Economists who have focused on the meltdown, save a precious few examples – Joseph Stiglitz being the most outstanding – have not looked at the money mechanisms behind the financials.

The trouble with revolutionary change is often that there aren’t too many trials of the techniques, which is of course axiomatic. Here Monbiot digs out some evidence that a fresh look at money actually works, ie, it is socially acceptable, in ways that simple socialism, for instance, was not.

Capitalism, of course, as I have said in other posts, either here on the blog or in lists we have shared over the years, is fundamentally flawed because, to survive, it needs to compromise the basis on which the money-value equivalence was originally created.

And sow’s ears do not silk purses make.

With respect, I can’t agree. Returning to gold as a common denominator is just another exclusivist fiction. As we know in India, better than any other country today, roughly half the gold ever mined in the world is held by Indian families, and the rest is in a handful of central storage vaults.

How will setting up gold be better than using a global ‘average’ denominator of a basket of commodities? This will automatically protect the largest number of nations/peoples from bursts of inflation, and minimise the disparity between nations.

The thing to realise is that, as never before, information is getting far more perfect. If a country like India actually invests in universal connectivity, and removes the incentive to ‘hide’ money (and therefore transact with hidden money), and together with this, if the concept of hidden money is removed, the scope to match up information with the actual velocity of money in the market vastly improves.

It will not be ideal, because that is Utopian, but it is better than what we have today, and will remove many of the artificial barriers that have plagued the use of physical money, and incentivised the creation of bubble money. I think. Or, as we put it in this virtual space, imho.

1. To clarify the historical evolution of money as we understand it today from barter and coinage.
2. To show how greed is inescapable in economic dealings, which is why Gresham’s Law still stand validated even today.
3. To show that many of the things we consider new today have in fact appeared in one form or the other during the long history of money. For instance, in addition to John Law’s notes, John Law’s shares in the Mississippi Company were also exchanged freely as equivalent to currency as long back as 1719 – virtually in the same way that derivatives of various descriptions have been exchanged, and in the process multiplied, in the past twenty years. With, one might add, the same basis in real estate and the same bubble, boom and bust effects.
4. To show how money is not created as equivalent to barter, but is in fact created literally out of “thin air” through the printing of money.
5. To show how solutions to economic problems have always existed and have been found to work, but not necessarily according to the standards of human right, values etc, that are mandatory today, and to demonstrate that economic policies often have the objective of the management of greed.

It is nobody’s case, least of all mine, that we should go back to the command economies of the Nazis or the Soviets. But let us give credit where credit is due and recognize that they found a way out when it was necessary.

My posts were in no way intended as any prescriptions or recommendations, but only as information. As I mentioned in the beginning, since I am not the author of these extracts, the writing should at least have been found correspondingly more entertaining.

As for the specific issue of the use of airtime as a form of specie, I would only say, at this point in time, that this falls squarely into the ongoing debate about the gold standard vs. the dollar-linked floating exchange rate, about which so much writing has already taken place in the past couple of months.

Having said (and posted) so much, I will now step back and request the others to contribute their share if so inclined. Personally, I would like to get back to Paul’s three critical factors of Consumption, Investment, and Labour, and the interlinking between the three.

They are all command economies, where every aspect of the economy is rigidly controlled. As against this, genuine growth and equitable distribution of wealth is believed to be better achieved in a lightly controlled market economy.

Obviously, the latter is not entirely true, just as the former isn’t either.

What might have been thought acceptable for a few million people, for economies/nation-states whose population numbered somewhere in that scale, is patently ridiculous to imagine will be acceptable when we have countries the size of India, and going beyond that, to a global economy on which the lives of six billion plus lives depend.

Theoretical constructs are no longer acceptable as solutions. The impact of the meltdown we currently witness is horrifying, and the thought of experimenting with a bandaid approach, as appears to be the case in both Europe and the US, is equally reprehensible. Not only must our suggestions appear workable, they must hew to a higher sense of values than has been the case till now.

If we are to use this forum to make suggestions, therefore, it behooves us to work out detailed methodologies, as well as ensure that the metaphysical value base is consistent and inclusive.

I do not propose that the departure from physical currency, qua e-cash, is in any way ‘the answer’ to the failure of the money markets.

A multifaceted failure won’t be addressed by a singular intervention.

My suggestion is therefore multi-pronged:

* e-cash, because that is easier to verify and avoid counterfeiting, for a national scale currency

* removal of linkages between individuals and e-cash

* removal of direct taxation, in order to remove need for linking individual cash amounts and individual persons

* rationalisation of transaction taxes, removing all other forms of taxation, such as intranational ‘border’ taxations, provincial taxes, manufacturing taxes and the like, leaving a single tax (not necessarily flat-rated, but definitely simple to apply)

What will it take to achieve such a transition?

Again, one can only look at India, since the background to the use (or abuse) of currency you describe, with readings from Galbraith and others, is quite different elsewhere.

=> Universal broadband connectivity, cheap or free, thereby removing many of the hurdles to inequitable communications within the country, is essential. Hardly a big deal, this problem, which is why I can today suggest this is doable.

+> Transition to universal e-currency, with no linkages to artificially compromisable commodities such as gold or other, previously considered, materials. Salt, for instance, which was the currency of payment for the Roman soldier.

