(Week 21 - Wednesday, Dec. 31)
There is a tendency in our culture to treat "money" as a commodity of a single nature that moves about in the matrix of economic relations, conveying value from one hand to the next. Is that not what we mean when we call it a "medium of exchange," "store of value," "unit of measure" or "common currency"? "A dollar is a dollar", so we are accustomed to saying, and if we want a stable economy the thing to be done is to pin down what exactly that means in terms of some representative "market basket" of goods. The orthodox view would say that a unit of currency may for the moment pass from this hand to that, play a roll in certain public or private cash flows, or facilitate trade in either the world of real goods or "investments" in the financial sector, but it remains a "dollar" nonetheless. It is, in a sense, presumed to be the common denominator of the whole economic order.
Outwardly this may seem obvious, but it is a narrow material assessment that produces only numbers and misses the many levels, essences and meanings that attend this all-pervasive social element. Money is a multifaceted manifestation, and to even begin to master it we must come to a living consciousness of that reality.
This is a huge topic, and there is not room to do it justice within the context of this short article. Indeed, it may seem too daunting to even approach the matter. It need not be so, as the topic may be opened up and developed on a digestible-bite-at-a-time basis from thoughts and observations that are perfectly within the reach of any thinking person. We, individually and as a race, simply have not done the work. That said, it is a consciousness that must be cultivated if we are to have any hope whatsoever of attaining a healthy social order, or perhaps for civilization to even survive. The question is, where to begin?
In the column previous to this I introduced the idea that the economic order has both a micro-economic and a macro-economic domain. This is a foundational concept upon which we can begin to build a new monetary/economic understanding. Micro-economics relates to the values, fortunes and acts of the "players" in the economy, while macro-economics relates to the structure, control and aggregates of the economy as a whole. The relationship of micro-to-macro is much like the trees to the forest, or sports teams to their league. The relevant question here is, "What is money with respect to the micro-economic, as differentiated from the macro-economic, domain?" Can money be described as dollars moving around within and between spheres, or does what we call a "dollar" have a different meaning and essence in each?
In my Econ. 101 course, I was taught (correctly I believe) that the micro and macro-economic aspects were indeed different realms with their own respective rules, functions and dynamics. The problem I experienced is that once that premise was established it was seriously violated to the point where orthodox economic thought has become a mish-mash of confused thinking caused in large part by failing to follow though on the rigor required to keep the micro and macro dimensions properly distinguished from each other, and in their rightful places. One manifestation of this is that a macro-economic function (the creation and issuance of money) has been vested in a micro-economic entity (the private banking system). The result is that the United States as a whole (a macro-economic entity) has become a business (micro-economic entity) in the portfolio of a private corporation, the Federal Reserve (See Col. #38 – The United States as a Business). What is more, a whole culture of inconsistent financial thought has grown up around that anomaly to obscure the inconsistencies thereby generated.
What, then, is money with respect to the micro-vs.-macro-economic domains?
In micro-economics money can indeed be described as a "medium of exchange", "store of value", "unit of measure" or "common currency." It is the very life's blood that circulates in the economic social body, and fits in a general way many of the descriptions commonly associated with money.
In macro-economics, on the other hand, money is a structured matrix of relationships established in the law which governs how currency is created, issued and controlled. Whereas money on the micro level manifests as the blood that circulates in the economic social body, on the macro level it is the economic social body itself. It does not conform to the micro-economic processes by which it is presumed to operate, but in fact the opposite.
One place where the confusion between the micro and macro aspects of money can be clearly seen is in the current debate concerning what to do about the enormous "debt" that is mounting in the current financial crisis. The remedy that is commonly put forth is that we have to get our taxing-&-spending priorities under control. For a governmental body that is below the Federal (e.g. state government, which operates on a micro level), this makes sense. For them money is a stream that flows into and out of their operations. Public bodies that do not issue money must, like any business, find sources of revenue to balance spending.
In actuality the phrase "balanced budget" has no meaning on the Federal level, as it is a micro-economic expression that pertains to micro-economic phenomena. It would be more proper to describe the creation and issuance of money at the Federal level as a "monetization" process, which is kept in balance by the collection of "taxes." "Taxes" on the macro level are not a way to fund Federal programs, but a mechanism to remove overflow currency from the monetary pool. The issue of money, then, on the Federal level is a matter of structuring macro-monetary body in such a way that its life's blood (currency) can ebb and flow naturally through its micro-economic organs.
The failure to differentiate between the functions of money at the micro vs. macro-economic levels is at the very heart of the current financial crisis. I would venture to say that if these two levels of money were fully understood (and presumably acted upon), there would be no "national debt" crisis. Indeed, there would be no "national debt."
In the next several columns my thought is to show how this confusion plays out through some of the major issues besetting our nation, and how a simple comprehension of the distinction between the character of money on the micro and macro levels of the economy could serve as a catalyst for the resolution of the current crisis.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Thursday, January 1, 2009
Monday, December 29, 2008
Column #100 TWO ECONOMIES – MICRO (PRIVATE) & MACRO (NATIONAL)
(Week 21 - Monday, Dec. 29)
It is timely and apropos in this landmark 100th column that the basis for understanding be taken to a bit higher level. To accomplish that, two concepts new to this discussion need to be introduced. These are already commonly referred to in the realm of economic theory, but not observed in a consistent way in the world of finance and banking.
