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Interrelationships among money, debt, and economic growth create a financial system that provides a steady stream of income to banks and private investors—the proverbial 1 percent. However, because economists obscure these interrelationships, threats to the maintenance of the monetary streams of the elite are underreported. Consequently, increasing shares of national incomes must be appropriated to maintain those streams. This article reexamines the nature of and relationships among money, debt, and economic growth to understand austerity programs and why rates of economic growth must decline and how governments and elites adjust to this reality.
It then suggests alternative ways of addressing the creation of money and the problems arising from the division of society into net debtors and net creditors. Critically examining the major premises of policy disciplines such as economics should be a major goal of anthropology. Often, concepts that are essential in those disciplines are uncritically accepted, whereas a historical or cross-cultural perspective and the work of anthropology can help reframe the concepts and hence illuminate solutions to social and economic problems.
For example, three key economic concepts—money, debt, and economic growth—have been largely undertheorized by classical economists, which has consequently obscured, unintentionally or otherwise, vulnerabilities in our political economy and seriously distorted economic policy. The King secured a loan of 1. The 8 percent interest on this loan—which was financed with tax payments and which has never been repaid Graeber —created a steady stream of income for the Bank that, along with a reserve supply of silver, granted it the right to issue money as interest-bearing debt.
It was a momentous bargain that completed the foundation of modern national economies Wennerlind ; see also Di Muzio and Robbins First, the bargain institutionalized a means of money creation in which privately owned institutions, largely banks, create money as interest-bearing debt. Second, the grand bargain financialized the national debt, creating a stream of payments to bondholders based primarily on the power of the state to tax its citizens.
Third, it set a benchmark for the expected rate of return on capital and served as a model for the creation of thousands more debt-based monetary streams that include home mortgages, credit card and student debt, corporate, government, and municipal bonds, bad debt, artwork, and Latin American baseball players see, e.
Fourth, the issuance of debt-based financial instruments locked our economy into a requirement for perpetual and exponential economic growth. That is, since financial institutions create only the principal, without growth the interest, yield, or return on the loans, government securities, and bonds can never be realized.
Finally, the grand bargain locked financial institutions and the nation-state into a partnership whose primary goal would be to maintain the debt-based monetary streams and the perpetual economic growth on which they depend. Sir William Patterson, the brainchild behind the Bank of England, quickly recognized the bond between bank and state.
Money has been undertheorized by classical economics probably because of its uncritical embrace of the idea that money evolved from barter, an assumption dismissed by David Graeber , among others. If money simply replaces barter as a means of exchange, there would be no problem as one means of exchange goods for goods would simply replace another goods for money. But the theory neglects to examine the consequences of money created as interest-bearing debt by private institutions such as banks. And there is even debate among economists about how banks work.
There are three general theories regarding the role of banks in money creation see Di Muzio and Robbins ; Dodd ; Ingham The first, and most common, assumption is that banks are simply intermediaries between savers and borrowers. However, this theory cannot account for the expansion of the money supply, only its circulation. The second is the fractional reserve theory.
Here, banks lend out a percentage greater than actual deposits, keeping some percentage as reserve to accommodate withdrawals. But, like the intermediary theory, it cannot account for the creation of the amount of new money created Di Muzio and Noble The only theory that can fully account for the real expansion of the money supply is the credit creation theory Werner a , b ; new money is created when banks make interest-bearing loans to customers regardless of reserves.
But banks lend only the principal; the interest must be created elsewhere. Thus, the economy must continually grow at a rate related to the average interest and time period of all loans.
The fact that banks create money as interest-bearing debt and that other debt-based instruments dominate the financial landscape prompts three questions: First, how much interest are these debt-based monetary streams generating? Second, who is benefiting from these monetary streams? And, finally, what is the rate of growth of the economy necessary to maintain these monetary streams? There are many explanations for the growing income and wealth inequality documented by Thomas Piketty in Capital in the Twenty - First Century.
Reasons include patterns of inheritance, globalization, and technological and demographic change see Gordon ; Milanovic It is hardly that. Looking at the role of total interest in the US economy, Figure 1 and Figure 2 show, respectively, the net amount of interest paid in the United States from to and the interest paid as a percentage of gross domestic product GDP from to Since the early s, the share of national wealth represented by interest has fluctuated between 15 and 31 percent, but since it has averaged a little over 25 percent of GDP.
To illustrate the scale of interest payments, consider that the amount of interest paid each year in the United States has since exceeded the amount paid in federal income taxes Figure 3. Citation: Focaal , 81; Even a portion of income and indirect tax payments will go to service the interest on the public debt held by bondholders. To whom do these monetary streams flow? Most of them flow toward those who have the most interest-bearing assets at their disposal Creutz 4.
