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Transcript: #39-99 Money: Wealth or Illusion?
Phillip Babich: This week on Making Contact....
David Korten: We need to recreate our banking system from what has become essentially a system for pulling money out of local economies and channeling it into the global casino. We need to restore the whole concept that banks are supposed to be community institutions that recycle money within the community...recycle savings into investment in local business, and local housing.
Miyoko Sakashita: We figure the best way to do that was to print our own money. And this way we could help build connections with our neighbors. We could start trading locally and keep our resources within our own community.
Phillip Babich: The U.S. government produces about 9 billion currency notes each year. The new money goes into circulation with the other dollars floating throughout the world. The difference between the amount of actual U.S. dollars in circulation and what's reflected in bank accounts and electronic transactions is astounding. So, how does money derive its value? On this program we take a look at this and other fundamental questions about money. I'm Phillip Babich, your host this week on Making Contact, an international radio program seeking to create connections between people, vital ideas and important information.
Governments around the world print money. In the United States the agency that's in charge of that production is the Bureau of Engraving and Printing. We often take for granted that the dollars in our wallets, purses or pockets have some sort of inherent value. But, since President Richard Nixon removed the dollar from the gold standard, the U.S. dollar has not been based on any consistent standard at all. Now, complex equations, economic statistics and the value of currencies in other countries help determine how much buying power a U.S. dollar has.
Since the U.S. and other currencies have been unhinged from a relatively fixed standard, such as gold, the global currency market has attracted hungry investors looking to profit from changes in currency values. About two trillion dollars are traded each day in the global currency market. Virtually all of those trades are speculative, and only a slim percentage are connected to actual trade in goods and services. The effects of this global gambling are quite real. In the past few years economies in Asia and Latin America have suffered serious downturns, which, have had repercussions all over the world.
David Korten, author of When Corporations Rule the World, is a former advisor to the United States Agency for International Development, also known as US A.I.D. Also a former faculty member at Harvard University, Korten left the field of international development when he saw that the international development model was, and is, flawed. At a conference earlier this year sponsored by the International Forum on Globalization, Korten talked about the illusion of wealth based on money.
David Korten: I want to comment on two major structural disfunctions of the present global economy, that center on the financial system and grow out of our obsession with making money, which of course is nothing but a number to begin with. It's very important to keep that clearly in mind. It's not wealth, it's just simply a number.
First, we have institutionalized an extreme form of absentee ownership on a global scale, that de-links power from consequences. Understanding that is key to understanding the whole situation that...the fact that we're really being ruled by the global financial system, not corporations.
Second, we've allowed the system by which we create money to become de-linked from the processes by which we create real wealth. and as a result our economic system is generously rewarding speculators and those who are actually engaged in the depletion of real capital for short-term financial gain, at the expense of those who do real work and who engage in real productive investment. Now, we tend to fail to see what's happening because we fail to distinguish between making money and creating wealth.
As I said, money is just a number, and it's created when banks issue a loan. Another important thing: banks basically create it out of nothing when they make a loan. The number has value because only by social convention we agree to accept it for things of real value, like real wealth, which consists of trees, labor, technology, food, shelter, trusting relationships, and so forth.
Now our persistent confusion of money with wealth is very deeply imbedded in our language. So such terms as capital, assets, resources, and wealth make no distinction between money and real wealth. So when we talk about capital flows, it seems to imply something real is happening when in most instances it involves nothing more that moving a number from one computer account to another, one computer file to another. It may even be within the same computer.
Similarly we use the terms investor and investment to refer to speculators and theft. And we assume that when we invest in the stock market, it has something to do with investing in productive capacity, which it does not, unless you're buying a new issue...only if you're buying a new issue does some of that money actually go to a firm for real investment. So most of the stuff that involves the stock market is pure speculation on whether you expect the stock indices to go up or down. It's basically speculating in financial bubbles and to elaborate, it often has the actual consequence of depleting real capital.
