Rushkoff on the Economy

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I’ve been reading Douglas Rushkoff’s “Present Shock: When Everything Happens Now” and have by coincidence just reached a chapter of the book covering the topic of currencies and the economy as Washington D.C. attempts to avoid another default. I found similar writings from Rushkoff on the same topic in two articles published by Arthur Magazine. As can be seen from these excerpts, they’re helpful for understanding our current situation:

Local currencies favored local transactions, and worked against the interests of large corporations working from far away. In order to secure their own position as well as that of their chartered monopolies, monarchs began to make local currencies illegal, and force locals to instead use “coin of the realm.” These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.

What does that do to an economy? It bankrupts it. Think of it this way: A business borrows 1000 dollars from the bank to get started. In ten years, say, it is supposed to pay back 2000 to the bank. Where does the other 1000 come from? Some other business that has borrowed 1000 from the bank. For one business to pay back what it owes, another must go bankrupt. That, or borrow yet another 1000, and so on.

An economy based on an interest-bearing centralized currency must grow to survive, and this means extracting more, producing more and consuming more. Interest-bearing currency favors the redistribution of wealth from the periphery (the people) to the center (the corporations and their owners). Just sitting on money—capital—is the most assured way of increasing wealth. By the very mechanics of the system, the rich get richer on an absolute and relative basis.

The biggest wealth generator of all was banking itself. By lending money at interest to people and businesses who had no other way to conduct transactions or make investments, banks put themselves at the center of the extraction equation. The longer the economy survived, the more money would have to be borrowed, and the more interest earned by the bank.

[…]Commerce is good. Commerce is not the problem. Monopolies are.

Except in a few rare cases, corporate charters and centralized currency were never intended to promote commerce. They were intended to prevent locals and non-chartered entities from creating and exchanging value. They are not extensions of the free market, but efforts at extracting value from the free market. Corporate monopoly charters were extended to a king’s favorite companies in return for shares. Then, no one else was allowed to do business in that industry. Centralized currency forced businesses to run their revenue through the king’s coffers. Likewise, in its current form, centralized currency is more akin to a ponzi scheme of interest rates, each borrower paying up to the banker above him.

Both of these innovations—corporate charters and centralized currency—tend towards resource exploitation rather than innovation. They are extractive in nature, not productive. And, more importantly, these particular innovations cause wealth to end up being generated through speculation rather than creation. They cause scarcity, not abundance. Over time, it becomes easier to make money by having money than by doing anything. And this was the pure, stated intent of centralized currency and banking in the early Renaissance: to keep the wealthy wealthy, in the face of a rising merchant class.

This isn’t some extremist perspective. It’s just historical fact, though largely forgotten and seemingly refuted by our collective false memory of the Renaissance’s greatness. If you’re interested in finding out more about this, or seeing the evidence on which my research is based, take a look at the best historians writing about the era: Fernand Braudel (The Wheels of Commerce: Civilization and Capitalism: 15th-18th Century, Volume 2, Univ. of California Press, 1992), Carlo M. Cipolla (Before the Industrial Revolution: European Society and Economy, 1000-1700, WW Norton, 1994) or Bernard A. Lietaer, whose book On Human Wealth used to be available for free download off his site, but doesn’t seem to be anymore. In these books, you can find out about the sustainable local economic systems of the Late Middle Ages, learn that the Black Plague actually began after mandated centralized currency had impoverished Europe, and find support of my contention that cathedrals were built with local money before the Renaissance, not Vatican money during the Renaissance.

I highly recommend checking out both articles here (as well as his most recent book “Present Shock”):

http://arthurmag.com/2009/03/16/let-it-die-rushkoff-on-the-economy/

http://arthurmag.com/2009/03/23/hack-money-hack-banking-rushkoff-on-the-economy/

More voices of sanity (Nicole Voss and Laurence Boomert) calling for an overhaul of the monetary system can be heard on the C-Realm podcast :

This entry was posted in Activism, conditioning, consciousness, Consumerism, corporate news, Economics, Financial Crisis, History, Recession, Social Control, society, wasted taxpayer dollars and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.

