The Sin Of Wages Part 2

In part one I described how parties  trading in individual currencies would need to rely on a record of credit worthiness in the form of a credit history. This would provide evidence of ability to pay but NOT a guarantee of payment. This is because an individual currency would be SOVEREIGN as all currencies are.

Monetary sovereignty means precisely only paying your debts if you want to. This is the definition of sovereignity. Any other definition is a fraud.

To issue money collectively it would be necessary to have a wealth creating authority backing up the currency. In modern capitalist states this role is fulfilled by government.

The risk factor in using any currency is expressed as a differential in price and ultimately as an exchange rate. For those who only have the value of their work to sell the exchange rate amounts to a hidden tax on labour every time you use any currency.
There would be no hidden tax in a personal currency- You cannot tax yourself!

Collective money issued by a group rather than an individual pools the individual risk factors involved in using in that currency. Someone who is dealing with a national currency no longer has to concern himself with the individuals ability to pay but a nations ability to pay.  If a person holds a national note in his hand he proves his earning capacity ‘up front’ by virtue of possessing the note.

The value of a currency increases as the credits it obtains and trades in are successfully paid off. This results in a virtuous circle. This increase in value is expressed as a discount value and a use value. Everyone who uses a currency benefits from these discounts (collective purchase of credit).

Benefits are maximised the more people use a currency. These benefits offset the hidden taxation inherent within use of that currency. Any outside body that issues money within an economy necessarily has a negative effect on this process. Credit does this.

With these necessary monetary conditions in mind we can have a look at derivatives and whether they fulfil the conditions necessary to be considered as money. I argue that derivatives are privately issued money. In order to make this money tradable and valuable, the creators of derivatives manufactured a ‘nation’ and an ‘economy’ to go with it!

Any currency needs a credit history  
Derivatives manufactured such a history based on the earning power of mortgage holders. In some sense the mortgages themselves were only incidental to the information that was gathered in the process of issuing the mortgages. It was the information about wealth creating power that financial institutions were trading in not the mortgage values.

Any currency needs a wealth creating authority
Democratised money derivatives are supported by a troika of:
Monetarist government
Credit Agencies and
Mortgage companies

(A Mystery Explained

You might have wondered why Monetarist stooges Clinton and Bush chose to support the massive extension of mortgages for the poor. This is usually explained as having something to do with the desire to extend opportunity and home ownership etc. Given the relentless attacks of Monetarists on the poor, especially non-white poor, in the aftermath of the Credit Crunch this hardly seems plausible.  However, once you understand the massive increase in mortgages as an opportunity to add another tax to the poor and to strip away the discount benefits that state money brought, you can see why Monetarists like Clinton and Bush were very much in favour of it.)

Any currency pools the individual credit histories of those that use it and therefore pools the risk involved in trading in it

This is the defining characteristic of derivatives as money. Financial institutions took the earning capacity of sub prime lenders and high value lenders and pooled them together creating a hybrid credit risk. The credit rating agencies gave this pooled risk AAA status. Effectively the high value low risk mortgage payers carried the poor sub prime mortgage payers. This is exactly what happens in a national currency.

Any currency is a hidden tax on individual labour power

Democratised money derivatives derived such a tax as this from pooling sub prime mortgages. Unfortunately these taxes on labour on top of the other hidden taxes embodied in the mortgage agreements were too high for sub prime borrowers to support. It was this that led to the Credit Crunch.

The use value and exchange value of any currency increases as debts are paid off

Which is precisely why traders realised derivatives were worthless to the extent that the credit agreements( debts) would not be paid off. This realisation that the credit would not be paid back directly undermined the use value and discount value of derivatives. This was a result of the fact that democratised money derivatives were so new. Given more time they could stabilise and prove out the amount of wealth that they could generate. Unfortunately time ran out when interbank lending rates meant that the exchange rate between state issued money and privately issued democratised money became too great. And this explains QE in Monetarist terms; as a means of buying time for democratised money derivatives to prove themselves. When it is felt that derivatives have successfully rooted themselves as privately issued money, QE will fully end.

