This is how I introduce myself in the preface to my new book. (Accounting for Contribution and Commitment)

in money •  last year

In the fall of the year 1990, I was a naïve nineteen-year-old who imagined himself to be an altruist. I began studying at a university in order to both make a life for myself and to somehow make the world a better place. My intended career path was that of a school teacher. With one eye on what I would be dealing with as a teacher, and one eye on what I had been through in my public school experience, the issue of culture formation in public school classes was already on my mind. While growing up it had occurred to me that in any given school, different graduating class years seemed to develop differing cultures. One class year comes along every so often that powers its way through the curriculum. It develops its culture early on in elementary school and takes its culture with it into middle and high school, influencing and inspiring the kids in the high school that come from other class cultures. It collectively scores high on the ACTs and the SATs and it takes state championships in multiple sports. The students are great kids and the teachers of each grade marvel as this class year passes through. Such class years stand in stark contrast with others that get bogged down in dysfunctional cultures that dog them throughout their public school careers. Since the question of class identity and culture was on my mind, I took an elective introductory economics course my first semester hoping it would provide clues about the economic side of social behavior.
This survey economics course was meant to serve as the foundation for all those who would go on to become specialists in the field. In it, I learned about the beauty of the profit motive and how self-interest within the context of the market finds the “correct” market price. One concept I distinctly remember was the problem of both parties in an exchange who might insist on demurring to each other. Such could never come to a price agreement. If they treated one another as friends who look out for each other’s interests, the seller would likely to declare that the buyer is too generous with the price and so insist on giving more of what he values for the buyer’s money. The selfless buyer would just as likely declare that the seller is being too generous and insist on giving more money for the good or service. Agreement on a price would elude them, for their offers and counteroffers would only pass each other going in opposite directions. On the other hand, if both treat each other as strangers or as enemies, they each only seek their own self-interest. The seller gives as little value as the buyer will accept and in return the buyer gives as little money as the seller will accept. Since there’s no such thing as an objective standard of value, they both only have their subjective points of view to work with. Where their range of subjective valuations cross, they find agreement. The price is found and the exchange is made. Behold the beauty of the harmonious equilibrium of price!
During the course, the market was presented as a tool to guide otherwise antagonistic human interaction along the most constructive path possible. The rule of the market is that everyone seeks only their own interests -and voilá- all of us natural enemies come to agreement and build businesses along the lines of this magical common ground of price. As the story went, the profit motive creates wealth, and without it we would all be stuck in some cartoonish version of the Stone Age.
My personal and practical experience with the concept of self-interest was always fraught with difficulty. For example, I had a couple of unpleasant and abortive attempts at sales jobs while trying to get through school. Despite my conviction in the correctness of self-interested interaction that I had learned from class, I was never any good at sales. I was always too busy thinking about what the buyer’s personal situation might be, whether or not the product would actually be of any benefit to them, and whether they could afford it. The internal conflict bothered me the whole time as I tried to make this self-interested mode of operation work for me and I just couldn’t do it. I was fired from each sales job.
What the economics course did not explain was why people might feel ill-at-ease while trying to engage in strictly self-interested behavior when it comes to exchanging value. The course also failed to explain why so many people might not enjoy trying to gain the upper hand in the wrestling match of price haggling, are actually repulsed by the thought of wheeling-and-dealing, and even feel revulsion toward those who succeed at it. The question never came up and neither did its answer.