As a beginning student aspiring to enter the realm of economics one is required almost invariably to take a course titled "Economics 101." From there the coursework divides into two streams, those being "micro-economics" and "macro-economics" (Econ. 102 & 103). Almost anyone who has found his life's work in dealing with money in a central way, whether as economists, fund managers, stock brokers, bankers or whoever, was introduced into the theoretical world of economics through this regimen of courses.
I took the Econ-101 course when I was 48 years old with the attitude of seeking answers to the dilemmas about money I had already encountered in my life. My life experience provided a basis for questioning, and not simply accepting, the premises of the course (an advantaged position few students experience). In the text out of which I was taught ("Economics", Case & Fair, 1989 ed.) the two streams of the economic discipline were defined as follows:
"Microeconomics – The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units, that is, business firms and households."
"Macroeconomics – The branch of economics that examines the economic behavior of aggregates – income, employment, output, and so on – on a national scale."
I would offer my own definition of these respective terms as follows:
Micro-economics is the science of how people provide for each other's needs in the context of the various influences they are subject to from without, and impulses that arise from within. Ideally such activity is an expression of cultural, spiritual and entrepreneurial freedom. Participants include individuals, businesses, corporations and governmental bodies, except for the Federal government.
Macro-economics is the science of how a society organizes itself to create an equitable context in which its citizens can conduct their micro-economic affairs. Resolving issues of societal equity are a natural function of the political realm, and for the way our society is constituted at present (around the nation-state), this means that the central arena of macro-economic life is the national government.
To lend a picture to these somewhat dry definitions, a micro-economy (the object of which micro-economics is the study) is related to the macro-economy in much the same way that the trees are related to the forest.
To offer a sports analogy, a micro-economy is related to the macro-economy in much the same way that the sports teams are related to the league they play in. Ideally, the league does not make any of the plays, accrue any of the points, or take a partisan position with respect to any team. Its function, rather, is to set up a matrix of rules, resources and arbitration whereby the teams can strive to make plays, earn points and be confident that it will be done on a "level playing field." It is alike in the interests of all teams that the league perform this service in a consistent manner, as it will provide a setting for the optimum expression of the talents of the players, and the maximum enjoyment of the games spectators.
If the distinction between the micro and macro aspects of the game were lost sight of, and one of the league's teams assumed the functions of the league itself, then trust in the integrity of the game would be lost. Indeed the business of the league would tend to be conducted in such a way that it was favorable to whatever team was given control.
The root problem with our economy is that the distinction between its micro and macro dimensions has been lost, and one of the teams (the banking industry) has been put in control. Consequently, the rules by which points in the economic game are allotted (via money) have become skewed in favor of the team in control (the private banking system). Now the micro-players in the economy (individuals, businesses and governmental bodies other than Federal) labor not only to work out the allotment of financial credits vis-à-vis each other, but also pay tribute to the league for the very playing of the game. It is as if there were a third posting on the scoreboard where for every "touchdown" scored by one of the teams, one of its points had to be donated to the league. In any individual contest the points tallied to the league would be less than the total points earned by the teams, but the league would accept its tribute on every scoreboard, and so come out with the dominant total with respect to everyone else.
This is a pretty silly situation, of course, and it is hard to imagine any sporting league that could live with such a nonsensical arrangement, but the question has to be asked, "Why do we arrange our monetary affairs in such a manner?" There is one team, the banking team, that has been given control of the game. The argument has been made that this is the way to keep politics out of money. It might also be suggested that this is the way to ensconce the fox in the henhouse.
I would add that what I am saying here is not an indictment of banking per se. After all, bankers have been put in the impossible position of having to serve two masters to even do their job; i.e. both the commonweal, and the private interests that would profit at the expense of the nation as a whole. This is a wholly inappropriate mixing of the private (micro) and public (macro) spheres.
The creation and issuance of money is a macro-economic function, and should be returned to the national government. Mixing money issuance and private enterprise in the way currently configured is in itself a corruption, and the system survives at all simply because the people involved in it (including bankers) have not allowed themselves to be wholly given over to corrupt influences on a personal level. That said, it is unrealistic to expect them to overcome the inherent inconsistencies involved in discharging their fiduciary responsibilities in ways that are in keeping with both their private for-profit, as well as public for-the-common-good missions. Can we expect, then, that these micro-economic players (bankers), who have been placed and continue to be maintained in this untenable position, to provide the macro-economic leadership that will lead this nation, and the world, out of the "debt"-crisis wilderness? Some may indeed emerge, but they will need help.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
It is timely and apropos in this landmark 100th column that the basis for understanding be taken to a bit higher level. To accomplish that, two concepts new to this discussion need to be introduced. These are already commonly referred to in the realm of economic theory, but not observed in a consistent way in the world of finance and banking.
As a beginning student aspiring to enter the realm of economics one is required almost invariably to take a course titled "Economics 101." From there the coursework divides into two streams, those being "micro-economics" and "macro-economics" (Econ. 102 & 103). Almost anyone who has found his life's work in dealing with money in a central way, whether as economists, fund managers, stock brokers, bankers or whoever, was introduced into the theoretical world of economics through this regimen of courses.
