Money: Capital or anti-capital? From speculation whirlpools to Burlington Bread, the impact of money on sustainable community development

Outline What is money? Is the existing system for money creation just? How can speculative investment (in contrast to productive investment) undermine community development? What is an alternative?

I. What is Money? Medium of exchange Store of value Unit of account What backs up the dollar?

A Short History of Money C= commodity M= money C-C* Barter Coincidence of wants C-M-C* Money as a medium of exchange Use value What happens when you amass more commodities than you can consume?

A Short History of Money (cont.) M-C-M* M*>M Exchange value What happens when you amass more money than you can consume? Money fetish Money as a store of value M-M* Speculation Overwhelms the buying of real goods and services What is produced? Redistribution

How is new money created? When the economy grows, more money is needed to chase more good and services Seigniorage Difference between value of money and cost of printing it What percent of your purchases are with cash?

How is new money created? Credit and reserve requirements Reserve requirements: bank must have cash to cover about 5% of deposits $100 dollar deposit allows bank to make $2000 in interest bearing loans

Money creation by banks Money is destroyed When bank is repaid + interest Do Banks Create the Value that Requires New Money?

Interest payments and distribution

Speculation Stock markets, real estate Speculative exchange in the global economy Buying and selling of goods and services is about $30 trillion per year globally Buying and selling of paper is about 1.5-2 trillion per day, or 500-700 trillion per year. Trading $1000/second, how long would it take to trade 2 trillion dollars? How long has this been going on?

Speculation and instability Financial bubbles: Loans to purchase stocks, real estate Positive feedback loops International speculative flows Rate of change and our understanding of the economy Herd behavior Tequila crisis, Asian flu, etc.

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.” -John Maynard Keynes

Financial capital and natural capital What grows faster, trees in the forest, cod in the ocean, or money in the stock market? How do you maximize profits?

Financial capital and human capital What happens to jobs when the stock market crashes? Great depression, tequila crisis, Asian flu

Financial capital and social capital Social capital = the norms and networks that enable collective action. Trust. Social cohesion Any links between speculation, income distribution and cohesion? Do you trust the speculators?

Financial capital and built capital Investment in productive capacity might bring returns of 7%/yr. when the economy is doing well, while the stock market might earn 16%. Boom 90s and stock buy backs Financial contagions and the impact on built capital

Regaining community control over the power of money Community Currency Regaining community control over the power of money

Why community currency? Cyclical nature of money creation The Great Depression Business cycles Example: The Worgl Who creates the value in money? So who is entitled to seigniorage?

How do they work? IOU is destroyed or used again

Seigniorage and Burlington Bread Seigniorage and complementary currencies Seignorage and public goods

Goals of community currency Value goes to those who create it Community has control over money supply Interest free