This book answers the question of why, despite the beautiful and harmonious mechanism of price, markets are such an anomaly in the long history -and much longer pre-history- of human experience. The answer has to do with honor, that quality we find so lacking in the slick salesman. For around 200,000 years physiologically modern humans have been wandering the planet. The last Ice Age ended 14,000-12,000 years ago, and the innovation of tilling the soil to grow crops began some 10,000 years ago, but only within the last 5,000 years is it demonstrable that any humans been have been involved with markets. And for the first 4,000 of those years, the only humans involved in markets were those living in and around those other recently developed anomalies of the human experience: the power structures of civilizations. Most university-taught mainstream economists still make the claim that trade via barter enabled early Stone Age specialization. Specialization enabled the further development of trade: thus evolved true markets out of barter. Markets were the product of the original freedom of the individual, free to trade as an equal with his fellow equals. In turn, markets produced additional freedom, because the specialization enabled by market trade resulted in efficiency, and efficiency resulted in leisure time. Leisure -relief from the arduous grind of subsistence- then enabled social specialization. Social specialization enabled the formation of civilizations -including kings and their oppressive power structures. Thus, for many mainstream economists, market freedom and its associated leisure time somehow eventually produces not only market specialization, but even social stratification with god-kings, slavery, and the strata of farmers, artisans, etc. in between. Nevertheless, for free-market enthusiasts, the solution to maximize freedom is, oddly enough, to maximize market interactions among humans to somehow undo the inequity they believe the original trade between equals devolved into. Eventually, so their story goes, this same market mechanism breaks down the power structures of kings to produce freedom through egalitarian trade. This is a difficult chicken-or-the-egg problem and it takes the obvious contradictions of freedom producing oppression and vice-versa as its givens. That these beliefs continue to be taught in the university economics departments is especially curious since the anthropology and archaeology departments next door -who have actually investigated these matters in the real world- know very well that the real development of human economies has never followed the economics department’s contradictory fantasy story.
This book attempts to briefly address the curious relationship between civilizations and markets. That topic deserves a work all of its own, but I hope to have at least presented the case that civilizations come originally from non-market innovations that create ensconced social power structures, and only in the interstices between these civil societies -where all are strangers and none need account for honor- can the calculated profit motive find root in the human psyche. The question of what ancient markets have used for money is always a fascinating study, whether that money be yak dung or cowry shells or Sumerian debts inscribed in clay, denominated in weights of Anatolian silver. My treatment of this particular topic is given in chapter 5.
For its part in dealing with the money question, the university economics course accurately presents our current form of money as a strange collaboration between governments, enterprises and banks. As the story goes, governments are not allowed to print their own money because they are irresponsible with its issue. This has certainly been shown to have been true of European kings and their compulsion to spend on pointless wars, which are very difficult to fight based on any year’s current GDP without printing money to the point of hyperinflation. Instead, it is asserted, it is much better for us all if governments borrow their national money from banks. The banks’ job is to impose discipline on our spendthrift governments. Such discipline they impose with the strict lash of their interest rates. With the discipline of bank finance, nations can then leverage their capital to fight their pointless wars more effectively, while simultaneously accumulating enormous debt. This ‘discipline’ makes the money supply more reliable and improves the quality of life for the citizenry by forcing governments to tax away the inflated money supply loaned to it to dump into circulation to pay for arms and mercenaries. After hundreds of years of Genoese and Venetian bankers lending gold to European Royals, the very first paper money in Europe was, in fact, a war bond issued by the London goldsmith’s newly formed Bank of England to William Pitt’s parliament. The discipline imposed by this system was not to restrain governments from war, but to encourage their destructive behavior and profit from it.
The first half of my introductory economics course covered micro economics, which has to do with market interactions between individuals. The second half naturally covered macro, which is all about the curious interactions (e.g. Open Market Operations) between banks and governments. These interactions manage what we call our money supply. The professor and the text both agreed that loans are our money supply, which is divided into categories such as M0, M1, M2, M3, and MZM. I remember missing test questions from the monetary chapter because, sadly, it all made no sense to me at the time. I read that deposits in banks are part of M0, and checks are part of M1. I blinked stupidly to myself, and completely misunderstood. I thought, “Well, sure. A deposit is part of the money supply because it can be withdrawn and spent. Obviously. And a check is just a withdrawal from the account. So what?” And then mortgages and even credit cards were part of the money supply, which in and of themselves are not exactly deposits which can be withdrawn and spent, which I could not quite reconcile with the false ideas in my head that were blocking my comprehension. The course pressed forward from there and I landed a weak C, as I recall.
