Modern civilization is entering an interesting and critical phase. It is only a matter of time before the nakedness of the order is exposed just as in the tale wherein a little boy exposed a deluded emperor roaming naked in the street. The little boy could expose the emperor because he saw things as they were without superimposed fear or self-doubt born out of conditioned thinking.
The little boy approach is needed to understand the present convoluted order and see things as they are. The discourse on economy has become pervasive in the modern society. People are constantly worried about their careers, livelihoods and always looking for more economic security. With all the bombardment of economic jargon, most are not sure about the economy puzzle, cannot fathom where it begins and where it ends, and yet it influences so much of their lives, values and character.
There was a time when religious principles, values, culture, skills and statecraft influenced the economy. In the modern context, religion, culture, skills and statecraft have become subsidiaries of economic ideas and organization and the economy has emerged as a dominant factor in human history. The religious prophets have made way for economic prophets and religious battles have transformed into wars for economic dominance.
Society is engaged in economic activity than ever before because a continuous war for economic survival is forced on it. Hence all vocations and aspirations of the human soul are suspended and the focus is on survival. The “haves” are also insecure, because this is an endless unstable economic war with no time and convenience for the “haves” to cherish peace and enjoy prosperity in this melee.
The war is visible but the roots are hidden under a maze of ideological cobwebs with unassailable authority and sanctity in the academic world. The sincere but conditioned expert sees the economic war but doesn’t dare to look at the roots. The layman is caught in it, feels something is fundamentally wrong, but sees neither beginning nor end. All things start with some core ideas before they assume complex forms, yet the underlying core remains the life force for the complex form. Three ideas are the life force for the modern economic setup (1) Unlimited profit (2) Private banking with institutionalized interest and (3) Limited liability corporation. These three ideas and the institutions they create support each other and form an impregnable layer of hegemonic control over modern economy.
Profit and the idea of Money
Profit was the income of a merchant and self employed artisan in the mercantile era, a reward for his risk and hard work. The merchant could earn his profit and spend it for his sustenance and perhaps for his opulence and luxury. He could build manors or sponsor art, the income he earned flowed back into the economy, further stimulating it. This concept of benign profit was turned on its head with the religious ideas of hard working, frugal spending and reinvesting profits as part of “worldly asceticism” to prove oneself an “elect”, a person predestined to achieve salvation; this Protestant idea made worldly success a sign of a person predestined by God for salvation. Wealth was desired as a proof of exalted spiritual status.
Religious doctrines turned benign profit into an extractive idea of monopoly. This disturbed the crucial equilibrium between income and expenditure – expenditure at one source is income at another. Profit became a means of expansion and conquest to make more profit, and heralded the era of Capitalism.
Soon local economies couldn’t sustain the increasing appetite for profit; overseas trade accelerated and the colonisation of Asia and Africa began, financed by the gold and silver from the continents of the New World. These overseas adventures needed huge capital with limited risk, thus the first joint stock company and Limited Liability Corporation Dutch East India Company emerged. Colonisation is a manifestation of that inherent drive and competition for glory through profit.
The benign aspiration for profit transformed into greed for unlimited profit in Europe spread to all civilisations. The appetite for unscrupulous profit is strongly enhanced by limited liability of a corporation. Through the framework of corporation, a band of profiteers can avail national resources through the banking system which creates money, and play the game with limited risk, and if smart enough with no risk of loss in the event of failure in the gamble. This gives opportunity without risk to influential, informed and connected persons at the expense of diversity in the economy and ownership of resources.
Through on-demand access to capital via the banking system, a small cabal of profiteers can eventually take over the commanding heights of a national economy and still remain unsatisfied and in need of more profit. The on-demand access to capital is the main lifeline for the hegemony of the unlimited profiteers to succeed and most of it comes from the banking system and in many countries banking is a private enterprise.
To understand banking, it is essential to understand the idea of money. Money can be defined as a measure of credit to productive work, labour or skill. It is not exactly wealth, but is a quantified measure of share in national wealth that the possessor earned or inherited from his family with a commitment from society to honour the ownership of his share. It’s a measure or physical token of the possessor’s ownership in national wealth.
The symbol chosen to use as money shouldn’t be something that can be easily counterfeited. When communities were small and people had little means or necessity for a common standard for money, they either bartered goods or used commitments between individuals that could be transferred to any other individual (a rudimentary idea of money) to facilitate exchange of goods. As communities enlarged and economies expanded, metal coins were minted and used for standard money.
It is not necessary that money be backed by gold. Gold or other precious metals are not the most important items for human survival and are not exactly synonymous to wealth. Wealth is a combination of many things of value to human civilisation. Metals were used to mint standard coinage because they were not abundant and difficult to counterfeit. Historically, precious metals were considered synonymous to wealth because of their utility as a medium of exchange in international trade and as an integral part of high culture and tradition. When gold and silver from the Americas flooded Europe, the metals lost purchasing power. Since these metals were considered valuable and treated as wealth all over the world, particularly Asia, the Europeans could use the abundant supply of these metals from Americas to finance Colonisation.
Wealth is a product of human skill and labour applied on natural resources; even precious metals are processed with skill for usage. Civilisations that have the skill to use and reuse available resources in a sustainable way can survive. Money in circulation has to match the combination of skill and resources that transform into useful products and services to represent wealth.
Money, as medium to represent the value of goods and services, cannot be too abundant or scarce since it is also a quantitative measure of goods and services. Natural resources cannot be used as standard legal money as they are either abundant or scarce. An abundant natural resource as money is a non-starter, a scarce resource like gold as money causes deflation if availability can’t match economic growth and is also inconvenient to use for small and common transactions. Gold usage as common money is not feasible for economies lacking it. The cost of gold production increases over time as exploration, labour and processing costs increase.
Standard physical symbol that cannot be counterfeited is ideal for money, but nothing is free from counterfeit attacks in this technologically enhanced and informed world; electronic money makes it even easier to manipulate from a high level of authority. Even with these dangers from counterfeit attacks, standard legal money is preferable as the potential damage is relatively minimal in the overall scheme; also the fraud can be traced and identified if the whole system is not compromised at the highest level.
The common experience of people is that standard legal money continuously loses purchasing power or value over time; the money required to buy the same quantity increases over time. Since people can’t avoid using money, they are continuously insecure about the loss of purchasing power over time and tend to rush for more of it to maintain the same real value or earn a bit more through it over time.