Douglas Rushkoff, the author of Life Inc., is a guest blogger.
We’re supposed to take heart in the fact that the Treasury Department’s bank “stress tests” didn’t come out worse. No, our biggest banks aren’t insolvent, exactly. In fact, enough cash was printed to guarantee that they should be able to survive the rest of the recession. Worst case, with a little late-night printing and lending by the central bank, even the worst of them – like Citibank – should be able to hobble through. Our Treasury Department wants us to be reassured.
True enough, as long as banks are understood by many as fueling the economy, this should be good news. By this logic, banks disperse the capital that allows businesses to do their business. As so many have explained to me, it all starts with the banks. Banks lend businesses money, and then those businesses turn it into something real – like products, salaries, or innovation.
Sorry, but that’s just not true. Labor might make money, but money doesn’t make labor. (Or as I said to Rolling Stone’s editor, music makes money – money doesn’t make music). And while we can certainly point to the fact that assembly lines and mixing boards cost money, neither are required as the first step in creating a car company or a musical act. Yes, in a well-functioning economy, good production yields income, part of which goes to making production better. A great company dedicates part of its winnings to R&D.
But the notion that enterprise and production starts with banking is just another artifact of Renaissance-era currency monopolies. Back before the first central banks, production and yield actually created money. (That’s what all this hoopla about complementary currency is about.) Money was not lent into existence by a bank. Instead, farmers brought their grain to town and received receipts for the grain. These receipts served as the local currency. Currency was worked into existence. There was as much money as there was grain.
The problem with this scheme was that people got too wealthy – especially in comparison with the feudal lords and fledgling monarchy, who had always been used to getting rich, well, by being rich. So they went and made all the grain-based currencies illegal, and forced everyone to use coin of the realm – central currency. While this coin was better for long distance trade and collecting taxes, it was lousy for local transactions. People lost their ability to live off the land, took jobs with early corporations, got poor, less fed, and eventually the economic downturn in Europe led to a plague that killed half the population. This isn’t economic interpretation – it’s just fact.
Eventually, with only half the population to deal with, Europe’s new economic scheme proved basically sufficient to the task. And we got the rules that have – in one form or another – defined economics to this day: people don’t make money, banks do. The chief function of money is for money to make money – not for it to be used for successful transactions.
But today we may be smart enough, information may travel around fast enough, for many of us to realize just how transparent a fraud we’re witnessing unfold before us today – how the bailouts of AIG were really funding Goldman Sachs, how intimately involved are bankers – Rubin or Paulson, are with Treasury chiefs like, er, Paulson and Rubin. How government and banking are one and the same, both after the same centralization of authority, both inextricably linked with the biases of lending-based wealth schemes, and both utterly incapable of serving as the source of anything.