=> Dismantling of all mechanisms to connect transactions to individuals. It probably won’t be as difficult to include some linkages to commodities or services being transacted, but continuing overheads (resource allocations for individual transactions) may make the flat tax concept quite attractive.

It makes sense to take a quick look at current governmental revenues vis-a-vis GDP that will give a hint about the rate of tax needed.

Still, the principal opposition to flat-taxing is the possibility of unfairly loading the poor. At a gross level, I think the poor are already seriously unfairly taxed, only their situation is not widely publicised.

Anyway, dismantling direct taxation will take away the jobs of a lot of government personnel, so managing a multi-level tax will give them some work to do for a transition period. With the vast amount of transaction-related information flowing in from this system, some kind of smart work will be needed.

Of course, as always happens when systemic change takes place, the new work calls for different skills than the previous one, so this is not a panacea for current staffers of the finance ministry, or indeed the ministry of commerce. They will need to either hand out pink slips on a large scale, or create some totally new work for themselves rather smartly. But that will bring down the human resource cost of governance to some extent, and hopefully lead to a leaner, not meaner, government in the future.

This is called ‘greed’. Keeping even more stuff than that, keeping things that are not necessarily ‘the best’, is ‘excessive greed’. Yet our modern consumer society ascribes positive values to this expression of interest. Loving oneself the most is called, in the psychiatric sense, narcissism. The term is also Greek in origin, but not Athenian (in fact, it is Thespian, which may link in some etymological manner to the love that actors bear for themselves).

The use of the term ‘essential values’ to title this blog arose from the feeling that there has been a great slippage in values in general, and greed is one of those values. Acquiring more than one needs, and glorifying such acquisition, or apparently ascribing high societal value to such behaviour, is evidently not an evolutionary step forward, if one examines the current global economic crisis.

Of course, it may rather be the self-correcting behaviour of lemmings, the Norwegian feral rodents that work together to return to their preborn state en masse, when their numbers exceed their ability to sustain themselves in their environs.

Hopefully, through this discussion, we will arrive at methodologies to return to positive evolutionary behaviour, as a species, and as a functioning society.

Mind you, seeing as how this series of clarifications about the history of money arose from my post about e-cash, we have not yet addressed the issue of e-specie, as an evolutionary step beyond ‘flat’ (how prophetic that word seems today! although flatlined might appear even more appropriate) currency.

I agree that greed, as used the way I did and I think the way that Gresham’s Law postulates, can refer only to the financial system. The consumption and labor systems would be driven by their own set of parameters, not all of which would overlap with the financial/ investment system.

The problem as I see it is that there is no decoupling between these different systems. For example, if the investment system is driven by the monetarists, as has been the case since the early 80s, then credit will expand and consumption will get influenced by the availability of cheap credit.

Similarly, a stock market price driven paradigm would encourage investment in companies and sectors which perform best on those parameters. This would lead to a ripple effect on the labor system – outsourcing is one consequence that comes to mind.

Perhaps one way of approaching sustainability could be to examine the extent to which decoupling could take place so that the greed element, which affects mainly investment, is to some extent mitigated.

Inevitably, this would mean regulation.

So this black box of greed that is used as a justification for all economic ills needs some deeper analysis.

A return to the gold standard – historically “a single standard for an equitable transaction” as you put it – is something that many people are talking about again these days.

Today’s WSJ has an unusual (for the WSJ!) article:

http://online.wsj.com/article/SB122748912533552007.html

where the writer says:

“In this respect the present crisis in the West will ultimately end up discrediting mechanical monetarism — and with it the fiat paper-money system in general — as the U.S. paper-dollar standard, in place since Richard Nixon broke the link with gold in 1971, finally disintegrates.

The catalyst will be foreign creditors fleeing the dollar for gold. That will in turn lead to global recognition of the need for a vastly more disciplined global financial system and one where gold, the “barbarous relic” scorned by most modern central bankers, may well play a part.”

There is very little doubt that it will take a major change in cultural attitudes for these three factors to remain in balance. Gresham’s Law – that bad money always drives out the good – remains standing to this day, and is indeed the first intellectual assertion of the pervasiveness of greed. Gresham’s Law will ensure that the system, sooner or later, will go out of whack.

Fortunately, we have lessons from history to guide us. As always, Galbraith has a good eye for such facts:

“The Greeks, notably the Athenians, seem to have resisted debasement out of a rather clear understanding that this was a short-run and self-defeating expedient and that honesty was, at a minimum, good commercial policy. After the division of the Roman Empire and the reassertion of Greek influence at Constantinople the bezant was for several centuries the world symbol of sound money, everywhere as acceptable as the gold it contained.”

So there you have it. The Athenian Greeks – innovators of the concepts of the republic and democracy, creators of possibly the most astonishing art the world has ever seen, had found an answer. But only for a short time, before Gresham’s Law struck again.

Closer to today, the Tibetan Buddhists have a similar ability to stay away from Gresham’s Law, although their skill and stamina appears to be flagging.

Maybe Prem is right. It may not be possible to eliminate greed, but perhaps we can sidestep it.

Because if we don’t or can’t, then it will be very difficult to avoid the most successful model and method – the command economy.