I took the Econ-101 course when I was 48 years old with the attitude of seeking answers to the dilemmas about money I had already encountered in my life. My life experience provided a basis for questioning, and not simply accepting, the premises of the course (an advantaged position few students experience). In the text out of which I was taught ("Economics", Case & Fair, 1989 ed.) the two streams of the economic discipline were defined as follows:
"Microeconomics – The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units, that is, business firms and households."
"Macroeconomics – The branch of economics that examines the economic behavior of aggregates – income, employment, output, and so on – on a national scale."
I would offer my own definition of these respective terms as follows:
Micro-economics is the science of how people provide for each other's needs in the context of the various influences they are subject to from without, and impulses that arise from within. Ideally such activity is an expression of cultural, spiritual and entrepreneurial freedom. Participants include individuals, businesses, corporations and governmental bodies, except for the Federal government.
Macro-economics is the science of how a society organizes itself to create an equitable context in which its citizens can conduct their micro-economic affairs. Resolving issues of societal equity are a natural function of the political realm, and for the way our society is constituted at present (around the nation-state), this means that the central arena of macro-economic life is the national government.
To lend a picture to these somewhat dry definitions, a micro-economy (the object of which micro-economics is the study) is related to the macro-economy in much the same way that the trees are related to the forest.
To offer a sports analogy, a micro-economy is related to the macro-economy in much the same way that the sports teams are related to the league they play in. Ideally, the league does not make any of the plays, accrue any of the points, or take a partisan position with respect to any team. Its function, rather, is to set up a matrix of rules, resources and arbitration whereby the teams can strive to make plays, earn points and be confident that it will be done on a "level playing field." It is alike in the interests of all teams that the league perform this service in a consistent manner, as it will provide a setting for the optimum expression of the talents of the players, and the maximum enjoyment of the games spectators.
If the distinction between the micro and macro aspects of the game were lost sight of, and one of the league's teams assumed the functions of the league itself, then trust in the integrity of the game would be lost. Indeed the business of the league would tend to be conducted in such a way that it was favorable to whatever team was given control.
The root problem with our economy is that the distinction between its micro and macro dimensions has been lost, and one of the teams (the banking industry) has been put in control. Consequently, the rules by which points in the economic game are allotted (via money) have become skewed in favor of the team in control (the private banking system). Now the micro-players in the economy (individuals, businesses and governmental bodies other than Federal) labor not only to work out the allotment of financial credits vis-à-vis each other, but also pay tribute to the league for the very playing of the game. It is as if there were a third posting on the scoreboard where for every "touchdown" scored by one of the teams, one of its points had to be donated to the league. In any individual contest the points tallied to the league would be less than the total points earned by the teams, but the league would accept its tribute on every scoreboard, and so come out with the dominant total with respect to everyone else.
This is a pretty silly situation, of course, and it is hard to imagine any sporting league that could live with such a nonsensical arrangement, but the question has to be asked, "Why do we arrange our monetary affairs in such a manner?" There is one team, the banking team, that has been given control of the game. The argument has been made that this is the way to keep politics out of money. It might also be suggested that this is the way to ensconce the fox in the henhouse.
I would add that what I am saying here is not an indictment of banking per se. After all, bankers have been put in the impossible position of having to serve two masters to even do their job; i.e. both the commonweal, and the private interests that would profit at the expense of the nation as a whole. This is a wholly inappropriate mixing of the private (micro) and public (macro) spheres.
The creation and issuance of money is a macro-economic function, and should be returned to the national government. Mixing money issuance and private enterprise in the way currently configured is in itself a corruption, and the system survives at all simply because the people involved in it (including bankers) have not allowed themselves to be wholly given over to corrupt influences on a personal level. That said, it is unrealistic to expect them to overcome the inherent inconsistencies involved in discharging their fiduciary responsibilities in ways that are in keeping with both their private for-profit, as well as public for-the-common-good missions. Can we expect, then, that these micro-economic players (bankers), who have been placed and continue to be maintained in this untenable position, to provide the macro-economic leadership that will lead this nation, and the world, out of the "debt"-crisis wilderness? Some may indeed emerge, but they will need help.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Friday, December 26, 2008
Column #99 MONEY, ECONOMIC LIFE & THE GARDEN
(Week 20 - Friday, Dec. 26)
The lead-up to the winter solstice, the darkest time of the year, has come to be illuminated by a fantastic profusion of bright lights heralding holiday festivities. This is ostensibly to celebrate the advent of the brightest spiritual light ever to incarnate in the earth over two millennia ago. What follows for many is a season of "Holy Nights" (Christmas to Epiphany) that is marked by a turning inward to meditate upon the outer events and inner experiences of the preceding year, and a prayerful contemplation of the new year to come.
There is understandably a tendency to shy away from devoting further attention to the subject of money in this soul-searching, especially given the fit of holiday shopping and material consumption that has come to precede Christmas, but, I would suggest, this is precisely the time when it would be well to meditate upon money in its deepest and most spiritual sense.
