractional reserve banking'). The interest from lending out the imaginary money accumulates in the system, creating inflation through a basic oversupply of money, or credit. So in order to keep the money real, the actual economy has to expand to make those dollars mean something, otherwise all the dollars will lose value.
So in the absence of actual new value, we turn to accounting tricks, like treating the depletion of assets as the generation of revenue, as Bernard Madoff did. That way he could pay out above average returns to investors, who assumed he'd been investing in profitable ventures, when in fact he was paying them out of their own capital.
And this went well, as long as the economy kept growing--all he had to do was keep attracting new investors, and all was well. But when investments contract, the fall is swift.
And in exactly the same way, insurance companies, pension funds, publicly quoted and private corporations, (nearly all of which are indebted to the banks), the banks themselves, indeed the entire financial sector, not to mention our national economies, are all bound to one central premise: continuous growth – required to pay down runaway debt.
And our politicians use the same premise, that we can grow our way out of the economic hole we're in.
But "growth" is a Ponzi scheme. And a destructive one, at that. It's taken over and destroyed our culture by making money the sole criteria for society, making the rich richer and the poor poorer, regardless of merit, and drives globalization through the search for ever more resources to prop up the insatiable machine.
If you're comparing the current meltdown to 1929, you're mistaken. In 1929 we had 1/3 the current population, the oceans were unpolluted and full of fish, the land was not yet deforested, the earth was not as yet overly strained. We basically had a ton of room to grow our way out of our troubles.
The exponential growth of the last few hundred years represents a unique and unsustainable period of human history, and we have now come up against environmental reality.
Let's look at what growth really means. Let's start with a modest 2% rate of growth, something Obama or Cameron would be pleased with. 2% really isn't that much, really, right?
Two percent, compounded annually, in 35 years or one generation amounts to a doubling, and in two generations time, 70 years from now, a quadrupling. This means our grandchildren will have to produce & consume 4 times the amount we do in a year--with all the associated waste.
If the growth is set at 5%, half China's current levels, and the rate life insurance companies and pension funds assume to meet their future obligations, they will have to produce 30 times what we do in a year.
If it's 6%, it'll be 60 times. It simply isn't going to happen.
So what we're doing is insane, and it's silly to talk about "balanced, sustainable growth."
And this is also why spending cuts are futile, and amount to trying to bail out the Titanic with a saucepan, and only make things worse, as the poorer members of society will bear the brunt of these cuts.
It turns out the only sector of society that can achieve genuine growth is indebtedness itself. And so despite working harder than ever before, competing more frenziedly than ever before, we are no better off, and no happier, we must run just to keep still, and Democracy has become an almost useless concept in the face of this gigantic debt. It's no longer one man one vote, but one dollar one vote.
And these bank bailouts to prop up the system dwarf the most ambitious Social Welfare projects. It would seem that welfare has simply been redirected from the poor to the rich. What sovereignity does the government have in the face of these forced payouts?
But the worst of it is, this version of 'economic freedom' which has been foisted upon us, and forces us down the path of manic debt and manic growth, has no opt-out clause. If we're given no choice about being in the system, in what possible sense are we free?
Let's look at property. Anyone who has not inherited money must borrow money to buy property. Homes become people's greatest 'asset', sure, but how realistic is opt-out for them? Where can they go to escape their indenture?
We're told that that the great economic triumph has been that more of us have become home owners, but this is disingenuous. Who actually owns our homes?
Or how about cars in the street, the planes in the skies. Are they owned by people or finance companies?
So, in this desperate chase for growth, what has actually increased? wealth or debt? Freedom or bondage?
How about bank accounts and credit cards. Carry more than a couple of hundred pounds cash on you and the assumption is that you are a drug dealer. Try to hire a car without a credit card: almost impossible.
For virtually every aspect of our lives our participation in the system –in particular the banking system - is mandatory. And the last remaining holes will soon be plugged. With technological advances cash itself can be dispensed with. Already we see its retreat. Liquid sums greater than £10,000 are subject to ‘anti money laundering’ legislation.
In other words, by this remarkable logic, a figure which could hardly buy one a decent second hand car is considered worthy of control by the State – and a possible threat - while trillions in funny-money are given free rein to criss-cross the earth every day, no questions asked - such seismic, largely speculative, life-ruining movements determined not at all by our ‘democratically-elected leaders’ but by the keyboards of a few hundred foreign exchange dealers who themselves simply ride the Megalodon wherever it takes them, remora-like.