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The Wages Of Sin/The Sin Of Wages- Be Sure Your Sins Will Find You Out Part 1

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Cash- One Piece @ a Time

Here at the United States of Everywhere I have argued that we are transitioning into an economic system where private institutions are able to issue their own money. I have argued that this Democratisation of Money will increase in scope and depth until it has transformed property rights and the fundamentals of Capitalism, as we have known them. It will be an enlightening thought experiment to imagine a world where this process is taken to its logical conclusion- a world where everyone issues and uses their own individual currency.

 

In this world everybody would be trading, (that is exchanging whatever they had to offer for goods and services), on entirely individual terms. Since most people only have their individual labour to sell, this would mean people exchanging work for goods and services completely outside any collective social context. This would be a neo Liberal dream. This would by Ayn Rand’s idea of Heaven.

Of course it would never be possible for everyone to actually issue his or her own currency would it? You probably have a vague feeling that such an economic system would be far too complicated and open to fraud. Except of course that if you think about it for all intents and purposes fraud would be impossible because all the mechanisms that make fraud possible would be absent…

 

Ok that might be too far to go in one leap; lets take a step back for a moment. What would living by your very own currency mean in the simplest instance?

Since this is Ayn Rands dream I will put one of her ‘characters’ to some use as an illustration. John Galt is our protagonist with the GALTHALER as a personal currency to trade with. Now John Galt will buy and sell stuff based on… the value of John Galt, or more precisely the value of Johns ability to create wealth. This value is formalised in the individual currency that John issues. It is important to note that this, or any other currency is NOT A GUARANTEE THAT THE ISSUER WILL PAY DEBTS. It is a formal description of the ability to pay debts SHOULD THE ISSUER SO CHOOSE.

 

This is what the Federal Reserve, the Bank of England and every central bank does. Capitalist central banks are formally independent- they have no wealth creating value of their own (or at least they didn’t used to have…) But backing central banks like these is the force and authority of the respective governments that created them. Modern governmental authority based on Germanic Land Democracy is precisely the authority to create wealth.

 

Back to our prospective trading partner deciding whether or not to deal with John. This partner will need some criteria on which to do so. In the remote past there were considerations of culture, family, religion etc that all operated as bona fides for any prospective trade partner. But in a modern culture that isn’t going to work, at least in the practical short term, so we are going to need something else. That something else would be the business history of the person we are dealing with.

 

Is this starting to ring any bells yet? Let me elaborate:

  • The business history of John Galt is not just a collection of anecdotes about what this or that person did or did not do. It is a record of whether they kept to the terms of previous contractual arrangements they entered into.
  • It is also a record of what commitments they have presently that might prevent them fulfilling any future contract
  • In essence, it is a record of whether it likely to be profitable to do business with them as compared to the risk of doing business with them.
  • As you might have already guessed, it is essentially a credit history,

 

If John Galt wants to exchange his GALTAHLER for a weeks groceries from the corner shop, he would effectively be asking the shopkeeper for CREDIT; this is exactly what happens in international trade between sovereign nations. John and the shop owner are acting as sovereign entities. After the transaction in our example the shopkeeper has a debit on his book for the value of a weeks groceries but he has the GALTHALER to redeem against John Galts labour at a future date (or alternatively to exchange with anyone that will take them).

 

Is the note that the shopkeeper received from John Galt the same as a credit note? No, because a credit note is denominated in another, usually a national currency. There is no sovereign freedom implied in a credit note.

 

Clearly there is risk for the shopkeeper in this agreement and that risk implies a premium. That premium is the additional incentive the shop owner requires to be incentivised to do business with John. It is the effective exchange rate between GALTHALER and SHOPPOUNDS (the shopkeepers own currency).

 

If John Galt has a bad credit history, the corner shop will either refuse to do business with him, (not accept GALTHALER in payment), or will charge John extra over an above the cost of the groceries in SHOPOUNDS to make it worth the shopkeepers while to take the risk.. The difference, or ratio of difference is the exchange rate between GALTHALER and SHOPPOUNDS.

 

It is important to remember that since this is a credit agreement, its value changes over time, in the same way that a credit agreement is serviced by making payments over time. The value of these payments is a function of time and a function of risk. To simplify, the longer a borrower makes the payments on time, the less risky (and therefore more valuable), those payments are.

 

We have clarified the relationship between trade, currency, credit and risk. In the light of this we can look at state money again

 

First of all the term state money is somewhat misleading. Modern capitalist economies don’t have a currency issued by the government. That would be a COMMON CURRENCY, which we are given to understand that would cause all kinds of problems..(And so it would, but not for us!) We have a currency issued and controlled by private entities under the supervision of the state.