To seed the process, I have offered below a fresh perspective on the Garden of Eden story common to Christianity, Judaism and Islam. The late Joseph Campbell, renowned American mythologist, observed that in creation myths from all around the world mankind began his earthly sojourn in a Garden-like setting from which by virtue of his own rebellion he became estranged. My feeling is that there is a foundational universality to this story that speaks to people whether they are of the Christian, Judaic or Islamic faiths, or not. I leave it to the reader to judge whether this is so. In any case I would offer, to be taken howsoever one would, the following thought:
* * * * * * * * * * * * * ** * * * * * * * * *
In the primordial Garden Man was charged with the responsibility to "Be fruitful, and multiply, and replenish the earth, and subdue it." The state of Man was destined to unfold from a purity of innocence, into a full consciousness of knowledge of the dark and the light, under the harmonious guidance of an all–wise, all–knowing spirit. His purity, however, was fatally sullied as he failed to wait upon God, but willfully reached for powers he was not yet fit to receive. As the wages of this rebellion he was ejected from the Garden, and henceforth obliged to labor by the sweat of his brow to earn his comfort and keep.
The travail of subsequent effort took on a coordinated form which replicated roughly the divinely symbiotic material and energy flows of the Garden. The evolving matrix of relationships thereby established became an aspect of the social body known as the "Economic Life," while the vitalizing spirit of that body took on the guise of "Money." Money, then, is a proxy for the spirit that imparted a burgeoning harmonic order to the Garden, while the Economic Life became the vehicle in the material world by which Man would seek, upon requisite redemption of personal goodness and completion of social evolution, to return home to the unspoiled state of the Garden; this time in the full consciousness of the dark and the light, but also with a purity of spirit that partakes of the innocence of Man's original state.
In the interim, though, the spirit of Money, and in turn the Economic Life, has been hijacked by forces that would seek to derail human evolution. Humankind has descended into abject materiality; estranged from one another and seduced by the shadow forces of false dominion; all orchestrated by the spirit of opposition that has co–opted Money. The woes thereby unleashed are legion. Brother has been pitted against brother in a false competition for livelihood. Mankind's Mother, the earth, is counted as a body to be ravaged and consumed. Tyrannies of number haunt Man's sleep. Clearly the redemption of Economic Life in the material world is called for.
The path to economic rectification is threefold:
(1) – To strive for redemption in oneself and others from the spiritual dissonance that was the cause of Man's alienation from a harmonious relationship with God in the earth,
(2) – From which it becomes possible to transform Money and rectify the Economic Order to a condition which reflects truly the state of providence in human evolution at present,
(3) – Which would, finally, redeem the Economic Life as a fit vehicle for the reassertion of Man's fruitful, replenishing and faithful dominion over the creation.
Thus would the Kingdom of God materially in the earth be at last established.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The lead-up to the winter solstice, the darkest time of the year, has come to be illuminated by a fantastic profusion of bright lights heralding holiday festivities. This is ostensibly to celebrate the advent of the brightest spiritual light ever to incarnate in the earth over two millennia ago. What follows for many is a season of "Holy Nights" (Christmas to Epiphany) that is marked by a turning inward to meditate upon the outer events and inner experiences of the preceding year, and a prayerful contemplation of the new year to come.
There is understandably a tendency to shy away from devoting further attention to the subject of money in this soul-searching, especially given the fit of holiday shopping and material consumption that has come to precede Christmas, but, I would suggest, this is precisely the time when it would be well to meditate upon money in its deepest and most spiritual sense.
To seed the process, I have offered below a fresh perspective on the Garden of Eden story common to Christianity, Judaism and Islam. The late Joseph Campbell, renowned American mythologist, observed that in creation myths from all around the world mankind began his earthly sojourn in a Garden-like setting from which by virtue of his own rebellion he became estranged. My feeling is that there is a foundational universality to this story that speaks to people whether they are of the Christian, Judaic or Islamic faiths, or not. I leave it to the reader to judge whether this is so. In any case I would offer, to be taken howsoever one would, the following thought:
* * * * * * * * * * * * * ** * * * * * * * * *
In the primordial Garden Man was charged with the responsibility to "Be fruitful, and multiply, and replenish the earth, and subdue it." The state of Man was destined to unfold from a purity of innocence, into a full consciousness of knowledge of the dark and the light, under the harmonious guidance of an all–wise, all–knowing spirit. His purity, however, was fatally sullied as he failed to wait upon God, but willfully reached for powers he was not yet fit to receive. As the wages of this rebellion he was ejected from the Garden, and henceforth obliged to labor by the sweat of his brow to earn his comfort and keep.
The travail of subsequent effort took on a coordinated form which replicated roughly the divinely symbiotic material and energy flows of the Garden. The evolving matrix of relationships thereby established became an aspect of the social body known as the "Economic Life," while the vitalizing spirit of that body took on the guise of "Money." Money, then, is a proxy for the spirit that imparted a burgeoning harmonic order to the Garden, while the Economic Life became the vehicle in the material world by which Man would seek, upon requisite redemption of personal goodness and completion of social evolution, to return home to the unspoiled state of the Garden; this time in the full consciousness of the dark and the light, but also with a purity of spirit that partakes of the innocence of Man's original state.
