Saturday, January 15, 2011

About Money

It is important that everyone understand what "money" is. By "everyone" I mean not only the poor and the middle classes, I also mean the wealthy and particularly the new "global elite" described by Chrystia Freeland in her Atlantic Monthly cover story  The Rise of the New Global Elite.

What is "money" really? It's easiest to begin the discussion by relating to the American dollar.

The United States Government creates from scratch one, and only one, commodity - money. And only the government can support its value because it has no intrinsic value. It's value is only psychological - you have to "believe in" its value. If enough people believe in it, mostly because they reliably can trade it for goods and services, then it has value.

You can get some of that commodity by working. Or you can "plant" some of it and it will "grow" more. If you have some, you can trade it for food or an iPhone. It is the "stuff" of a national government.

Like most commodities - like grain or oil - if the government creates too much of its commodity, it will take more of that commodity to trade for food or an iPhone because there is so much money to be had and relatively few iPhones. If the government commodity becomes scarce, the same amount will get you more food or an iPhone can be purchased for less money. Of course, if the commodity is scarce, it becomes harder to get. If you store enough of the commodity, you can use it to acquire power and influence in the government.

Money and Morality

While money may be the root of all evil, it is the bedrock of an economy. At no other time in human history has the concept of money been so important. And, as with so many subjects, most Americans do not understand how this came to be nor what money is. In fact, many Americans give mystical associations to money.

As a worldly philosopher, Jesus had no illusions about the relationship between "belief" and money. In Luke 16:13 (translated into modern American English) Jesus stated clearly: “No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.”1

You may remember another passage that begins "render unto Caesar...." We sometimes get confused by this. "Caesar" is an imperial title meaning the head of the Roman State. So in explaining about money and taxes, Jesus said "Give the Emperor what belongs to him and give God what belongs to God."

Taken together, in dealing with money created by the government and symbolizing wealth, Jesus imparted this wisdom: "You cannot serve both God and money. Give the government what belongs to it and give God what belongs to God."

Jesus believed so strongly in the importance of putting money in its place that he drove from house of worship those who changed the standard Greek and Roman money for Jewish and Tyrian money as he believed monetary activities defiled his religion.

Americans are so confused about this that we even print "In God We Trust" on American money, a practice that began in the middle of the Civil War (embracing on our money the idea that Jesus/God would cheer on Christian soldiers slaughtering other Christian soldiers on behalf of the state). In fact, we even print it over the home of the equivalent of our emperor apparently endowing money with religious political associations:

Fiat Money

The point about money is that:
  • Money is a creation of government in order to facilitate an economy and the creation of wealth.
  • The government is the sole arbiter of the worth of money.
  •  The government that has the inherent right to regulate the use, acquisition, and storage of money.
  • The government has the inherent right to require that people "render" some or all of that money back.
If you are sputtering in outrage at this point, that is because you don't have any idea what money is.

As explained in Wikipedia all contemporary money systems are based on "fiat money." "Fiat" is not about an Italian car. A "fiat" is an arbitrary decree or pronouncement by an absolute authority with the power to enforce it, for instance "The king ruled by fiat."

"Fiat money" is without intrinsic value as a physical commodity, and derives its value by being declared by a government to be legal tender. It must be accepted as a form of payment within the boundaries of the country, for "all debts, public and private". Of course, you have to believe in the efficacy of a government in order to believe in the continuing value of "fiat money." But it gets more complicated.

It's easy to understand that the money supply of a country consists of government issued currency (paper money and coins). More confusing is that the quantity of currency is supplemented by demand deposits or 'bank money' (the balance held in checking accounts and savings accounts). These demand deposits usually account for a much larger part of the money supply than currency.

Bank money is intangible and exists only in the form of various bank records. It can only be effective as part of the money supply if the government assures that it is the same as "fiat money" and, in more recent times, guarantees it's existence. The need to guarantee demand deposits came into being because previously they were only backed mostly by bank customers promising to repay loans. When people couldn't repay the loans, demand deposits became worthless an the money supply shrunk.

It gets even more complicated when you realize that after World War II, the value of most "fiat money" in countries around the world became dependent upon the value of American "fiat money." But in more recent times the value of all "fiat money" can affect the value of American "fiat money."

Simply, the issues around money and money supply are so complex that the world's economy depends upon what's happening in the American economy plus what's happening to the economy in small nations such as Greece or Ireland.

In terms of our money, we Americans need to be able to trust Irish and Greek "Caesars" more than we need to trust God.  But we need to control our "bankers" through our government and quit associating bankers with some higher power - we need to throw them out of our mental "temples."

Finally, we need to quit associating the acquisition of money with good and taxes with evil. As Jesus noted, money (and wealth) does not deserve respect and is entirely the realm of government. If you don't understand that, the "Devil" has taken control of your mind.

Emotions, Ideology, and Money

More than any other people on Earth, including those who lived in past centuries, American's imbue money with emotional content. American's believe - all evidence to the contrary - that there is a potential for "fairness" and "equality" associated with money. American's believe that the definition of "freedom" includes a promise of the possibility of prosperity and success, the latter referring to wealth accumulation measured in dollars.

While our Declaration of Independence proclaims that "all men are created equal" and that they are "endowed by their Creator with certain inalienable Rights" including "Life, Liberty and the pursuit of Happiness," we have subconsciously confused the idea that "the pursuit of happiness" with the pursuit of wealth through hard work and that hard work is so associated with "good" that it will bring just rewards. We even have a term, "Protestant work ethic." The term was coined by Max Weber, a German sociologist and political economist who lived in the late 1800's and early 1900's.