And because the connection between reward and genuine contribution is virtually non-existent, in the Dictatorship of Money can be found perhaps at least a partial explanation for one of the great paradoxes of the age, namely the uncanny tendency on the part of our meritocracies to promote those who do not have much merit. The deification of the market leads to the creation of an utterly false elite.
In turn, a false elite brings about the subversion of the political process itself - election in particular, especially in America, being determined by proximity to the largest agglomerations of money.
And this is not simply about rich individuals, but we must also consider the corporation. Far from a giant, global, ‘free market’ in which individual ‘entrepreneurs’ act in their own self-interests and thereby, collectively, for the Common Good as Adam Smith envisaged, we march inexorably towards a global economy that is in fact thoroughly managed.
For where does economic power truly reside? On the level of the individual? On the level of the state even? Or on the level of the banks and their largest clients – the huge Trans National Corporations, some of which already constitute economies larger than those of certain countries?
And these behemoths, driven by the same imperative of expansion which propels money itself are not becoming any smaller either, but coagulate into ever larger bodies – this bigness, or growth, is not a strategy to ensure the Common Good but rather to forestall collapse.
And since when have corporations constituted ‘free’ economies? On the contrary, the corporation is the very embodiment of economic planning.
And when we bear in mind that, for example, only a handful of these giant entities control the manufacture of the great majority of the world’s civilian aircraft, and how few of them control the majority of the world’s media, or the world’s mining operations, or the world’s large-scale agricultural production, or the world’s commodity trading, or the world’s foreign exchange dealings and so on and so forth, then we come to the realisation that far from our market being ‘free’ and constituting a myriad of decision-making individuals, it is in fact becoming more and more controlled.
The depression occasioned by this insight soon gives way to a cold sweat, moreover, when we ask the next logical question: “controlled, by who?” and the reply comes back: “no-one really knows anymore.”
And what's it all for?
--Human unhappiness and a state of permanent dissatisfaction ensue precisely because the twin-headed beast of economic growth and debt requires them. For of what use to this beast is the un-neurotic soul content with his lot, who values his leisure and the world’s non-monetised pleasures, who knows the meaning of enough and who believes that perhaps there should be more to this life than to consume, vote, reproduce and die?
--The truly amazing thing is the reversal, as profits have been privatised, while the losses have been so thoroghly socialized. Meaning, that the profit reaped from turning public assets over to the private has all gone to the private sector, the rich owners of the banks and lending institutions, and the losses, bailouts and other social costs of this relentless drive towards growth have been borne by all sectors of society.
“But the good men did not remain good: they began to make money of that which was the common property of all. And to some such development we may plausibly ascribe the origin of oligarchies, since men made wealth a thing of honour.” -- from Aristotle’s ‘Politics’
And what is the reason for our blindness on the part of our ‘experts’ to the fallacy of non-ending growth and the swindle of money-creation out of nothing?
One is the nonsense taught in our schools:
“There are no limits to the carrying capacity of the earth that are likely to bind any time in the foreseeable future. The idea that we should put limits on growth because of some natural limit is a profound error.” --President of Harvard University, 1991
“Because we can expect future generations to be richer than we are, no matter what we do about resources, asking us to refrain from using resources now so that future generations can have them later is like asking the poor to make gifts to the rich.” --Professor Simon of the University of Maryland
The second reason for the blindness is that an entire class has developed which is the direct beneficiary of the fraud. When the world runs on fantasy, where money creation is no longer a function of productivity, those who are connected to the real–farmers, soldiers, doctors, teachers, workers, for example–have seen their influence and wealth decline, while those in closest orbit to the virtual have prospered: bankers, corporate lawyers, actors, video game designers, software programmers, accountants and so on. It is no coincidence that even in the realm of medicine it is the plastic surgeon who is the best remunerated.
And this class of beneficiaries, right down to the son of a stock broker as Prime Minister, will instinctively protect what it discerns as the source of its wealth and influence.
Also, it's the illusion of the growth of the value of our homes that has made us feel richer and has therefore been considered a boon, allowing us to overlook the dramatic expansion in credit and to be lied to about the true inflation rate.
