In search of inspiration I was flicking through Caroll Quigley’s Tragedy and Hope.1 He begins his section on ‘Changing Economic Patterns’ with the following:
An economic system does not have to be expansive – that is, constantly increasing its production of wealth – and it might well be possible for people to be completely happy in a nonexpansive economic system if they were accustomed to it. In the twentieth century, however, the people of our culture have been living under expansive conditions for generations. Their minds are psychologically adjusted to expansion, and they feel deeply frustrated unless they are better off each year than they were the preceeding year. The economic system has become organized for expansion and if it does not expand it tends to collapse.
For those of you who have had a go at writing about the gap you will appreciate his next sentence. Even Quigley battles:
The basic reason for this maladjustment is that investment has become an essential part of the system, and if investment falls off, consumers have insufficient incomes to buy the consumers’ goods which are being produced in another part of the system because part of the flow of purchasing power being created by the production of goods was diverted from purchasing the goods it had produced into savings, and all the goods produced could not be sold until those savings came back into the market by being invested.
What he’s saying is that a disruption in the flow of consumer purchasing power due to reduced investment causes a backlog of prices which, if not cleared, leads to collapse. He thinks the disruption is due only to an excess of savings over investment. As it happens this is just one of several reasons for the shortage of consumer buying power identified by Douglas.
How essential investment is to our business system is not well understood. The money supply itself comes into existence in the form of investment. This is obvious by a closer than usual examination of what banks do. Banks don’t lend money. They actually buy securities. When you ‘borrow’ money from a bank what you are actually doing is selling a security in the form of a promise to repay at interest. That promise to repay, or promissory note, is seen as a security purchased by the bank. The money you get comes in the form of a bank deposit which can then be used to buy goods and services in the economy. Because the money supply has to be routed through banks who operate in this way there is no viable option for just funding consumption directly. Avoiding these simple facts is key to a long and prosperous career in economics.
While employment is the conduit for incomes, if new factories and capital works (investment) are not constantly being developed we are unable to pay for the products of factories and captial works already in existence. The problem compounds. Once the new facilities come online the amount of unsaleable goods is larger again, necessitating the building of even more factories and so on. This is why Douglas objected that “under the present monetary system, in order to have sufficient purchasing power to distribute goods for consumption, it is necessary to make a disproportionate amount of capital goods and goods for export.”2
The functioning of the economy is dependent on sufficient ‘investment’ (read debt-money) but building factories etc. is not the only way of increasing credit in cycle. Government spending (education, healthcare, defense, infrastructure, etc) and consumer debt, especially mortgages, make important contributions as well. Servicing these debts, however, inflates prices, increases the financial exposure of the community to banks and, as the liabilities pile up, drags on consumer spending.
There are a litany of negative consequences that flow from this ‘maladjustment’. The business community, forced to compete in a consumer economy short of money, has been allowed open slather on the minds and bodies of the public. The strategy of those who survive is to destroy competition, minimise costs and inflate prices by advertising. The result is an economy spiralling into monopoly, low quality products and deeply anxious people. The turnover machine relies on personal insecurity to dissolve sales resistance.
One of the more peculiar outgrowths of this nexus which needs special mention is the mass surveillance system that has been built up on the right of the advertising industry to have nearly unrestricted access to our data. This influence is now shaping the ‘realities’ of billions of people directly with little understanding on the part of those being worked on. The existence of this ‘control grid’ combined with the anxious, atomised subject presents an irrisistible opportunity for totalitarian ambitions.
There is an alternative. Where there is a shortfall of consumer purchasing power it could be made up with steady and measured credit injections directly to the public. This would render the old system obselete. No longer would new investment be required solely to distribute money for consumption. There would also be a reduction in the need for consumer and government debt. The monopoly of credit would be broken, its power distributed and decentralised.
Easy fix. That doesn’t mean we’re going to even talk about it. The monopoly of credit is nothing if not tenacious and people remain mostly blind to the irrationalities of debt-economics and full employment. Politics is reluctant to lead where the public is unprepared to follow.
Even still I remain optimistic. My advice in the meantime would be to invest in your own self-reliance. We can all go out and, as Douglas told it “construct a utopia of our own.”
1. Quigley, C. 1966. Tragedy and Hope: A History of the World in our Time. The Macmillan Company, New York.
2. Douglas, C. H. 1936. The Approach to Reality. Available from: https://thepeoplescredit.com.au/wp-content/uploads/pc-pdf/shortform/Approach-To-Reality.pdf