In the interim, though, the spirit of Money, and in turn the Economic Life, has been hijacked by forces that would seek to derail human evolution. Humankind has descended into abject materiality; estranged from one another and seduced by the shadow forces of false dominion; all orchestrated by the spirit of opposition that has co–opted Money. The woes thereby unleashed are legion. Brother has been pitted against brother in a false competition for livelihood. Mankind's Mother, the earth, is counted as a body to be ravaged and consumed. Tyrannies of number haunt Man's sleep. Clearly the redemption of Economic Life in the material world is called for.
The path to economic rectification is threefold:
(1) – To strive for redemption in oneself and others from the spiritual dissonance that was the cause of Man's alienation from a harmonious relationship with God in the earth,
(2) – From which it becomes possible to transform Money and rectify the Economic Order to a condition which reflects truly the state of providence in human evolution at present,
(3) – Which would, finally, redeem the Economic Life as a fit vehicle for the reassertion of Man's fruitful, replenishing and faithful dominion over the creation.
Thus would the Kingdom of God materially in the earth be at last established.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Thursday, December 25, 2008
Column #98 NOW IT'S TOYOTA
(Week 20 - Wednesday, Dec. 24)
A headline on the front page of the Monday, December 22 edition of the New York Times proclaimed, "Car Slump Jolts Toyota, Halting 70 Years of Gain," elaborated in the subtitle with "Huge Decline In Sales." Does not this announcement have the effect of casting the troubles of the American automakers in a new light? What does it say about the conditions under which the auto industry is laboring if even Toyota, widely regarded as its most successful venture, is expecting to report "…that it will lose money this fiscal year on its vehicle business for the first time in seven decades"?
Much has been written about how the "big three" American carmakers have declined supposedly due to astronomical executive compensation, bloated union contracts and inferior or out-of-tune-with-the-times products. Such criticisms do indeed have merit (and to be fair there are many positive things that could be said about the American auto industry), but the fact that Toyota is being sucked into the red-ink vortex also is telling evidence that on some level the problems of the automotive industry are universal. This is not to say that issues of executive compensation, labor costs and product quality don't matter. On the contrary, they do matter, vitally, and Detroit could indeed be criticized for undermining its own position in many ways.
That said, the crux of the problem the industry is faced with now is not primarily business in nature, but monetary. In fact, this is a factor that undermines the prospects for all sectors of the economy to endure in the long run. Stated simply, the productive part of the economy in the aggregate cannot attract enough money to pay its cost of production due to the buying power that is lost to "interest" charges attached to the bank loans by which money is created and issued into circulation. The result is that a portion of its product must go unsold, unless, that is, people are able and willing to go to the bank and take on more "debt" in large numbers. The effect of this is hitting the auto industry especially hard right now because people are reluctant to borrow large sums of money under current financial conditions, and the banks are reluctant to lend in any case.
This can only be remedied when the buying power of the consumer sector lost to "interest" charges is restored, and when the confidence of the car-buying public can be restored because people can see how this is so. Government borrowing of ever greater sums of "debt-money" into circulation willy-nilly via the "bailout" packages currently being enacted may, or more likely may not, get the economy moving again in the short run, but at best it will only put off to a more terrible reckoning the day when this simply does not work anymore.
The measure that will be effective, in my view, is to restore the money-creation franchise to the public sector; that is to have the US Treasury issue the nation's money supply for the public good, and not a private banking system for private profit. This is common cause for all segments of the economy, including the banking system itself (are not banks presently going bankrupt without government intervention at a fearful rate?).
The issue of money has long been used to divide the different segments of society, one from the other. We can readily see in the media how the interests of management, labor and the consumer have been pitted against each other over who will get the cash. This is happening because we are trying to carve up an economic pie that inevitably does not have sufficient funds to satisfy the need to make the financial ends meet for all three sectors without someone having to take on more "debt." If, on the other hand, the discussion were to turn to the idea of returning society's own money-creation power to the public sector, the availability of enough aggregate buying power to fully purchase the fruits of production would be assured. Business factors aside, this is the basis for the auto industry's (and all industry's) salvation.
Under such a condition, it is possible that the monetary issue could be transformed from one that is divisive with respect to any social fissure that could be exploited, to one in which everyone, from the highest banker to the most destitute street-person, could engage in a unifying transcendent dialogue. I have spent two-plus decades pursuing such a dialogue, and have seen much on this path to give me reason to think that it is perfectly possible, and indeed natural, to be able to speak to matters of money with an assortment of folks of whatever mix or stripe, in such a way that the conversation resonates positively with all parties. To be sure, this is not automatic, and it remains an elusive goal in some cases, but in my experience the potential and/or reality is palpably there.
This is a conversation that we as a society urgently need to have, or our civilization is going to continue to degrade and fly apart over the very issue of money. The key to transcending matters of money is to break free of our habitual "debt-money" acculturation long enough to let new ideas enter in. There is no leap of faith involved, only a moving forward with an open mind, spirit of brotherhood and genuine communication. The alternative is to keep floundering in our present ineffectual way until the economy deteriorates to the point where even the most innovative, savvy and successful enterprises in the business world (i.e. the Toyotas) cannot make it.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
A headline on the front page of the Monday, December 22 edition of the New York Times proclaimed, "Car Slump Jolts Toyota, Halting 70 Years of Gain," elaborated in the subtitle with "Huge Decline In Sales." Does not this announcement have the effect of casting the troubles of the American automakers in a new light? What does it say about the conditions under which the auto industry is laboring if even Toyota, widely regarded as its most successful venture, is expecting to report "…that it will lose money this fiscal year on its vehicle business for the first time in seven decades"?