Edward Wolff , documents the extent of this wealth transfer. Table 1 illustrates the distribution of wealth-generating assets by wealth percentile. As one would expect, the top 1 percent has a significantly higher percentage of interest-bearing assets While there are various reasons cited for the massive growth in inequality within countries over the past four decades see Milanovic , the role of interest on debt has been neglected despite the fact that, while other factors may explain gaps in income growth among the larger population, it may be the most likely reason for the income breakaway of the top 1 percent.
In sum, by issuing money as debt—first to the state by central banks and then to private individuals, agencies, firms, and other borrowers—we have created a financial system that provides steady and stable monetary streams to banks and private investors—creditors—that guarantees them a source of power with which to protect their varied interests.
The classic division of the economy into labor and capital has been transformed largely into one of net creditors and net debtors see, e. In addition to undertheorizing the social and economic consequences of our means of money creation, classical economists have failed to consider the rates that economies must grow in order to generate their debt-based monetary streams. In fact, in the vast literature on economic growth, including two major textbooks Barro and Sala-i-Martin ; Jones , a Journal of Economic Growth , and a multivolume Handbook of Economic Growth Aghion and Durlauf , economists have little to offer on why economies must grow or collapse, or on the connections between money, debt, and growth.
The only significant treatment of the relationship among these concepts appears in books on the history of sovereign debt e. Instead, most economists treat economic growth as a good in itself that requires little justification, an idea reinforced by some linguistic sleight of hand see, e.
Growth, after all, connotes advancement, expansion, improvement, and, most of all, progress, and contrasts with decline, loss, stagnation, and diminishment.
These emotion-packed images obscure the fact that economists are simply describing differential capital accumulation. Consequently, for classical economists perpetual economic growth, as measured by gross national product GNP , is the source of all well-being and progress see Korten 70 ; Robbins and Dowty Only every now and then, a dissenter within the field of economics will take up quality-of-life issues, or question the sustainability of perpetual and exponential economic growth.
Even W. Arthur Lewis , in his seminal Theory of Economic Growth , asks whether economic growth is desirable, as have a few others such as Ezra Mishan , Tibor Scitovsky , and, most notably, Herman Daly in his seminal work Beyond Growth: The Economics of Sustainable Development. And since, as we will see, emerging nations tend to grow at higher rates than wealthy nations, global GDP would approach or exceed a thousand trillion or a quadrillion dollars.
The concept of economic growth needs clarification. What exactly does growth mean, and is it inevitable? Most importantly, what kind of insanity would lead us to shrug off the notion of a quadrillion dollar global economy? Despite the lack of a nonideological explanation for the requirement of perpetual and exponential economic growth, most economists, nevertheless, are devoted to data on it see esp.
Barro ; Barro and Xavier Sala-i-Martin This commitment to numbers, however, does not extend to the calculation of the rate of economic growth necessary to maintain the monetary streams generated by total global debt. This should be at least as important as the GDP. It does not address other categories of debt e. Since government debt constitutes less than one-third of all global debt, it is not unreasonable to suppose that to pay total debt—that is, to maintain debt-based monetary streams at historic levels would require a growth rate approaching 15 percent a year, a rate not achieved in the United States since Furthermore, virtually all recent projections of national and global growth predict a slowing of the rates of growth see Piketty However, it estimates that growth in advanced economies will be 1.
US GDP growth has continued to slow since and has not reached three percent for a decade see Figure 4. Furthermore, while growth is central to debt repayment, Carmen Reinhart and Kenneth Rogoff in their study of the past two hundred years of sovereign debt default conclude that countries have never been able to repay their sovereign debt through growth.
Although most projections show a slowing of global economic growth in the near future, most economists still focus on increasing growth. Kaushik Basu , former chief economist at the World Bank, predicts that in 50 years global GDP could be growing by as much as 20 percent a year, doubling every four years or so. Yet economists recognize that as economies become wealthier, it becomes more and more difficult for them to sustain growth.
Convergence makes little sense, however, as an explanation for differential growth rates between developing and developed economies; more accurately, the reason for slower growth has to do with the fact that growth must be exponential and that there must be some limit to the creation of profitable new monetary streams.
Take, for example, the lumber industry and the destruction of forests. Between and , the United States experienced a roughly 3. However, when we start counting the trees, we see that the percent increase amounted to an increase of about 1. If the same 3. Although we see the same percentage increase in growth, more than one million additional trees were necessarily consumed.
The same problem applies to automobiles, as it does any commodity. An increase in production of 2. Second, maintaining a compound rate of growth, as David Harvey notes, requires capital controllers to find more and more profitable investment opportunities, some 80 percent of which are debt instruments see Figure 5.