 

But that is not to say that state money does not have real benefits. I have explained how issuing and dealing with your personalised currency would require an additional premium to be paid. State issued money pools the individual risks that each individual has and at the same time collateralises their collective wealth creating ability. It is this pooling of risk that precisely defines money in relation to credit. This in turn allows the development of collective capital, which accrues to the value of state money.

 

Put simply in the same way that collective bargaining allows a group discount on buying goods and services, collective – national buying allows a group discount to be obtained on credit. But not just on nation to nation trade; on every single transaction within a nation state.

 

Where does this discount go? It goes to the user of a state currency individually. But more importantly some of it goes to the currency itself. The currency appreciates in value. This is a virtuous circle. The more the currency appreciates in value the more useful it is to an individual to use it. And when the individual uses it more, it appreciates in value. VOILA!

 

Once you understand this, you start to appreciate that every specific credit agreement effectively steals a portion of this collective wealth. Every time a financial institution signs a credit agreement with a person in Alabama they are effectively stealing a portion of the value of a dollar spent in New York. This is private institutions given the legal right to tax the labour of the nation!

 

‘But no nation would willingly agree to this!’ I hear you cry.

 

And you are right, no nation ever would. So the nation will never be collectively approached with this iniquitous proposition.

 

INSTEAD THEY WILL SIGN THE NATION UP FOR THIS TAXATION, ONE PERSON AT A TIME THROUGH CREDIT AGREEMENTS!

Economic Freedom and its Enemies or Loving the Alien

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 ‘Help me Milton…’

 

“If everyone demanded peace instead of another television set, then there’d be peace.”

― John Lennon

 

 

The period immediately after WWII saw the introduction of modern consumerism in western European economies.

 

Consumerism as a political force was closely tied to the Cold War. Consumerism was a totem of the idea that in the ‘West’ ordinary people are free politically and economically and that these freedoms are interrelated and interdependent.

 

Consumerism was founded on the idea of disposable income, which in turn was founded on the idea of discretionary expenditure. Discretionary expenditure is money you spend as and where you choose. What was innovative about post war policy in the west was the idea of creating mass discretionary expenditure and corresponding mass economic’ freedom’.

 

In order to build a consumer society it was necessary that the economic system was capable of producing enough disposal income for ordinary people so they would have something to spend. This gave rise to the concept of a living wage; it was the accepted norm that one man could earn enough to keep a family. Where this did not happen the state would take up the slack. It is important to realise that this was NOT the idea of the economy providing each person with enough to live on but the idea of having enough on top of necessities to buy stuff just because you wanted to. Discretionary spending defined the idea of western economic freedom in the post war period.

 

The three main areas where western states stepped in to ensure provision of necessities adequate enough to support a consumer society were Education, Health and Housing. But it was NEVER the intention of western states to provide the most egalitarian education. or the best availablehealthcare. or the highest possible quality public housing. At no time did western states provide more of these necessities than was just enough to support a consumer society. This support for consumerism defined the limit of what elites were willing to support in post war welfare provision.

 

For an elite under sustained domestic and international moral and political attack, what made the costs of consumerism worthwhile was that it supported the political message that the enemies of freedom were ‘out there’ and that the defence of individual freedom should be facing outwards to deal with this.

 

The ideological message of consumerism was that :

The enemies of freedom are alien (to our ‘way of life’).

The alien enemies of freedom were pro coercive state (while we are pro ‘welfare’ state).

The enemies of freedom were extremist, (and willing to sacrifice ‘freedom’ in favour of equality or justice whereas we have the best of both worlds)

 

The importance of these concepts to the rehabilitation of  Capitalism in the post war period can’t be overstated. In essence, consumerism was/is a fusion of nationalism, rhetoric of economic democracy and a limited amount of material progress. This ‘facing outward’ strategy was completely successful for western elites and has shaped the entire conception of economic freedom ever since.

 

Since the end of the Cold War, ‘democratic’ discretionary expenditure has come under repeated attack culminating in the ‘Credit Crunch’ period that has seen double digit (roughly) falls in the spending power of the vast majority of ordinary consumers across the western world. In Mediterranean economies this fall has been magnified by a large factor. A fall in spending power tends to be expressed disproportionately in the purchase of discretionary items. After all, you are less likely to buy another pair of training shoes if you have a large, outstanding electricity bill. This explains in large part the hotly debated deflation seen in developed economies. There is deflation. It is deflation in discretionary purchases and it reflects the effective end of the mass consumer society.