Now, for a moment I want to elaborate on both these points. First of all, on the issue of absentee ownership -- how we've created a global economy that institutionalizes this absentee ownership, and creates powerful incentives to deplete real capital for short-term gains, essentially to destroy life in order to make money. We tend to aggregate our savings, or our supposed investment, in very large investment funds all managed by investment managers who are evaluated solely on the rates of return that they generate on their portfolios.
Now those funds, in turn, hold most of the corporate shares and exercise the ownership rights over the large corporations. So those investment managers are putting enormous pressure on the corporate managers to get the highest possible short-term profits out of their enterprises to push the stock prices up, and increase shareholder values.
Now, what happens then is the corporation very often responds to those pressures by actions that destroy real living capital, which is in fact the source of all wealth. And this is, this results both in the environmental destruction and in social destruction. The corporation is actually destroying living capital when it strip mines forests, fisheries and mineral deposits, when it aggressively markets toxic chemicals, and dumps hazardous wastes. It destroys human capital by maintaining substandard working conditions like the Mexican maquiladores. It destroys social capital when it bids down wages, treats workers as expendable commodities, and leaves society to absorb the family and community breakdown. It destroys institutional capital when it undermines the function of governments and democracies by buying our politicians, and so forth. Now, this is the destructive process...the dynamic of the destructive process that is destroying our real wealth day by day.
Now, in terms of the issue of financial bubbles -- the current statistic comes out to be the amount of money that flows around the world through the currency markets each day is now estimated to be very nearly two trillion dollars a day. It's been expanding at a very rapid rate, and we estimate that roughly one percent of that money that goes to the currency markets actually relates to some kind of real trade in goods and services. Which implies that the rest of it, the 99 percent, is largely speculative.
Now, the southeast Asian experience, particularly as it's been take apart by our colleague Waldon Bellow, and by Martin Kohr, is very revealing of the actual dynamic of this speculative financial system. You've essentially, in terms of your stock investments, your portfolio investments...you have very large amounts of money flowing in, buying small numbers of shares available for sale. So those push up the values. That increase in share prices attracts increasing lending from foreign banks, using those shares as collateral. Now you've got a similar process going on in terms of real estate investment and bidding up land prices and creating overbidding in real estate, which again is creating mortgageable assets, so you've got banks then lending into that. So you have massive amounts of money, foreign money, flowing into the country expecting to get these massive returns out from these inflated assets.
Now, one of the things that's terribly important to understand...we talk about these capital flows...talk about foreign money coming in...the only thing foreign money is really useful for is buying things abroad, buying imports. And most of this money translates into consumer imports. So it's a kind of deficit consumer financing. The most interesting part of it is that, there's so much money to be made from the speculation, that there's a tendency to actually disinvest in real productive activity, industrial or agricultural activity, because you can make so much more money by taking out your cash flow, not reinvesting it in your productive capacity, but putting it into gambling in the share markets. So you find a persistent pattern of the faster foreign money flows in, the faster real productive capacity decapitalizes.
Now we can't get into this, but I'm coming to suspect that this is actually a process that is going on almost every place in the world. And what it really is doing is increasingly mortgaging all out real economic activity to this global-financial system in the sky, much of which is located in offshore banking centers.
Now, this money that's flowing in obviously cannot be repaid since we're not producing anything to repay it. Eventually the speculators figure that out. They start drawing their money out. The supposed assets that back the bank lending, disappear. The banks are left with bad loans. The banks therefore cannot make more new loans to maintain the financial liquidity of the system, and so there's no money left to finance real productive activity. So your economy shrinks for lack of money.