Much has been written about how the "big three" American carmakers have declined supposedly due to astronomical executive compensation, bloated union contracts and inferior or out-of-tune-with-the-times products. Such criticisms do indeed have merit (and to be fair there are many positive things that could be said about the American auto industry), but the fact that Toyota is being sucked into the red-ink vortex also is telling evidence that on some level the problems of the automotive industry are universal. This is not to say that issues of executive compensation, labor costs and product quality don't matter. On the contrary, they do matter, vitally, and Detroit could indeed be criticized for undermining its own position in many ways.
That said, the crux of the problem the industry is faced with now is not primarily business in nature, but monetary. In fact, this is a factor that undermines the prospects for all sectors of the economy to endure in the long run. Stated simply, the productive part of the economy in the aggregate cannot attract enough money to pay its cost of production due to the buying power that is lost to "interest" charges attached to the bank loans by which money is created and issued into circulation. The result is that a portion of its product must go unsold, unless, that is, people are able and willing to go to the bank and take on more "debt" in large numbers. The effect of this is hitting the auto industry especially hard right now because people are reluctant to borrow large sums of money under current financial conditions, and the banks are reluctant to lend in any case.
This can only be remedied when the buying power of the consumer sector lost to "interest" charges is restored, and when the confidence of the car-buying public can be restored because people can see how this is so. Government borrowing of ever greater sums of "debt-money" into circulation willy-nilly via the "bailout" packages currently being enacted may, or more likely may not, get the economy moving again in the short run, but at best it will only put off to a more terrible reckoning the day when this simply does not work anymore.
The measure that will be effective, in my view, is to restore the money-creation franchise to the public sector; that is to have the US Treasury issue the nation's money supply for the public good, and not a private banking system for private profit. This is common cause for all segments of the economy, including the banking system itself (are not banks presently going bankrupt without government intervention at a fearful rate?).
The issue of money has long been used to divide the different segments of society, one from the other. We can readily see in the media how the interests of management, labor and the consumer have been pitted against each other over who will get the cash. This is happening because we are trying to carve up an economic pie that inevitably does not have sufficient funds to satisfy the need to make the financial ends meet for all three sectors without someone having to take on more "debt." If, on the other hand, the discussion were to turn to the idea of returning society's own money-creation power to the public sector, the availability of enough aggregate buying power to fully purchase the fruits of production would be assured. Business factors aside, this is the basis for the auto industry's (and all industry's) salvation.
Under such a condition, it is possible that the monetary issue could be transformed from one that is divisive with respect to any social fissure that could be exploited, to one in which everyone, from the highest banker to the most destitute street-person, could engage in a unifying transcendent dialogue. I have spent two-plus decades pursuing such a dialogue, and have seen much on this path to give me reason to think that it is perfectly possible, and indeed natural, to be able to speak to matters of money with an assortment of folks of whatever mix or stripe, in such a way that the conversation resonates positively with all parties. To be sure, this is not automatic, and it remains an elusive goal in some cases, but in my experience the potential and/or reality is palpably there.
This is a conversation that we as a society urgently need to have, or our civilization is going to continue to degrade and fly apart over the very issue of money. The key to transcending matters of money is to break free of our habitual "debt-money" acculturation long enough to let new ideas enter in. There is no leap of faith involved, only a moving forward with an open mind, spirit of brotherhood and genuine communication. The alternative is to keep floundering in our present ineffectual way until the economy deteriorates to the point where even the most innovative, savvy and successful enterprises in the business world (i.e. the Toyotas) cannot make it.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Monday, December 22, 2008
Column #97 A WINTER SOLSTICE POETIC INTERLUDE
(Week 20 - Monday, Dec. 22)
The people is a beast of muddy brain
That knows not its own force, and therefore stands
Loaded with wood and stone, the powerless hands
Of a mere child guide it with bit and rein.
One kick would be enough to break the chain;
But the beast fears, and what the child demands,
It does; nor its own terror understands,
Confused and stupefied by bugbears vain.
Most wonderful! with its own hands it ties
And gags itself – gives itself death and war
For pence doled out by kings from its own stores.
It own are all things between earth and heaven,
But this it knows not; and if one arise
To tell this truth, it kills him unforgiven.
Tomasso Campanella
From the Italian poem, "The People,"
Translated by John Addington Symonds
* * * * * * * * * * *
To whom it many concern, this note of hand
Is worth a thousand ducats on demand,
The pledge wereof and guarantee is found
In treasure buried in the Emperor's ground . . .
. . . the charming mob all grabbing rush,
They almost maul the donor in the crush.
The gems he flicks around as in a dream,
And snatchers fill the hall in greedy dream.
But lo, a trick quite new to me:
The thing each seizes eagerly
Rewards him with a scurvy pay,
The gift dissolves and floats away.
The rascal offers wealth untold,
But gives the glitter, not the gold.
Mephostopheles, the king's jester.
