Thursday, October 31, 2013

How Do You Spend if There is No Money?

Its a nonsensical question on the surface isnt it? Trained economists won't think so though as they are used to looking at things with money out of the picture............. or so they say.  As a guy who has really jumped with both feet into the econ/finance pond the last five or six years, I feel I am reasonably well versed in what economists are talking about when they speak or write, yet I must say I dont think Ive really ever heard the title question addressed.  Is spending unique to a monetary economy?  Is spending just trading but using a paper/electronic proxy as one of the traded items? I think spending IS unique to a monetary economy and its NOT simply a trade of a different sort than we are used to thinking about.  In fact, Ill go as far as to say that I dont think we would see the world the way it is now if there wasnt money. I am not just referring to the way money has made our transactions easier and greases the wheels of our economic lives but that in fact its moneys design that has created the 1% and the 99%. Additionally its the spending of one side which is the accumulation for the other side. The sides arent 50/50 though.  There is a small segment receiving the spending ultimately.

This is not meant to be some conspiracy theory about Bilderbergs and Jewish bankers running the world but simply a statement about how it must be when we create and use money the way we have for most of our human existence. There must be, according to the rules of our money creation a natural tendency for all the money to end up in few hands. It will happen this way unless some outside force stops it and legislates a different outcome. In a monetary economy we will always tend towards monopoly I believe because once you are the creditor/accumulator that relationship holds in virtually every transaction you take on. All modern (and even through history it is argued, persuasively I think) money systems are credit based AND privately controlled (and in modern times more govt regulated) via banks.  Money gets created out of credit relationships. One side accumulates and another side spends. One half of the relationship creates a debt for the other half.  The debt is repayed WITH INTEREST which means the repay-or ends up giving more money back to the creditor than he borrowed.  Now, what he borrowed may in fact allow him to create much more than he previously could so paying the interest just comes out of his surplus, but if it doesnt allow that, the interest eats away at his net worth. Lets try thinking about lending/borrowing for interest without money.  In other words lets try it in the world that neoclassical economists say we inhabit, one where money is "just" a neutral veil over what is really happening.  Whats being borrowed and what is interest? Are you lending me your talents? Your knowledge? Your backhoe?  It might be any of those three. And what do I repay with? My gratitude? My fealty? My daughter?  A simple "Ill give you four ears of corn today and you give me five later when your field gets productive again"does not describe the mechanics of borrowing in our modern monetary economy.  The borrowers of today are using bank credit, not someone elses extra stuff. Even the concept of giving back more ears of corn than you borrowed at a later date would have obvious limitations. Using  physical goods and services as the means of payment makes it obvious to both sides that there would be limits to what you could expect to be repaid but with money ........... just add some zeros!

The concept of saving is quite easy to understand without money.  You decide to hold onto something you have and use it at a later date.  Maybe its something to eat that you've learned how to preserve maybe its a tool that you have made a little sturdier so it will last multiple growing seasons.  The concept of investment is even conceptualize-able.  I give some of my efforts to your project. I do it both to help you AND to help me. I know that if you are my neighbor, I have a better neighborhood when you are better off. There are tangible reasons to invest my time and efforts. By investing some of the food Ive saved to keep your family alive through the winter means you'll be around and strong in the spring when I might need you too,  plus you wont build up resentment and try and burn my place down or kill my cattle. Consumption is easy. Its the eating of my saved grains, the wearing out of my tools, the sitting in my chair. The consumption of something previously saved or created is basic and in fact the reason most things were created was for consumption either now or later.  These concepts were around even before we invented money and are basic to economics. But understanding spending, I believe,  is more difficult in a non monetary economy. Spending is an act of giving up something. Its draining. We even use the word "spent" to describe when we are worn out and have nothing left. In a non monetary world there is investment, saving, consumption and trading.  There is no spending.

Thinking of spending as  trades is incomplete in my view.  When I trade I am not objectively better off. I might be subjectively better off but I had to give up something of equal value for the trade to take place. Maybe I didnt want it any more but it still had value to someone.  Yes, I got what I wanted and so did my partner, supposedly, but we havent elevated one of us above the other.  So how, in a world where someone has to give up something of equal value to get something else,  could we get to a situation like today where so many have so little?  In todays economy, many spend down while few accumulate up.  These arent trades or swaps, they are loaded transactions that one must do and the other is doing..... for a price. The price is often not the price to own but just the price to continue using. Its the price of staying in the game.

Spending as consumption doesnt work either because in a non monetary economy, when I consume no one else gets anything. I'm simply consuming my own stuff that I saved.  In a monetary economy when I spend my "numbers" go down and someone elses go up.  They get better off according to our scorekeeping system. Now, we all know that the scorekeeping system does not tell the whole story, but it tells a very important part of the story. Its why we developed it. To tell a different story. To see who has the most. To see who wins.

In a monetary economy I think of spending as something that happens when someone decides not to save money anymore.  Thats all it is. Its anti-saving of money.  Any decision not to save IS spending so if you look where all the lack of savings are thats where you find where the spending is. Conversely wherever you find savings growing there is no spending.  If you look at the charts a great number of people are doing spending while a very few are just collecting their spending, doing no net spending of their own.  Within this framework of course spending includes investment because investment is an act of not saving as well. We just call it investment when it is used for something other than paying off an old loan, consuming something for yourself today or buying a piece of art or jewelry.  Come to think of it, many people, maybe even some economists, do call buying a piece of jewelry or art investment. Or even an old share of stock or an old bond.  This is actually just reforming your savings.  A perfectly fine thing to do in a free society, but encouraging that activity is not what we need today. We need investment spending and I think it needs to come from different places than the spending is now coming from. Its been coming from these places the last 30+ years and we've ended up here. No one really likes it here, so I hear, so to go somewhere else maybe we need some new spenders.