Now of course, as this is falling down, the foreign banks that are holding all these bad loans, come rushing to the IMF and say, "You must bail out, you must do a 'bail-out' so that the whole financial system does not collapse." So, then this is a very interesting aspect of it, essentially the IMF gets guarantees from the northern governments by which they borrow money from these same northern banks that are holding these bad loans, to cycle the money around, pay off the bad loans, and now we're substituting government guaranteed loans for these bad debts that the banks created. So, bear in mind again that this money was simply created by the banks out of nothing, just by creating an account for a loan. So, it reveals the extent that the whole money system has become a case of gigantic fraud, by which those who have the power to create money, and controlling all our assets. We got to stop dickering with the establishment on fine tuning the system of global finance. We have to, in my terminology, we've got to move toward the creation of post-corporate, post-capitalist economic system. Now, among the proposals that we must examine:
Now, among the proposals that we must examine: I've argued that we must eliminate the publicly traded corporations that are basically the instruments for institutionalizing absentee ownership. This means that we need to move from absentee to stakeholder ownership. That we should allow ownership stakes in productive assets only by those who have an interest beyond the purely financial interest...their jobs have to depend on it, they have to live in the community, be customers suppliers, or something. To the extent that we did this, it would virtually eliminate stock markets, and the rapid buying and selling of assets. So it's obviously a complicated issue, but I think it's absolutely fundamental to getting back control. Two, we need to take this ratio, the 99 percent speculation to one percent money serving as a media of exchange for real activity. We need to eliminate the speculation, eliminate that 99 percent...not just regulate it, not just tax it, but get rid of it, in order to restore money to its proper function as a medium of exchange.
Similarly, we need to recreate our banking system from what has become essentially a system for pulling money out of local economies and channeling it into the global casino. We need to restore the whole concept that banks are supposed to be community institutions that recycle money within the community, recycle savings into investment in local business and local housing. We should be taking immediate steps to prohibit banks from lending to speculators. We see this thing, 25 to 1 lending to hedge funds, which is purely financing speculation. There should be no lending to hedge funds. There should be no selling of stocks on margin, and no use of financial assets as collateral. And we should allow no currency exchange transactions that are unrelated to trade in real goods or services. And in the really biggie one, move the money creation function away from the banks and back to governments where it belongs, by putting in 100 percent reserve requirements on demand deposits.
Phillip Babich: David Korten, author of When Corporations Rule the World.
The story of banks and bankers getting richer as the people--or the countries --they lend to get poorer and poorer is nothing new. In fact, as workers began revolting against oppressive work conditions earlier this century in the United States, farmers began organizing against banks which essentially controlled their destinies through perpetual debt and inequitable terms.
A pivotal figure in the 1930s and 1940s was folk singer Woody Guthrie, who used music to spark social change. He traveled to factories, where he would encourage workers to organize and fight against unfair work conditions. And, he sang for farmers, burdened by never-ending debt, who despised their bankers. The following Guthrie song is called "Jolly Banker," and is performed by musician and actor David Babich.
David Babich- Guitar and Vocals: "My name is Tom Ranker and I'm a jolly banker/I'm a jolly banker, jolly banker am I/ I safeguard all the farmers and widows and orphans/ I'm a jolly banker, jolly banker am I/If you show me you need it/I'll let you have credit/I'm a jolly banker, jolly banker am I/ Just bring me back two for each one I lend you/ I'm a jolly banker, jolly banker am I/ When money you're needing and mouths you're feeding/ I'm a jolly banker, jolly banker am I/ I'll check out your shortage and bring up your mortgage/ I'm a jolly banker, jolly banker am I/ When your car you are losing/ and sadly you're cruising/ I'm a jolly banker, jolly banker am I/ I'll come and foreclose, take your car and your clothes/ I'm a jolly banker, jolly banker am I/ Well I safeguard the farmers and widows and orphans/ I'm a jolly banker, jolly banker am I."
Phillip Babich: David Babich performing Woody Guthrie's "Jolly Banker." In the interest of full disclosure, David is my brother.
Laura Livoti: You're listening to Making Contact, a production of the National Radio Project. This program can now be heard across the United States and Canada, South Africa, and around the world on Radio for Peace, International Short Wave. You can also hear us on the Internet. If you want more inform-ation about the subject of this week's program, please give us a call. It's toll free...800-529-5736. Call that same phone number for tape and transcript orders. That's 800-529-5736. We also welcome comments and suggestions for future programs.