It isn't surprising that the term was coined in Germany during that period. It is a term of bigotry that has nothing to do with religion other than considering oneself a "better Christian" than those other Christians, as explained in Wikipedia:
It is based upon the notion that the Calvinist emphasis on the necessity for hard work as a component of a person's calling and worldly success and as a sign of personal salvation.

It is argued that Protestants beginning with Martin Luther had reconceptualised worldly work as a duty which benefits both the individual and society as a whole. Thus, the Catholic idea of good works was transformed into an obligation to work diligently as a sign of grace. Whereas Catholicism teaches that good works are required of Catholics to be saved (viewing salvation as a future event), the Reformers taught that good works were only a consequence of an already-received salvation.

However, the Calvinist and Lutheran theologians taught that only those who were predestined to be saved would be saved, by grace alone through faith in Jesus alone. Since it was impossible to know if one was predestined (since one might not receive the "grace of perseverance," and one's conversion might be only lip-service), the notion developed that it might be possible to discern that a person was elect (predestined) by observing their way of life. Hard work and frugality were thought to be two important consequences of being one of the elect; thus, protestants were attracted to these qualities, seeking to be obedient to God to whom they owed their salvation.
This concept - worldly success as a sign of having received "the grace of perseverance" because one is among God's chosen - led to a more insidious conventional wisdom among Americans. Again, from Wikipedia:
Horatio Alger, Jr. (13 January 1832 - 18 July 1899). Alger wrote over 100 books for young working class males, beginning with Ragged Dick, which was published in 1867. His books have been described as rags to riches stories. “By leading exemplary lives, struggling valiantly against poverty and adversity,” Alger’s protagonists gain both wealth and honor, ultimately realizing the American Dream.
Among the many things that came out of the Victorian Era (1837-1901) was an American population tending to embrace "the Horatio Alger story" buttressed by what they learned was "the Protestant Ethic" which established a sense of values around wealth - that wealth is earned, if you have money you are entitled to it, and accumulating money has nothing to do with the government.

In the 21st Century, we find that we have successfully proselytized this fallacious construct around the world as if it were a basis for a religion. That religion, well really a political ideology, is "American Capitalism."

And thus we have some peculiar events. Stephen Schwarzman, billionaire chairman and cofounder of the Blackstone Group, one of the world’s largest private-equity firms, didn't like the Obama administration's proposal to raise taxes on private-equity-firm compensation—by treating “carried interest” as ordinary income. So sure was Schwarzman of his moral right to that compensation for his hard work that, in July 2010 in a board meeting of a non-profit organization, he said of the proposal: "It’s a war. It’s like when Hitler invaded Poland in 1939.”

Yes, Schwarzman apologized. But this is weird for so many reasons. Schwarzman, 63, is in finance, he's not dumb, he's a Yale and Harvard Business School graduate. He's Jewish. What it indicates to me is that he's so vested in the core values of the political ideology of "American Capitalism" he doesn't even know the truths about fiat money, that:
  • Money is a creation of government in order to facilitate an economy and the creation of wealth.
  • The government is the sole arbiter of the worth of money.
  •  The government that has the inherent right to regulate the use, acquisition, and storage of money.
  • The government has the inherent right to require that people "render" some or all of that money back.
Instead, like so many of his billionaire peers who did not inherit their wealth (as well as those who did inherit their wealth), Schwarzman doesn't keep in mind that though he acquired his wealth with hard work (and some favorable circumstances), he did so using money - he depended entirely on the good faith and credit of the United States government and its citizens.

And underlying this is the fact that the American money system became what it is today because many, many ordinary American's worked very hard over two centuries taking advantage of the fact that there were seemingly unlimited natural resources available to them.

As Chrystia Freeland notes in her article:
...The rage in the C-suites is driven not merely by greed but by a perceived affront to the plutocrats’ amour propre, a wounded incredulity that anyone could think of them as villains rather than heroes. Aren’t they, after all, the ones whose financial and technological innovations represent the future of the American economy? Aren’t they “doing God’s work”?
This is worrisome thinking, because when those who spearhead fundamental economic change embrace self-serving ideology in an attempt to alter the exercise of governmental power, historically political turmoil has resulted frequently with bad results for humankind.

It is worrisome when many Americans, both rich and poor, see equality in inequality, possession of wealth as an ideological right, and any government effort to be the balancing force against obvious, self-evident concentrated economic power as a move towards "tyranny."

In the end, possession of most of the money can mean possession of all the power in society. Ironically, the truth is that a commodity created by government transferred into the hands of a few because of government action or government inaction can give those few control of the government. There is nothing democratic or "American" about that.

American's need to remember that:
  • Money is a creation of government in order to facilitate an economy and the creation of wealth.
  • The government is the sole arbiter of the worth of money.
  •  The government that has the inherent right to regulate the use, acquisition, and storage of money.
  • The government has the inherent right to require that people "render" some or all of that money back.
In other words, without that government created and supported commodity there would be no modern economy and you and members of the new global elite would be paid for your work in chickens. How many chickens is an iPhone worth?

1English speakers frequently relate to "You cannot serve God and mammon." Some people even capitalize "mammon" thinking it was some Greek god.  Jesus spoke Aramaic and "mammon" derives from Late Latin 'mammon', from Greek 'μαμμωνάς', Syriac 'mámóna' (riches), and was an Aramaic loan word in Hebrew meaning wealth although it may also have meant 'that in which one trusts'.

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