Clearly, finding places to invest this increasing amount of money and retain the long-term average of return on capital of from 4 to 6 percent see Piketty must become more difficult and, inherently, riskier. Harvey 28 notes that the wave of privatization that is so central to neoliberal policy prescriptions is less about the unproven increases in efficiency and more about finding places to invest money and keep it working and growing.
A third problem with maintaining growth is that the more debt we have, the more future income we must channel in order to pay both principle and interest, thus reducing the money we have to spend on goods and services and thus slowing economic growth Butler Finally, as more money seeks a place to grow, competition for viable investments increases their cost, thereby reducing the expected rate of return Irwin For investment strategists seeking potential opportunities for clients to realize a decent rate of return relative to risk, the task becomes more difficult.
If in fact our financial system functions to funnel money and wealth to the proverbial 1 percent, how can their monetary streams be maintained in the face of declining growth and increasing debt?
That is, if economic growth is slowing and promises to continually slow for the foreseeable future while debt is rising, as it must if the money available for the economy to grow must also rise, we can conclude that considerable global debt is unpayable see, e. If debt cannot be repaid, the power of those whose positions the income streams on debt payments support will be seriously threatened. The question, then, is this: what will their reactions be? The fact that the top 1 percent has already succeeded in siphoning off more and more of the national income is evidenced by the growth in income inequality over the past 40 years see Figure 6 and Figure 7 , inequality growth demonstrated by multiple sources led by the work of Thomas Piketty and his colleagues see, e.
From to , the income of the top 1 percent increased by more than percent, the next 19 percent by 70 percent, the middle 60 percent by 46 percent, and the bottom 20 percent by 41 percent Trisi We must first remember that we are focusing on threats to the income of the proverbial 1 percent, or, more accurately, the top.
These are the people who control governments, corporations, and, lest we forget, courts, police, and armies see, e.
Globalization in the 21st Century
An excellent compilation of articles that span the world, this book is bound to set the stage for a new round of discussion and debate on the prospects for the transformation of contemporary neoliberal globalization and the emergence of a multi-polar world order that is mass-based and democratic. I highly recommend this book for its pioneering role in providing us the tools for the critique of a failed system and the building of a new and just society. Berberoglu s latest book, however, is unique in the clarity and power of the ideas he and his contributors bring to the table. Taking on the basic tenets of neoliberalism and its disastrous effects on working people around the world, the ten essays lay bare the crisis of capitalist globalization and its bankrupt policies that have enriched a small minority of wealthy capitalists, while devastating the great majority of the world s people. A must-read for all those interested in the future of our planet, Berberoglu s book goes a long way in explaining what s wrong with our crisis-ridden global economy and society and what it will take to make it right.
Global Problems and the Culture of Capitalism-Richard H. Robbins a great value; this format costs significantly less than a new textbook.
Global Problems and the Culture of Capitalism, 5th Edition
Interrelationships among money, debt, and economic growth create a financial system that provides a steady stream of income to banks and private investors—the proverbial 1 percent. However, because economists obscure these interrelationships, threats to the maintenance of the monetary streams of the elite are underreported. Consequently, increasing shares of national incomes must be appropriated to maintain those streams.
Global Problems and the Culture of Capitalism, 6th Edition
View larger. Download instructor resources. Additional order info. K educators : This link is for individuals purchasing with credit cards or PayPal only. This award-winning text explores one of the most successful cultures and societies the world has ever seen — capitalism. From capitalism's European roots more than years ago to the present, this text examines the problems caused by its expansion, inequality, environmental destruction, and social unrest. Global Problems and the Culture of Capitalism provides any reader with the anthropological, economic, and historical framework to understand the origins of global problems, why globalization and the global expansion of the culture of capitalism has generated protest and resistance, and the steps necessary to solve global problems.
The culture of capitalism or capitalist culture is the set of social practices, social norms, values and patterns of behavior that are attributed to the capitalist economic system in a capitalist society. Capitalist culture promotes the accumulation of capital and the sale of commodities, where individuals are primarily defined by their relationship to business and the market. The culture is composed of people who, behaving according to a set of learned rules, act as they must act in order to survive in capitalist societies. Elements of capitalist culture include the mindset of business and corporate culture, consumerism and working class culture. While certain political ideologies, such as neoliberalism , assume and promote the view that the behavior that capitalism fosters in individuals is natural to humans,  anthropologists like Richard Robbins point out that there is nothing natural about this behavior - people are not naturally dispossessed to accumulate wealth and driven by wage-labor. Political ideologies such as neoliberalism abstract the economic sphere from other aspects of society politics, culture, family etc.
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The debate over the creation and origin of money
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