Nowadays, we have the internet, to which has been added several useful sources of information over the years. We now have Wikipedia, Coursera, YouTube, and the Kahn Academy at our fingertips when we want to learn something. The Kahn Academy sets a high standard for clear and concise teaching, and I would recommend it to anyone who wants solid university-quality instruction. It is a wonderful resource on any topic: mathematics, economics, chemistry- you name it. And it exists as a public good available to all free of charge. On this free service, you can even learn about the vital necessity of the profit motive, just like I once did as a tuition-paying, profit-generating student. I invite all my dear readers to go to the Kahn Academy and look up their video “Money Supply: M0, M1, and M2” and see how much sense our mainstream monetary theory makes to you the first time around. Reviewing it a few times may or may not help with the confusion. Good luck.
Life issues rather got in the way of my education during my third year of college. I ended up in the hospital and dropped out of school. After the hospital stay, I started welding as a temporary measure to pay the bills. That temporary measure then lasted for over twenty years. During those years the housing boom got into full swing and I stumbled across the old Carlton Sheets and Charles J. Givins real estate speculation seminars that had become so popular in those days. Ah, those were the crazy days of stated income loans! I started my own run with real estate speculation with a condo, then picked up a duplex, and then got a couple of motels under contract (the financing fell through on those -the banks were willing to be pretty darn crazy on my behalf, but not that crazy). I got to play landlord for a while, realizing along the way that I was little more than a freelancing agent of the bank. I collected the rent just so I could pay the mortgage. I had a hard time getting used to the idea of collecting rent from the tenants, but I did it. Then the tenants quit paying. I had to replace them. Rinse, repeat. My cash flow developed a terminal case of the hiccups, and the game eventually ended with some hard-but-valuable lessons learned. Most importantly, I got to find out first-hand how foreclosed properties are auctioned off -as per tradition- on the steps of the local courthouse. This practical experience gave me a second chance to learn the lessons in monetary theory from my old economics class. First, I found out that what we, in this society, psychologically accept as ownership is a rather nebulous thing. I hadn’t paid any money for the duplex when I bought it, yet oddly enough I legally owned it. I had imagined that the bank had already paid for the duplex, yet at the auction it was made clear to me that the bank had not paid for it and did not own it. I wondered: How could the bank not yet have paid for the duplex? After all, the fellow who sold it to me was paid his sale price in full! But there in front of the courthouse was the bank bidding for and buying the property! But the fact was laid bare before my eyes that they had not paid for the property when I bought it. Where did the seller get his payment? It took me a long time to recover from the setback of foreclosure, and the mystery of how the seller was paid without the bank buying his property nagged at me more and more as I had the time to puzzle over it.
As it turns out, the whole shell game of bank loans is just a trick of accounting. My economics class had told me as much, but in a way that avoided spelling it out clearly. When I bought the home, the bank made out a check for the sale amount which was deposited into the sellers’ account. They made a corresponding entry in their ledger representing my “loan”. Really, the bank had loaned me nothing. They did not give any of their own money to the seller, nor did they give any of their money to me to then hand over to the seller. The bank’s own balance of reserves remained untouched in this whole process. The negative balance on their ledger under my name became my own personal hole to fill with installment payments. As it turns out, it was my very own credit that paid the seller: that credit had merely been accounted for as new money in the seller’s account. In the event of my eventual payment in full, the money I would have gathered in principal payments over the years would merely have canceled out that negative number in the bank’s ledger. The process of paying the seller with my credit was as simple as: (+1) + (-1) = 0. That is how mortgages -and all other debt contracts deceptively called loans- add to the money supply: the positive numbers that we see, we circulate, and we pay to each other are written into existence along with corresponding negative numbers hidden out of sight in the banks’ ledgers. When it became clear that I was never going to be able to cancel that negative value, the home was foreclosed. Only when the bank bought the foreclosed property at auction did it then use money from its own balance sheet to cancel out that negative number in their ledger they had entered under my name. The positive balance that had gone out into the world continued to circulate; at auction, the bank removed (or rather, canceled out) a corresponding amount from its own holdings to match it. The new loan had added new money to circulate in the economy; both repayment and default both reduce the money supply back to what it had been before the loan had been made. If I had repaid the loan myself, I would have gathered up money that had been put into circulation by other people’s loans and canceled it out along with my debt. Since I had defaulted, the money supply was corrected by the bank by taking its own money out of circulation to cancel the debt.
