Why the Exchange Medium Matters:
The Incompatibility of Central-bank Money with Global Economic Justice
Fair trade -- the commercial vision-of-choice for those with progressive politics -- has made increasing inroads into the mainstream marketplace in recent years, as demonstrated (if nothing else) by the growing interest among large corporations to appropriate and brand the concept as their own. Fair trade, of course, is about nothing if not eliminating outside ownership and redistributing wealth more equitably to producers in all parts of the world, two precepts which would seem inimical to corporations, or at least their share-holders.
Nevertheless, those who advocate for fair trade will be increasingly called-upon to articulate and defend its practices, and to distinguish them from those of “free” trade. This requires that we have a precise and careful understanding of the workings of markets and the role that financial systems play in transferring wealth around the globe and concentrating it. Local currency activists -- whose vision aligns almost identically with fair trade -- have long emphasized the strategic necessity of democratically-controlled money systems to a universally equitable trading system.
Local Currency and Fair-trade
Understanding the relation between exchange media and markets is paramount to our vision as fair-traders; by contrast to other segments of the left, we do not call for the abolition of the market system - despite its obvious injustices - but instead seek to transform it into a mechanism which is both transparent and universally equitable. Implicit in this project is a presumption
Fair trade -- the commercial vision-of-choice for those with progressive politics -- has made increasing inroads into the mainstream marketplace in recent years, as demonstrated (if nothing else) by the growing interest among large corporations to appropriate and brand the concept as their own. Fair trade, of course, is about nothing if not eliminating outside ownership and redistributing wealth more equitably to producers in all parts of the world, two precepts which would seem inimical to corporations, or at least their share-holders.
Nevertheless, those who advocate for fair trade will be increasingly called-upon to articulate and defend its practices, and to distinguish them from those of “free” trade. This requires that we have a precise and careful understanding of the workings of markets and the role that financial systems play in transferring wealth around the globe and concentrating it. Local currency activists -- whose vision aligns almost identically with fair trade -- have long emphasized the strategic necessity of democratically-controlled money systems to a universally equitable trading system.
Local Currency and Fair-trade
Understanding the relation between exchange media and markets is paramount to our vision as fair-traders; by contrast to other segments of the left, we do not call for the abolition of the market system - despite its obvious injustices - but instead seek to transform it into a mechanism which is both transparent and universally equitable. Implicit in this project is a presumption that greed is not endemic to market-systems and that the commodification of our labor (at least for the purposes of long-distance trade) is not inherently dehumanizing, two premises at odds with much other left analysis. Examining the present capitalist money system helps us clarify why we hold, and can justify, these positions.
Making Sense of the Monetary System
Socialism typically ascribes the labor-exploitation and concentration of wealth that we see under capitalism to the institution of private ownership of productive means. While there is surely a connection here, the causal relation is multifarious and complex, and monetary analysis is useful in breaking this open. It’s important to remember that money is the device we use to transfer ownership, the medium through which wealth flows around the globe and either aggregates or disaggregates; therefore how money measures value and how it flows (its two functions as an exchange medium) are central to the wealth concentration process.
Though it’s seldom analyzed in the following terms, how money is issued affects the way it measures. This is significant since exchange-media function by translating information (about value) through the entire economy; if they measure and operate dishonestly, they do so in every transaction, and every participant in the market becomes complicit regardless of class position or intention. When money is issued exclusively as interest-bearing debt (as all central-bank currencies are), in units (like dollars) that are not objectively meaningful, what results is money that measures dishonestly and induces each of its users to concentrate wealth, perhaps independently of their intention or, even, understanding.
All central bank money enters public circulation out of the commercial banking sector, either through direct loans to the public or the purchase of government securities by the Federal Reserve (effectively a loan from the banking sector to the government). This results in a net flow of money back toward the banking system (principal plus interest / bond plus yield) and the money supply must be perpetually re-extended (often expanded) to account for this. Indeed, this “self-shortening” propensity of the money supply is what allows the Fed to control the economy through interest-rate changes.
Every dollar we use is ultimately headed back to the banking system, interest attached. Its ostensible function while circulating is to act as a standard measure of value in the transactions it’s mediating, but at the same time it needs to deliver a marginal amount of additional value back to its source. Value itself however can only be created by labor, so loaning dollars into circulation effectively amounts to attaching an additional labor demand or labor cost to each dollar while it’s in public hands. Every user -- from the initial loan recipient forward -- has the incentive to pass this cost on, and what results is the creation of ubiquitous behavior among all market participants (much of it automatic and unconscious) to somehow collect additional value without laboring.
This manifests generally as the “shortness” of the money supply, and it not only compels us to be slaves to price (advantaging the Wal-mart model of production), but to invest our idle money at every turn, even if we don’t want to. The problem with central-bank money is precisely that you can’t stuff it in the mattress. Only by “re-employing” it -- plunking it in a savings account or otherwise investing it -- can anyone hope to maintain its value.
Central Bank Money and Corporate Enterprise
The financial services industry, in turn, is constantly evolving to meet this need by finding novel ways of making money from money, which -- if we stand by the view that labor produces all value -- can only occur via speculative investment or from the profit of someone else’s work. Fair-traders, socialists and other progressives should therefore view our reliance upon financial services institutions - for our retirement, pension schemes, and other forms of security - as morally problematic and a coerced repudiation of the labor theory of value we claim to hold. “Green investing” -- while obviously better than buying shares of Nike or Shell -- is ultimately not an answer for this; it is only kinder slavery, an oxymoron in essence.
Central bank money, with its constant requirement for re-investment, all but forces us to partake in the privileges of ownership; indeed, the institution of private ownership -- at least as it concerns large-scale productive enterprise -- is fundamentally driven by our exchange-medium. No system which permits (much less demands) money be made from money can ever pass muster with a progressive vision of commerce. Only by reclaiming democratic control of money - of the very language of exchange, of its definition of measure - can we create a system of trade, both locally and internationally, which we can guarantee to be non-exploitative.
An Alternative
Somewhat remarkably, we are perfectly free to do this, and several dozen communities in the U.S. have taken the opportunity (thousands of systems operate globally). Whether set-up as electronic credits or paper notes, local currencies are generally denominated in hours-of-labor (usually cross-denominated in the U.S. at $10 or $12/Hour), cannot be lent at interest, are democratically controlled by their users, and are issued with the object of expanding local money-supplies to sufficiency. This drives up wages, encourages re-localization of production, shrinks the excess labor pool and redistributes wealth more equitably. Local currencies also present an ideal opportunity to focus a much wider audience on the fundamental problems of capitalism, and they constitute an important step toward re-democratizing society. Because of the world-wide commonality of their denomination (ie., the labor-hour), geographically disparate systems can ideally be linked for development of national and international trade. Most importantly, local currency use ultimately pushes us toward a trading system where an hour of labor in every corner of the world produces an equivalent standard of living, a feat inconceivable under a trade regime based on central-bank currencies and floating exchange rates.
Local currencies are potentially powerful tools, partly because they do their work simply in the course of people spending money. Widespread, well-developed systems around the U.S. could be pulling hundreds of millions of dollars out of chain-stores and permanently re-localizing that spending-power; but this requires a commitment to build a common vision of fair trade at the local level.
Proprietary, for-profit control of our common exchange-medium amounts to control over the very labor-power within us. If you feel that there should be popular, democratic control of this essential economic function, Madison Hours is always happy to share whatever resources and assistance we can. Be in touch, or contact Rob directly at (608) 257-6729 or robmcc666@msn.com.