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Money #1: Introduction - Money as Information

Posted by John Durrant on Friday 8th June 2012, 7:16PM

I often find it a struggle to explain the Mutual Credit System which Favabank uses and how it compares to conventional money and therefore why it might be considered more useful and appropriate for certain kinds of transactions (e.g. community transactions). Perhaps the reason for the struggle is that I want to start off with questioning what money is and how it is created. To start with this line almost feels a little patronising, of course we all know what money is and where it comes from don't we?

I remember having money and its creation explained to me by Jock Jeffries, in my 1987 A level economics class at Lowestoft TEC. I didn't 'get it' at the time, it seemed preposterous. But I feel vindicated for my lack of comprehension by statements like this one from economist John Kenneth Galbraith - "The process by which banks create money is so simple that the mind is repelled". It's creation is very simple but by a mechanism so bizarre that it is difficult for the mind to accept.

Much of our lives are spent, often with great sacrifice, in the pursuit of money and spending of money as ever more aspects of our lives are targeted as an opportunity for a commercial transaction. We spend an enormous proportion of our waking moments wondering how we can get more money, and sometimes many nights when we'd prefer to be sleeping, worrying that we might not have enough money. Of course the extent that we try to get more money, or worry about not having enough depends on our personal circumstances and outlook on life, but the aggregate amount of emotional investment tied up in this thing we call money seems disproportionate to the job of getting things done in society and enjoying our lives.

You'd think that with the emphasis placed by the mainstream media on the economy, the latest GDP figures and the need for continual growth, ever fluctuating interest rates, inflation and currency exchanges, along with government claims of success or opposition attacks of failure to control this seemingly out of control beast called the economy, that we'd all have a common understanding of money, how it is created, and whether there are any alternatives. Of course we're never given that information and I'd be willing to bet that many a politician would struggle to explain it too. Politicians and economists seem to spend their time arguing about how we should tinker with the mechanics of our monetary system, using many of its negative effects as tools for ideological argument, but rarely question the system or the assumptions upon which it is based. Many of us unsurprisingly take our economic system for granted and fail to consider that there might be alternative or complementary forms of currency which could do a little to balance the harmful oscillations of mainstream economics.

I've been interested in money, its creation as debt and the social problems that creates for quite a few years now. More recently, probably due to the current economic crisis, the upheaval caused in the EuroZone, the collapse of banks and financial institutions etc., I've noticed an increase in people and organisations questioning the current system, proposing reforms, and arguing for alternatives. A YouTube search on 'Money as Debt' or 'Money Creation' will bring up an ever growing collection of videos of varying quality explaining the somewhat bizarre collusion of governments and banks in creating money 'literally out of nothing'.

I'll be posting this piece on money in four sections, following this introduction the other segments will be:

Money #2 - How Banks Create Money

Money #3 - How Money is Created in a Mutual Credit System Like Favabank

Money #4 - The Qualities, Uses and Effects of Different Forms of Money

Please see these pieces as a 'first draft' to be discussed and debated in order to seek a more succinct explanation in due course. This is a big topic and forms the crux of Favabank's raison d'etre. I'll be employing the use of other media (e.g. infographics and videos) to do my best to illustrate these concepts in a more concise way, so please bear with me in the meantime. This is definitely not a call to abandon conventional currencies while adopting mutual credit systems like Favabank to save humanity from itself, it is a proposition based on the idea that in the future might be able to chose from a portfolio of different types of money, each with attributes and qualities suited for specific transactions. With the emergence of new technologies disrupting the monetary status quo, from the the peer-to-peer digital currency of Bitcoin to peer-to-peer lending systems like Zopa, the progress of technology as a foundation for producing innovative alternatives to conventional finance is unstoppable, so it might be good to have a better grasp of what the attributes, qualities and uses of alternative forms of money might be.

So what is money? Perhaps it might be an idea to look at what we mean by money before looking at how money is created and used...

Money as Information:
A good starting point in looking at money from a slightly different angle is to see it primarily as an information system. An information system we use to communicate relative prices, value, wealth and transactions. Michael Linton, founder of the L.E.T.S. mutual credit system gives this definition of money - "Money is an information system we use to deploy human effort". We often see money as a tangible thing, but really is it anything more than a way of measuring and comparing things? Alan Watts, the speaker and writer highly influenced by Eastern philosophies compared money to inches. He describes money way we use a clock to measure time, or a ruler to measure length and describes money along the lines of an information system to measure wealth. It is something we invent, like inches. He relates a story of people turning up to build a house, where there is lumbar, metal and people willing to do the work but it can't be done due to lack of money. It's like saying 'Sorry chum you can't work today, there ain't no inches'... See a short video at - He continues by describing an economic depression on the basis that there aren't enough inches to go round. Despite the fact that there are just as many people and resources around prior to the depression, things can't be done due to a lack of 'inches'...

This hopefully epiphanic way of thinking about money might be an appropriate way to begin questioning the way we create money and the alternative approaches worthy of our consideration that I shall mention in subsequent posts...

The next section to this serious will discuss how banks, with the authority of the state, are able to issue money as interest bearing debt, literally out of nothing, 'Of all the many ways of organising banking, the worst is the one we have today' – Mervyn King, Governor of the Bank of England.

Please feel free to critique and discuss, I know there'll be many important points that I've missed in this intro as well as alternative viewpoints... I want to be careful not to position myself as an authority on money, or offering an authoritative viewpoint, I'm interpreting the curious phenomenon of money, mostly through via greater intellect of others, and offering up this interpretation for discussion and refinement.

2 COMMENTS | [ Login or sign up to reply to this post ]


Reply by John Durrant on Friday 10th August 2012, 9:32AM

Just heard an interesting quote by Bernard Lietaer from regarding money as information:

"it would be crazy to believe that we're going into an information age, and our most important information system, our money, will not change..."

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Reply by Brian Mcdermott on Tuesday 24th July 2012, 10:49AM

Anyone can be great with money. With money, greatness is not a talent but an obligation. The trick is to be great without money...

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