As I began to realize how our system of money actually works, the whole thing bothered me, especially the deceptive nomenclature of the process. There is no such thing as a bank loan. Banks do not loan money. Since they are not lenders, we are not borrowers. It is hard to refer to any part of the process without using those words, words that put entirely the wrong idea into the heads of the people involved in it. Bank nomenclature is no less than Orwellian-style Newspeak, and it works to precisely that same effect. Because we think of ourselves as “borrowers”, we feel the psychological obligation to “repay”, even though the bank has lent us nothing of its own. Again, despite calling themselves lenders, banks do not lend at all. What they actually do is evaluate a person’s credit and transform it into spendable money via their accounting trick. We can correctly call this process a debt contract, or we can call it a credit monetization, but calling these contracts loans lays the fraudulent psychological foundation of our false system of accounting for credit.
What constitutes credit in this system, anyway, and what is considered creditworthy? Clearly, that which is creditworthy consists only of those projects which manage to take more money out of the economy than their original debt contracts put into it. All of society is in debt to the banks, and all of us must try to somehow (over time) fulfill that same requirement of taking enough money from the economy to cancel out our original loan principal, plus that much more for the interest which is delivered up as tribute to the bank. This is the desperate credit concept that defines our whole global economy: the economy that forms our cutthroat culture of competition, anxiety, and scarcity in the midst of an abundance of food, fiber, and widgets heaped up to the sky.
I spent some years in a bit of a funk, listening to economists from various economic schools of thought, notably Milton Friedman of the Chicago School and Murray Rothbard of the Austrian School. All of them had their various recommendations about how to operate this fundamentally fraudulent system ‘properly’ in order to get the best possible results out of it. The Austrians are especially fixated on incentivizing savings for investment in future growth. They proclaim with straight faces and full of conviction that the correct interest rate should yield high enough profits to attract a significant portion of the money supply into savings accounts. This sounds sensible enough until one realizes that interest rates high enough to attract savings are simultaneously high enough to cause significant hardship for borrowers. Cheap credit gives the entrepreneur a longer leash; expensive credit causes a steady, consistent stream of bankruptcies of all but the very most lucrative of ventures. This is the Austrian remedy for our familiar boom-and-bust business cycle that wreaks so much havoc in our society. For Austrians, steady, consistent bankruptcies are supposed to be better than the huge cyclical waves of bankruptcies we experience now. Under a system that ensures consistent rates of bankruptcy, only the most profitable businesses survive, and in the Austrian view only the most profitable businesses should survive. Anything else is a misallocation of resources. They claim this constant culling of anything but the very most exploitative business models makes for the healthiest possible economy. The anxiety-free solution to economic turmoil remained elusive in any school of thought I turned to. My funk deepened. Fraud hung thick in the air over all around me; an especially thick pall of fraud enshrouded the now-ridiculous American flags hung on poles all around my city after I read the Federal Reserve’s publication “Modern Money Mechanics”. I gave up hope finding any sort of escape from the universal fraud through our current academic economic establishment.
YouTube came to be. I watched Paul Grignon’s “Money as Debt” video series. Grignon does a top notch job of making the monetary system’s function crystal clear in his films, and I recommend them to everyone. I also watched the “Zeitgeist” videos as they came along, and they also provided much food for thought. The last chapter of this book is my answer to Jacques Fresco’s Venus Project, which I view as a non-starter among humans because it lacks any provision for psychological legitimacy. I read Tom Greco’s books on complimentary local currencies, and then Bernard Lietaer came along to do justice to that topic. I recommend his books as well. Thanks to the internet, I was now able to get some valuable information about an old alternative currency I had once seen in a German antique shop: the Wära. This was an early 20th century attempt by Germans to free themselves from cyclical economic crisis. The Wära currency had been inspired by one Silvio Gesell, whose very original ideas will be discussed in chapters 6 and 14. I found Werner Onken’s paper “Ein Vergessenes Kapital der Wirtschaftsgeschichte” on the topic of the Wära, which I have translated into English and included in Appendix A.
The backdrop to my study changed from the housing boom to the housing crisis, and then to the collapse of Lehman Brothers, Bear Stearns, and AIG, and the massive bank bailouts soon to follow. Tent cities of new homeless went up around the United States, and bank executives continued to take incomprehensibly large bonuses as compensation for their ‘jobs well done’. The Arab Spring then inspired a Western resistance movement against systemic oppression: Occupy Wall Street, a.k.a. #OWS.