From Phillip Wayne's translation of Goethe's Faust (Part II), Penguin Books, Ltd., London, 1959
Both poems as quoted in "Unforgiven: The American Economic System SOLD for War and Debt", Charles Walters
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The people is a beast of muddy brain
That knows not its own force, and therefore stands
Loaded with wood and stone, the powerless hands
Of a mere child guide it with bit and rein.
One kick would be enough to break the chain;
But the beast fears, and what the child demands,
It does; nor its own terror understands,
Confused and stupefied by bugbears vain.
Most wonderful! with its own hands it ties
And gags itself – gives itself death and war
For pence doled out by kings from its own stores.
It own are all things between earth and heaven,
But this it knows not; and if one arise
To tell this truth, it kills him unforgiven.
Tomasso Campanella
From the Italian poem, "The People,"
Translated by John Addington Symonds
* * * * * * * * * * *
To whom it many concern, this note of hand
Is worth a thousand ducats on demand,
The pledge wereof and guarantee is found
In treasure buried in the Emperor's ground . . .
. . . the charming mob all grabbing rush,
They almost maul the donor in the crush.
The gems he flicks around as in a dream,
And snatchers fill the hall in greedy dream.
But lo, a trick quite new to me:
The thing each seizes eagerly
Rewards him with a scurvy pay,
The gift dissolves and floats away.
The rascal offers wealth untold,
But gives the glitter, not the gold.
Mephostopheles, the king's jester.
From Phillip Wayne's translation of Goethe's Faust (Part II), Penguin Books, Ltd., London, 1959
Both poems as quoted in "Unforgiven: The American Economic System SOLD for War and Debt", Charles Walters
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
Friday, December 19, 2008
Column #96 MONEY AS VIDEO GAME
(Week 19 - Friday, Dec. 19)
The operating premise of the "debt-money" system is that money is created when a banker "writes a check" against no funds (i.e. "out of thin air") to a "borrower" (i.e. private individual, corporate entity or civic body) when they bring into the bank some form of collateral (already possessed tangible property) as "security" for the "loan."
The need to continuously borrow more money into circulation creates an ongoing necessity to put up ever greater amounts of collateral. This leads to resorting to less substantive forms of collateral, until its realizable cash value becomes more uncertain. Eventually it is perceived as fictitious, at which point confidence in its value collapses. Then people stop borrowing, banks stop lending, and the economy enters a precipitous contraction (as it has at present). In the last column I describe the stages of this degradation of collateralization as follows:
Commensurate collateralization - The loan is within the bounds of a realistic valuation of the property put up as collateral.
Inflated collateralization - The loan is beyond the bounds of a realistic valuation of the property put up as collateral.
Paper collateralization - The loan is not secured by tangible wealth, but by the liens or "debt" paper written against such.
Phantasmic collateralization - The loan is no longer secured by even the pretense of existent wealth or wealth creation, but rather by the illusions of the socio/political/financial culture that invariably emerges to justify a "debt"-based monetary regime.
To this list enumerated in the last column I would add:
"Debt"-creation collateralization – The loan is no longer secured by anything, except the ability to create more "debt-money" in the future.
In a certain sense, this has been the effective logic behind the "debt-based" system all along. There is, for all practical purposes, never enough money in circulation for people to clear their "debts." This is true whether the grade of collateralization generally offered is commensurate, inflated, paper, phantasmic or simply "debt"-creation collateralization. In fact, regardless of the quality of collateralization, the "debt" numbers compound-on in essentially the same mathematical progression. Strictly speaking, the continuation of the monetary game does not depend upon there being real goods behind it (no one ever stuffs goods into an envelope and sends them off to the bank when a payment is due), but only that there are registered somewhere (these days usually in cyberspace) in someone's name, sufficient monetary credits to satisfy the "loan" account. This process is by nature less about managing wealth than "keeping score." The reality is that the economy has come to resemble less-and-less a partnership between production and finance, and more-and-more a video game in which the enterprises are little more than names and logos.
Recently I spent a day with a stock market "day trader" (freelancer). He works in a room surrounded by an impressive wrap-around array of computer screens that alerts him to fast-moving trends amongst thousands of stocks being traded, and displays virtually every parameter of interest in real time. What the software is looking for is movement in the market (up or down), because that is where a trader makes his money. I can only describe what I witnessed as lightening-fast, high-stakes video gambling.
It is hard to imagine that it is humanly impossible for anyone to know enough about any more than a tiny fraction of these firms being traded to make considered decisions based on their actual physical and human realities. Essentially, they are just names, names and more names. It is hard to tell from most of them even the nature of the enterprise they are engaged in. After what has happened with GM, Ford and Chrysler, it might be fairly asked whether it would make much difference even if one did.
For a sense of this, I would invite the reader to spend some time watching the major stock market shows on TV (I find CNBC to be the best example). The screen is filled continuously with a multitude of rapidly-moving names, numbers and graphics that I cannot imagine a viewer (even a stock broker) relating to meaningfully in a real-world way.
Nonetheless, the video game goes on, and hundreds of billions of new dollars are being rapidly pumped into it. Essentially, it has taken off on its own, and left the real economy behind. The monetary system has demonstrated an astounding ability to continue on its dizzying way literally as a game (as can a good game of Monopoly, whether Board Walk and Park Place even exist or not). This is not an absolute statement, of course, but it conveys too much truth to call it a metaphor.