 

This deflationary effect has been magnified by the abdication of the Monetarist state from necessity provision. This withdrawal from provision of healthcare, education and housing has been justified by the Credit Crunch and the need to restructure welfare expenditure. The effects of the state no longer taking responsibility for housing, education and health are becoming increasingly clear. University tuition fees and housing mortgage cost now comprise a large and ever increasing part of the budget of newly forming households. The forthcoming rollout of medicine privatisation will intensify this effect. Expenditure like this requires credit for most people. The requirement for credit to provide necessities as opposed to desires or investments produces a Permanent Credit Economy.

 

Perhaps  this is really just the old argument about state vs. private provision of services? Perhaps it is simply a matter of people re-ordering priorities- a few less trips to the cinema, no holiday this year. In other words is it possible that the Monetarist state abdication for provision of necessities will have no fundamental, negative effect on the economic well-being of the majority of people?

 

The answer is no. It is easy to see this if we consider the risks involved. Private provision of housing, medicine and education all entail an element of private risk- or put more accurately, monetisation of risk.  If I buy a house, invest in education, or decide on a private health policy with various deductibles etc. I am undertaking private, personal risk. The house may go down in value. The degree I get may be worth less than the cost of obtaining it. The health insurance I have may not cover a serious illness or accident. This much is obvious.

 

But underpinning this risk/insurance model is a credit model that is harder to see at first glance. It is this credit that allows the monetisation of risk. If you buy education, housing, or medicine you do so on credit. In other words you don’t pay for these things outright; you can’t afford to

 

Anyone who obtains credit pays a premium for that credit. This premium reflects the risk inherent in the agreement. The risk that the borrower will default; the risk that the loan will not be as productive as another agreement. This premium is the interest rate. The interest rate is the means by which the risk is monetised; it is the means by which wealth can be extracted from the risk. But more important than the financial loss to the borrower is the more subtle loss of freedom; the freedom of the borrower is curtailed by the credit agreement. You do not have a money history but you DO have a credit history. And it follows you around.

 

However, the most important loss of freedom occurs on the level of society as a whole. If a group of people is effectively self insured through the public provision of goods (as in state provision of health, education and housing), then no credit monetisation of risk is possible and no extraction of wealth is possible. Further, no imposition of outside agreements is possible. The people who self insure are SOVEREIGN; that is to say self enclosed, beholden to no one.

 

This is more than just collective sharing of risk. This is sovereignty. Sovereignty is by definition a self-sealed system that no outsider can break into. Sovereignty is the key to economic freedom. In fact, it is the only real economic freedom there can ever be. All other talk of economic ‘freedom’ is simply political rhetoric.

 

Once you understand the full power of public ‘sovereignty’ as an ‘alien’ economic and political force, you understand the horror that capitalist elites felt at the realisation they were infected with it.  At the end of WWII, just as China was passing into Communist control and away from western influence, so health and education at home was being taken over by another foreign power! The sovereign plebs!

 

Like a cancerous tumour, this alien sovereignty was growing inside the bowels of the weakened capitalist system. And just like the cinematic victims of the Alien ‘face hugger’, elites were forced to supply the parasite with blood and oxygen or die! Only in this context can we truly understand the endless western Cold War emphasis on witch hunting the ‘alien’ and the ‘enemy at home’ . In effect, for sixty years western elites have been shrieking in pain and terror like Lieutenant Ripley in ‘Alien’:

 

‘Get it out! get it out!’

 

Western elites see the end of state provision of health, education and housing as a great healing. They see the end of the consumer society as a great boon. No more economic sovereignty for the plebs. They will learn again their true place in the scheme of things. The tumour of public sovereignty has taken forty years of painful surgery and Monetarist radio therapy and still it is not all been removed.
But we are getting there.

 

For we aliens however, the end of sovereignity is the end of the consumer society. For aliens like us it is the end of whatever economic freedom we had. We can look forward to a future in a glass bottle in the laboratories of the Weyland Corporation.

 

I hope you know who the real enemies of YOUR economic freedom are now.