My study continued. I read David Graeber’s Debt: the First 5000 Years , which inspired me to start looking to anthropology for economic and cultural insights. If it had not been for Graeber, I do not believe it would have occurred to me to look into the works of the likes of Marcel Mauss or Henry Lewis Morgan. Only with the study of anthropology is it possible to escape the myopia of today’s globalized socioeconomic assumptions and gain an inkling of the many possible configurations of human socioeconomic relationships.
I read Ellen Brown’s Web of Debt. I saw the sense in her advocacy of public banking. I read what Benjamin Franklin had to say about his own experience with public banking in the 18th century English proprietary colony of Pennsylvania. In his 1765 “Scheme for Supplying the Colonies with Paper Money” Franklin details the system which had been so effective at creating prosperity in colonial Pennsylvania. Unlike our system wherein the government is captive to the banks, the Pennsylvania government itself took on the role of lending money into circulation. The colonial government printed up stacks of money from time to time, but did not spend them. Instead, it loaned the paper money to farmers to improve their farms, or to businessmen to improve their enterprises. The loans were repaid in installments over 15 years at 5% interest. A negative value was entered in the colonial lending office’s ledger on behalf of borrowers, and a corresponding positive value of paper scrip handed to the borrower who spent them into circulation. The scrip notes’ circulation ended when they came back into to the loan office as principal payments, canceling the debt contracts which had temporarily sent them on their butterfly’s itinerary, fluttering from hand to hand before ultimately finding their way home to their issuing loan office. The money that had been put into circulation by these public banking debt contracts returned to that magical number zero (the notes thus “sunk” in the words of Franklin) as the loans were paid off, just as any money does which has been issued on the basis of credit. By eliminating the rent-taking bank, the Pennsylvania government had at its disposal the interest from loan payments as their stream of public revenue, rapidly spending it -as governments tend to do- on infrastructure and state employees. Today we groan about how government spending puts the country into debt. This was not at all the case in colonial Pennsylvania, where government spending actually helped to relieve the debts of its people: the more quickly interest revenues were spent by the state, the more quickly they found themselves back in the hands of citizens who needed them to pay loan interest. As outstanding loans were gradually repaid, interest payments could cycle back and forth between citizens and the government several times over to pay for and build infrastructure. Pennsylvania had no need for any other revenue stream (such as an excise or income tax) to provide funds for its public sector.
Under the assumption that government is indispensable to society, public banking would be a sensible and viable means of financing and funding the economy of both infrastructure and enterprise, while also providing for the economy’s medium of exchange. Public banking creates no antagonistic relationship between people and their government, because, unlike taxes, loan applications are voluntary. Public banking has historically proven itself effective at providing for ample public funding while simultaneously financing the private economy, instead of dragging private enterprise down by taxing its success. If the United States (or any other state) truly existed by, of, and for its people, it would provide this service to itself and to its entrepreneurs and simultaneously eliminate the extra parasitic rent-taking of the lending elite. This, sadly, modern states universally do not do. Despite the historical example of Pennsylvania’s success, the captive governments of the world today instead use their laws and courts to guarantee the delivery of all that rent from interest-bearing debt contracts to the for-profit banks.
Banks certainly do not spend their own interest profits on public infrastructure. They invest interest income to make even more profits -and we all watched helplessly during the recent financial crisis as they used interest profits for astronomical bonuses to their oh-so-deserving top brass. And why shouldn’t banks reward their CEOs for maintaining the desperate dependency of both public and private sector wealth creators on the bank -and rubbing that fact in their faces. One may feel inclined to conclude that bank executives get paid bonuses when we are desperate precisely because they perpetuate the desperation.