Phillip Babich: One way local communities are challenging the effects of banking practices and fluctuations in their currency is by establishing their own currencies. Several communities in Europe have printed and begun trading local money that derives its value from the work of the people participating in that local currency system. In the United States, one of the most successful local currency models is in Ithaca, New York, where tens of thousands of local currency dollars are in circulation. Berkeley, California, has its own currency known as BREAD. Correspondent Judy Campbell reports.
Judy Campbell: In Berkeley, it started two years ago. Miyoko Sakashita and a group of her friends got to talking about their frustration with having to participate in a global economy that they felt did not reflect their ethics.
Miyoko Sakashita: We wanted to figure out a way that we could delink from the global economy. We saw that globalization of the economy was coming in and taking power out of our communities. Our money was draining away to multi-national companies that are going out, clear cutting forests, using sweatshop labor. So we wanted to regain some of that control and create a viable local economy in Berkeley. So we figured the best way to do that was to print our own money. And this way we could help build connections with our neighbors, we could start trading locally, and keep our resources within our own community.
Judy Campbell: They had a model in Ithaca, HOURS, the most well known of local currencies, which started in 1991. Ithaca HOURS are based on a labor hour system. Each bill is worth $10, earned by one hour of work. In Berkeley, BREAD dollars, standing for Berkeley Regional Exchange and Development, are worth $12 an hour, an amount the founders decided on as a living wage for the bay area. That settled, the next steps were fairly simple.
Miyoko Sakashita: We basically got a group of friends together, and we designed some money, and printed it. And then we had a directory of goods and services. So everybody that's willing to exchange in local money is listed in the directory. We have a few businesses, such as some restaurants, organic cafes, some farmers at the farmers' market accept BREAD. And basically, you just call somebody up in the directory and you hire them to do a service for you. Say, for instance, that I need somebody to help me build a shed. I would look through the directory and possibly under Carpenters, say, I find Bill. And I call Bill up and we arrange an exchange, and he can come over and help me build my shed. And I'll pay him in BREAD hours. Then he can turn around and spend that any way he wants. He can go to the farmers' market and buy organic produce, or he could hire somebody to help him fix his bike, or however he wants to spend it.
Judy Campbell: The wages aren't negotiable. For instance, David Melli, who owns Melli Guitars, will sometimes value his guitar repair and building work at worth more than $12 an hour, so he'll take more bills. But when he gives ice skating lessons, for one hour's work, he'll take one BREAD dollar. Melli says he gets about five percent of his income in BREAD. He spends an equivalent of about 100 U.S. dollars a month in the local currency.
David Melli: I take some of my BREAD here at home and usually transfer it to my own private account, and then write myself a check in U.S. currency. Most of it's not on business stuff. But at home I can spend it on food, organic produce at Elwood Natural Foods, or Nathan's, or at the farmers' market. There's restaurants, like A La Carte, or Smokey Joe's. (There's) my landlord takes it, sometimes from gardening work or plumbing, or whatever he has to pay for.
So I'm able to use it for things that are necessities, not just fun things. When I first joined, it was beneficial for my own business. That was pretty obvious to see. And I enjoyed doing it. I wanted kind of to be part of something, and learn something myself about local currency. But as I've become a member now for almost two years, I've noticed that the most valuable thing is actually the organizing behind it, and the education, which I didn't think was that big a deal. But it's more than just subtle. It's hit a lot of people and reached people...the members, but also people who are just hearing about it.
Judy Campbell: And what results, says Melli, is a whole new way of looking at money.
David Melli: You encourage all the members to spend it. To hold on to it doesn't do anything for you, because you can't get interest off it. Money does not make money, so in a sense it defeats capitalism. You can't maintain a huge amount, or a mass amount of capital, and leverage market that way. And instead, it's all based on your own labor, your effort, your time.
Judy Campbell: Participants say some of the benefits of BREAD is that money once again makes sense. There's no speculation on non-existent goods. There's no inflation, no leveraging. Money simply becomes a means to get a product or a service, and it has no worth outside of it's immediate use.