This raises some fundamental questions. How long can the monetary economy persist and grow as a numbers game, while leaving real people behind to survive any way they can? What are the implications of an economic order where essential correlation between productive enterprise and finance is lost? How long can this "debt" continue to compound? What kind of new socio/political/economic order is this leading to? Will civilization continue? It would be easy to write a lengthy analysis exploring each of these and many other conundrums, but I believe that they would not arrive at any definitive answers. We live in an unprecedented time, and there are no models from the past that will tell us how this will all work out. I fear, though, that the end will not be well if we let ourselves drift without coming to a conscious mastery over money.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
The operating premise of the "debt-money" system is that money is created when a banker "writes a check" against no funds (i.e. "out of thin air") to a "borrower" (i.e. private individual, corporate entity or civic body) when they bring into the bank some form of collateral (already possessed tangible property) as "security" for the "loan."
The need to continuously borrow more money into circulation creates an ongoing necessity to put up ever greater amounts of collateral. This leads to resorting to less substantive forms of collateral, until its realizable cash value becomes more uncertain. Eventually it is perceived as fictitious, at which point confidence in its value collapses. Then people stop borrowing, banks stop lending, and the economy enters a precipitous contraction (as it has at present). In the last column I describe the stages of this degradation of collateralization as follows:
Commensurate collateralization - The loan is within the bounds of a realistic valuation of the property put up as collateral.
Inflated collateralization - The loan is beyond the bounds of a realistic valuation of the property put up as collateral.
Paper collateralization - The loan is not secured by tangible wealth, but by the liens or "debt" paper written against such.
Phantasmic collateralization - The loan is no longer secured by even the pretense of existent wealth or wealth creation, but rather by the illusions of the socio/political/financial culture that invariably emerges to justify a "debt"-based monetary regime.
To this list enumerated in the last column I would add:
"Debt"-creation collateralization – The loan is no longer secured by anything, except the ability to create more "debt-money" in the future.
In a certain sense, this has been the effective logic behind the "debt-based" system all along. There is, for all practical purposes, never enough money in circulation for people to clear their "debts." This is true whether the grade of collateralization generally offered is commensurate, inflated, paper, phantasmic or simply "debt"-creation collateralization. In fact, regardless of the quality of collateralization, the "debt" numbers compound-on in essentially the same mathematical progression. Strictly speaking, the continuation of the monetary game does not depend upon there being real goods behind it (no one ever stuffs goods into an envelope and sends them off to the bank when a payment is due), but only that there are registered somewhere (these days usually in cyberspace) in someone's name, sufficient monetary credits to satisfy the "loan" account. This process is by nature less about managing wealth than "keeping score." The reality is that the economy has come to resemble less-and-less a partnership between production and finance, and more-and-more a video game in which the enterprises are little more than names and logos.
Recently I spent a day with a stock market "day trader" (freelancer). He works in a room surrounded by an impressive wrap-around array of computer screens that alerts him to fast-moving trends amongst thousands of stocks being traded, and displays virtually every parameter of interest in real time. What the software is looking for is movement in the market (up or down), because that is where a trader makes his money. I can only describe what I witnessed as lightening-fast, high-stakes video gambling.
It is hard to imagine that it is humanly impossible for anyone to know enough about any more than a tiny fraction of these firms being traded to make considered decisions based on their actual physical and human realities. Essentially, they are just names, names and more names. It is hard to tell from most of them even the nature of the enterprise they are engaged in. After what has happened with GM, Ford and Chrysler, it might be fairly asked whether it would make much difference even if one did.
For a sense of this, I would invite the reader to spend some time watching the major stock market shows on TV (I find CNBC to be the best example). The screen is filled continuously with a multitude of rapidly-moving names, numbers and graphics that I cannot imagine a viewer (even a stock broker) relating to meaningfully in a real-world way.
Nonetheless, the video game goes on, and hundreds of billions of new dollars are being rapidly pumped into it. Essentially, it has taken off on its own, and left the real economy behind. The monetary system has demonstrated an astounding ability to continue on its dizzying way literally as a game (as can a good game of Monopoly, whether Board Walk and Park Place even exist or not). This is not an absolute statement, of course, but it conveys too much truth to call it a metaphor.
This raises some fundamental questions. How long can the monetary economy persist and grow as a numbers game, while leaving real people behind to survive any way they can? What are the implications of an economic order where essential correlation between productive enterprise and finance is lost? How long can this "debt" continue to compound? What kind of new socio/political/economic order is this leading to? Will civilization continue? It would be easy to write a lengthy analysis exploring each of these and many other conundrums, but I believe that they would not arrive at any definitive answers. We live in an unprecedented time, and there are no models from the past that will tell us how this will all work out. I fear, though, that the end will not be well if we let ourselves drift without coming to a conscious mastery over money.
Richard Kotlarz
1904 1st Ave. S, #12
Minneapolis, MN 55403
218-828-1366
richkotlarz@gmail.com
The complete set of columns from this series is posted at the following websites.
http://economictree.blogspot.com/
http://www.concordresolution.org/column.htm
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