This book is not about public banking, but it is about other options we can use just in case it proves impossible for the public to reclaim its own government through the political process. I shall leave the public banking crusade up to Ellen Brown and her Public Banking Institute, whose worthy cause you can find at
This book is about defining and building the culture we want. Economics is a good place to start in this effort, for a culture is to a very large degree defined by its economics. Whether it is a dowry payment or a purchase made on Ebay, our assumptions about how we move objects around between each other define how we relate to each other. These movements are ultimately reflections of our emotional relationships with each other, and reflections what sorts of emotional giving and taking are affordable within the culture. In this book, I seek to make the case that how humans relate to one another in a culture is most fundamentally defined by their culture’s credit concept. I assert that human beings are flexible and versatile in their ability to define and perceive credit in one another. There are just a few stipulations that must be met for humans to perceive a system of credit as legitimate, key among which are parity and reciprocity. There are just a few basic ways humans can perceive these stipulations of parity and reciprocity to have been met in their relationships. I believe understanding these psychological needs and understanding the peculiar ways humans have found to satisfy them empowers us to make our societies better. The various ways humans have developed to perceive parity and reciprocity in their societies can be shown to have resulted in very different cultures, indeed; a few of these will be touched upon in later chapters.
I think in the course of all this economic and cultural study, I have finally answered my old question of why some school classes of kids get along so well with each other and also excel in every other aspect of school life. Their collective success and happiness lies in their local credit concept. I believe these classes have spontaneously developed a paid-forward culture of emotional support among themselves. This is something I will describe shortly and refer to again and again. The start of an emotionally healthy class of kids may have been a healthy interaction between some of its children while in kindergarten. Such an interaction may have formed the culture’s original seed crystal. Once the healthy culture has formed around its seed crystal, the children intuit that they can more afford to emotionally support one another than not, and children moving into the culture adapt themselves to it. In this culture, intelligence and creativity increase one’s status rather than diminish it. The kids thrive and they excel because they can afford to. They aren’t afraid of being torn down when they do.
I believe that other school classes remain stuck in emotional scarcity, and that these emotionally hungry children cannot afford to support one another for fear of ridicule. Sparks of kindness and mutual aid are quickly snuffed out in the prevailing culture that rigidly maintains its own dysfunctional crystalline lattice. When kindness is accounted for as weakness, no credit is given to a kind person, and an individual’s status is diminished by his kind acts. Kindness is not affordable in this culture because of the culture’s defining credit concept. The kids live in fear of one another, do not cooperate, and do not thrive.
Whether it is an emotional economy or a monetary economy, a culture’s underlying credit concept determines what is and is not affordable within it. This affordability is the key to the health of the society created by culture which springs from its credit concept. As mentioned, I grew tired of listening to economists endlessly quibble about the proper tweaks to the one single credit concept that now has the globe in its death-grip, that concept of credit which is accounted for by banks only when it increases their balance-sheet profits. Yes, this is the same credit concept that drives us to make all our wonderful widgets we pile up around us. It is also the credit concept that cannot ever allow us to stop making so damned many of them, even though we colonize and enslave each other and poison ourselves in the process. Under the system that maintains our credit concept are all kept very anxious to somehow produce and sell enough stuff to each other to postpone our own individual bankruptcies.
Under our credit concept, we individually and collectively cannot afford to stop emitting CO2. Nearly all of us are debtors who owe our lives and our children’s lives to the banks. We cannot afford to stop emitting even though most of us believe our emissions are eventually going to roast our planet alive with all of us trapped on it. To not emit means to not produce; not producing is something very few individuals can afford within our credit concept. Generally, individuals intrepid enough to stop their own emissions are pushed out of society and left to starve, while those who burn up resources to tease consumers with planned obsolescence are treated by the accounting system as if they are valuable contributors to society. And so the crazy-train of production and emissions races forward faster than any tracks can be laid down, those most rewarded by our accounting system too often are those who contribute the most toward our collective doom.
It is my sincere hope that this book sparks discussion of the credit concept as a field of study in its own right. It is also my hope that with the awareness of alternative credit concepts, we will succeed in designing and creating the culture(s) that we would prefer to live in, rather than self-destruct because we ‘cannot afford’ to climb out of the globalized cultural rut we were born into. If we understand healthy credit concepts, the only trick left for us is to set up the accounting systems that foster and sustain them. It is now my belief that with the right credit concepts at the core of our society(s), a great many of those social ills which to us now seem so intractable will effortlessly melt away. My hope is that by the end of this book, the reader will be equipped to determine whether this belief of mine is at all merited.

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