6 Responses to Rushkoff on the Economy

  1. Nolan says:

    I do agree with Rushkoff that central banking has to go. The reason I am being hard on Rushkoff is that his arguments, the $1000 dollar example and follow on reasoning that interest economies must constantly expand in order to not collapse have been thoroughly debunked. This argument is not original by him and one that seems to be popular among the liberal/socialist crowd and most recently re-popularized by the “Money as Debt” animation a few years ago. The problem is, it is false, as I easily demonstrated, which also makes his follow on claim equally false(if the security company pays off $200 in debt after the first year, the economy shrinks, but no one went bankrupt). These false arguments are (happily and joyfully) used by the Central Bankers to illustrate how ignorant of economics the anti-central banking crowd is, distracting and muddying the conversation from the intelligent arguments, like the one’s brought forth by Ron Paul, Peter Schiff, and the Austrian School. Arguments that show that artificially low/manipulated interest rates cause booms and busts(Austrian business cycle), discourage savings, creates malinvestment by encouraging consumer spending vice capitol investment, etc. Rushkoff, and those who keep repeating this debunked argument, is doing a disservice to the effort to end central banking, and, as I said before, his solution is to commit the exact same mistake by create more central banking on a smaller scale. The intelligent solution is to allow the free market to determine what money it wants to use, to have competing currencies. Not to abolish central currencies, which would create economic havoc, but simple allow local currencies, or gold and silver backed currencies, or whatever currency the market wants, to compete alongside central currencies, and see what the market favors. Rushkoff does have some interesting sociological points to make, but definitely not an economist.

  2. Nolan says:

    1st, Rushkoff is wrong on centralized currencies bankrupting economies. In his example, if a business(or person, whatever) borrows $1000 and must pay back $2000 in 10 years, it does not necessarily mean the other $1000 in interest must come from another business(or person) thus bankrupting the economy. Consider this, a business(or person) borrows $1000 to start a security company to guard the banks “money”, the bank pays him $200/yr for its services, thus enabling the company to pay back the principle and interest without bankrupting any other business. Point is, charging interest does not necessarily bankrupt economies, but it does make entire societies slaves to the bank!
    2nd, what makes him think that a so called “local” currency wouldn’t be used to charge interest, thus making a local minority rich, just on a smaller scale? How local is local? He has no comprehensive solution,
    3rd, he does not cite or give any concrete examples, just generalized opinions. “corporate charters and centralized currencies tend toward resource exploitation, not innovation”!? “They cause scarcity, not abundance”!? Nice sounding one liners, but, uh, reality check. We live under corporations and centralized currencies, does anyone here think we have relative scarcity and less innovation now compared to pre-corporatism/centralized currencies. He’s also against “resource exploitation” but for “abundance”, c’mon. get real, Rushkoff needs to get his philosophical house in order.
    4th He talks about “sustainable local economies of the late middle ages”? What a joke! The only reason it(or any other pre-industrial/petroleum economy) was sustainable was because there wasn’t enough food calories available to allow the population boom we suffer from now. If you want to live in a world where starvation and plagues(in large part due to malnutrition) keeps the population under control, and then call it “sustainable”, then sure.

    Please don’t get your economics education from Rushkoff

    • Those are good arguments. Though I may be wrong, I will give my reading of some of Rushkoff’s points that you disagreed with. About the $1000 loan example, I believe Rushkoff is making the point that the additional debt for interest harms other businesses through the net decrease in cash flow through the system. The amount of money in an economy is finite because you can’t keep printing money without devaluing it. Meanwhile banks tend to hoard money when the economy struggles and have been shown to do it as an economic weapon. So I don’t believe Rushkoff would deny debt slavery is a problem, but he might argue the system isn’t sustainable and inevitably leads to bankruptcy.
      On the second point, it may be impossible to avoid problems caused by the tendency for some to want to game the system and exploit others. I would argue that at least on a smaller scale it would be easier to be aware of such activity and to keep the problem in check. Citizens seem to be more knowledgable and aware of local politicians and legislation than on a national and international level. They also hold more relative power and can be more participatory in smaller communities.
      Regarding point 3, it’s true Rushkoff offers no comprehensive solution or concrete examples, but I value his exploration of alternatives to our current system. It’s impossible to say whether there would be more or less scarcity or innovation through non-corporate/decentralized currencies because we have never experienced it. When people and communities have tried to break out of the system or try something different, they’ve been systematically destroyed politically, economically, and sometimes physically.
      Re:point 4, Rushkoff has done research into the middle ages and one of his findings was that development of centralized banks and currencies was a major factor leading to malnutrition and plagues (synopsized by Rushkoff here: http://boingboing.net/2009/05/09/if-the-banks-are-so.html)

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