Miyoko Sakashita: The U.S. economy is basically based around never having enough money in circulation. But with BREAD, we want everybody to have money in our community, and we're creating jobs, and we're creating work for people.
Judy Campbell: So have you really learned a lot about the way money works? Is it kind of less simple than you might have thought, or more?
Miyoko Sakashita: Well, what I found is that the global economy doesn't work, and when you're working with a smaller local community, creating your own economy, it is much more simple to figure out. But it doesn't work on the same principles that your Keynesian economics would.
Judy Campbell: Do you think that this is something kind of good for your community, and you know, works for the community you're dealing with? Or do you really see that alternative currency is something that can make a real, profound difference in some way, in this culture of globalization?
Miyoko Sakashita: Well, I hope that I could, and I think there are some very hopeful things. There's already more that 50 local currencies in the United States, and there's actually thousands around the world. And practically once a month a new town or community calls me asking for more information about how they could start their local currency system. So even though right now it's perhaps a very small portion of our economy, with all these communities that are interested in starting up their own local currency systems, I think it could have a larger effect. If nothing else, than to educate the public about why we might want an alternative economic system. I mean, people are really interested in 'why are you printing your own money? And it creates a good opportunity to discuss some of the root problems that we have in our globalized system.
Judy Campbell: Local currencies are for the most part kept consciously small. Sakashita says she likes to think of currency as based on the watershed as an environmentally linked community. The goal is to keep money from leaving the community, and to keep the businesses accountable.
Miyoko Sakashita: The best thing that a local currency does is it keeps trading local. It keeps it within the same bioregion, which makes our economics exchanges and our consumers more accountable to our local environment, and to social and labor issues. When we have a global economy, it's basically a race to the bottom. Companies are going out and they're trying to find places that have low environmental standards, that have lax labor standards. And what a local currency can do is it can bring power back to the community, and make the economic system more accountable to the people in that region who are using it. Right now, with BREAD, we started with about 20 people that were exchanging, and within the last three years we have over 500 people now, and about a dozen storefront shops. And a lot of people are also meeting their neighbors and making connections. We have about $20,000 worth of local currency that gets exchanged around in the community, and that is staying in the Berkeley region, instead of being drained out.
Judy Campbell: But local currencies have their limits. They do exist inside the federal economy. Membership is bought with U.S. dollars, and BREAD participants can't pay their bills with BREAD.
Miyoko Sakashita: One of the issues we have had is that when stores accept local currency, a lot of the things that they need to purchase, they need to have federal dollars to purchase. And when that's the case, they'll usually only accept partial payment in BREAD. And then the rest, they can use that for labor or any services they'd need, if they need repair work done, or carpentry work, or something like that. I think that a lot of people are beginning to recognize some of the problems in the global economy. Whether or not they attribute it to that, we're seeing our small farmers going out of business and being replaced by huge transnational corporations.
Communities are beginning to feel some of the effects of this global economy that is dispossessing people and creating more poverty and concentrating money in a few localized places. Mostly in big corporate pigs' pockets. But I think as more people are recognizing some of these negative effects in their community, they're looking for different things, and local currency is one thing that can be fun, and it can also be a tangible step towards creating a better sort of economy.
Judy Campbell: For Making Contact, I'm Judy Campbell.
Phillip Babich: That's it for this edition of Making Contact: A look at currency. Thanks for listening.
Laura Livoti is our managing director. Peggy Law is executive director. Stephanie Welch is associate producer. Norman Solomon is senior advisor. Our national producer is David Barsamian. Our production assistant is Shereen Meraji. Din Abdullah is archivist. And I'm your host and managing producer Phillip Babich.
If you want more information about the subject of this week's program, call the National Radio Project at 800-529-5736. Call that same phone number for tapes and transcripts. That's 800-529-5736. Making Contact is an independent production. We're committed to providing a forum for voices and opinions not often heard in the mass media. If you have suggestions for future programs, we'd like to hear from you. Our theme music is by the Charlie Hunter Trio. 'Bye for now.