Take for example the case of my own father. He bought his house in Chelsea for £6,000 shortly before I was born. Some forty years later it was valued at £2 Million - an increase of 333 times and one that resulted almost entirely not from the supply and demand of houses in Chelsea but from the supply and demand of money - or credit - able to be converted into houses in Chelsea.
But for my children to enjoy a similar rate of growth the same property would have to be worth about a billion dollars by the time they reach my age and for the process to be repeated for my grandchildren – a mere two generations down the line - a two floor property in Chelsea would need to be worth a third of a trillion dollars.
Thirdly, there's a question of hope, that all boats, big and small, will rise with the swelling tide. In short, with the prospect of growth, the poor can hope and thereby be kept compliant. Remove such a prospect and that most frightening of notions announces itself: re-distribution.
For where growth is no longer possible, then by definition, an increase for the have-nots can only be at the expense of the haves and vice versa. Or, to put it in tangible terms, for the average citizen of China to possess a motor vehicle in the manner of his American counterpart an environmental catastrophe will ensue and for him to consume as much as his American equivalent then at least two planet earths will be required.
Mr Cameron’s assertion in a recent trip to China therefore, that we can all keep on growing, and that our current economic practises do not constitute a zero-sum game, is simply away with the fairies.
What can be done?
1. The ending of fractional reserve banking – the only measure which, in a single stroke, will remove the power of the banks to create money and vest that function back again in the State where it belongs.
2. By banks lending only what they have on deposit, and by the elimination of the multiplier effect caused by the fractional reserve requirement, overnight the need for manic growth would be tamed.
3. A move away from debt-based to dividend-generating and equity-based financial instruments, as advocated notably by Islamic economists
4. gold or silver-backed national currencies whereby money’s ethereal quality is given once more a sense of the real
5. the adoption of more truthful indices – indices for example which reflect more accurately the real inflation rate or which consider human welfare in terms more subtle than blunt economic throughput
6. the introduction of local currencies to run in parallel with the national currency - in the manner of LETS schemes – stimulating local economies that may not have access to outside capital and allowing wealth to remain in the locality where it is generated for the benefit of the community which generates it
7. Taxes on speculation
8. De-specialisation in industry, whereby we become less dependent on the production of others and more reliant on our own
9. Restrictions on the export of the nation’s capital by means of a two-tier currency system, in effect separating the capital and current accounts such as occurred with the Financial Rand or the Sterling Area, and preventing the sort of ruinous flights of capital that saw the Mexican Peso devalued by 40% in a matter of days in December1994
10. The re-coupling of money and reality. Money must represent much more accurately the stock of wealth of which it is supposed to be the measure: a notion which makes the global swindle that I have described far less likely to succeed.
11. And second, a reversion to the principle of self-sufficiency. If money comes to reflect once again real wealth then the community which creates that wealth must have significant say in where and how it is deployed. Why should people who work all their lives be so utterly beholden to forces that have nothing to do with them?
But all of these measures can be subsumed within the biggest idea of them all:
We must forget about growth.
It is simply no longer possible nor desirable, either for individual countries like Britain or for the world in its totality - and it must be our most urgent priority to devise an economic system capable of dealing with non-growth or shrinkage.
Now the principal argument relied upon to rebut the notion of shrinkage or even non-growth was summed up by Edward Heath:
“The alternative to expansion is not an England of quiet market towns linked only by trains puffing slowly and peacefully through green meadows. The alternative is slums, dangerous roads, old factories, cramped schools, and stunted lives.”
In other words, what would we do with all our excess capacity? With the endless lines of un-sold, rusting cars or crumbling motorways?
The point surely is this: sooner or later, whether now or in a hundred years – a nano second in environmental terms – we will have to stop growing and will therefore be confronted with the same problem. And the longer we leave things the longer will be our lines of un-sold cars, our networks of crumbling roads and so on.
Rather than being something to fear it seems to me, Operation Tidy Up represents a genuine opportunity. Employment prospects would soar as we dismantle the ugliness, as the countryside is re-populated, as hideous, inhuman suburbs are greened-over and as the unwanted products of industry are re-cycled for use in different areas.
But above all, so long as economic shrinkage is accompanied by a corresponding decrease in population levels then it offers the best prospect for a re-normalisation of wealth discrepancies and for a catch-up on the part of the disadvantaged - as well of course as releasing the pressure on the natural environment.
In short, to borrow from Aubrey Meyer, founder of the Global Commons Institute, with contraction comes a genuine opportunity for convergence.
