The world economic order is anything but just or "laissez-faire". I have been arguing that we need a theoretical re-understanding of the concept of money since almost all activities revolve around it. Money is like a complicated gadget: we only know its external behavior and its use but not its origin and intrinsic make-up. When money is printed, it acts like an insurance mechanism given by all citizens for a country's risk ventures for the general good and everybody pays a premium by suffering some inflation. This is O.K. within a country because the government must provide social services to its citizenry. When money is borrowed or crosses to another country however, everybody “pays” the premium of world inflation without the majority enjoying any social support from the lender. The fact that the whole world pays for this explains why countries are out-doing each other to borrow huge sums of money to develop their corners first before others overtake them (an effective divide-and-rule mechanism). I am always taken to task when I argue that the money from developed countries is simply printed no matter through how many private hands/banks it first passes. The net-result of borrowing is falling money supply in the lending state and the need to print more money; or, demand for that currency increases thus increasing its value, which amounts to the same thing as printing. If the money borrowed is not used to buy tangible goods from the lending country within a reasonable period of time (i.e. no reverse value-check), that money was simply "paper" in the eyes of the lender even though it may be money to the rest of the world. Even though "printing" to lend may not look fair, the "law" prevents the borrower from also "printing" to pay back, whether in the original currency or with her own unconvertible national currency. One can only pay back indirectly with undervalued raw materials with which other countries are also trying to pay their debts. Direct swap with goods is not even accepted, the lender preferring to take only the raw materials she needs for her own development. Borrower will have to find the market for the rest of his rotting harvest. The result is a trap, ratchet-up-mechanism of differential regional (re)-valuation of goods, services and money. The logical consequences are mass legal and criminal migrations of people to restore equilibrium. So money is first of all a mechanism of valuation. Forget about medium of exchange, store of value, unit of account, etc., which only work perfectly within a country. I always ask the question, why is it that e.g. a cow may cost many times less just across the Mexican border than one raised in the U.S. I don't want answers like different living standards; in fact, developing countries pay more for their food, transport, housing, etc. as a percentage of their salary than their rich counterparts. If the economy is not policed, why not open the borders to achieve equal pricing of goods and labor? Differential valuation of money allows the importation of brains and raw materials so as to specialize in advanced technology. This is then sold exorbitantly to further skew the valuations even more (through first-mover monopolies, further protected by patents of “international law”). If something is not done, illegal migration will continue so as to try to even out this differential valuation within borders even as the monopoly product of convertible money effectively remains with a few countries.
"Unit of account" is a guise for differential valuation. Whose unit of account is it? What does that mean when a “Southern” currency is never used to calculate (or account for) Balance of Trade or of Payment, etc.? The best (absolute) accounting unit is Time and Effort ("volume") in producing goods and services, not money. Imagine Mexico buys 10 "intensive" cows from the U.S., which in turn also buys 10 carefully raised, biological cows from Mexico with 10 times less money (all in dollar terms!). Those who keep the world accounting statistics will write the balance of payment as $10:1 in favor of the U.S. even though the volume traded is the same, not to talk of quality and effort. Mexico loses more objective factors like time-effort in the calculations. Meanwhile investors will be frightened of Mexico's poor BOP statistics while glowing about the U.S. Take another market index like productivity. It takes into account only the end products of goods and services per worker in the West. All that time which is invested in semi-products and raw materials ('bought" for a pittance) from developing countries is simply ignored. There is a better index called Multi-factor productivity, which is conveniently avoided because it considers most of these things (including raw materials).
We can equate money to a commodity that is very easy to make. (Instead of borrowing money, one could borrow the commodity or machinery, which will be bought with the money). The laws of supply and demand affects money as a commodity. If the world has an insatiable demand for convertible currencies, supply will "increase", which does not necessarily mean printing but the pushing back of demand by up-ward valuation. Economics normally leaves out (holds constant) valuation (or price) in the demand-supply curve. If price is included, effective supply does not only mean production but also upward valuation. Imagine possessing an unlimited commodity (i.e. value embodiment) that has an unlimited demand. That person alone can arbitrarily call his profit margins (through interest rates, lending squeeze) and will soon be stinking rich. We cannot deny money to be a commodity and yet insist that it is not printed paper either. It only ceases to be a commodity when it can no more buy anything. Developed countries have this unique, internationally tradable commodity which the law forbids developing countries from also reproducing. It is not merely a reward for effort, but an accident of history, of economic conquest and a self-inflicted distrust in poor countries’ own value repositories/ value redeemability. This is effectively a monetary monopoly (-ism), whereby the “giants” physically and legally keep others out of the money market. Where are the anti-trust lawyers? Our psychology is also played upon: that there is an unacceptable risk in taking the poor country’s “promise to pay”, which money is. But a risk is still not a loss. Yet poor countries prefer to suffer small losses (devaluation, interest payments) to the “giants” for eternity, rather than risk a one-off big loss.
Exorbitant usury interest for money lent to other countries is not fair since that money is just used as a unit of exchange (and account) between poor countries, which only marginally threatens economic leakage (of real goods or services) from rich countries. Unit of exchange/account need only be plain paper denomination, with little sacrifice on the part of the issuing convertible currency authority.
DEMOCRATIZATION, NOT GLOBALIZATION OF “HOT MONEY”
To express my solidarity with concerns for a better world, I also feel strongly about globalization (as we now understand it) because of its tendency to exclude large sections of humanity. That is why I have coined the word "anglobalisation" for it, to indicate its narrow ideological (Anglo-Saxon) background. The paradigm will only be just if there is a level playing field for everyone to enjoy the benefits. Without justice, there can not be peace, even for the few rich to enjoy their wealth. If trade, investment and finance are to be "globalized ", why not also labor (open borders for the “living capital” of the poor), why not knowledge, know-how and a democratic world currency for international trade? I strongly feel that the last item (unjust world monetary system) is the main cause of most problems, be it inflation, migration, jobs relocation, destabilizing flows of “hot money”, etc. Without its democratization, a Tobin tax alone will have little effect on people moving money for quick profit and people moving themselves for better prospects. It is a hypocritical system that smokes people out of their poverty hovels and yet represses them from ducking up North for a breath of fresh air.
We should not forget that everything revolves around money and so it is important to understand its origins, meaning, properties, working mechanism, its creation and circulation. Compared with barter, money separated the simultaneous, double buying (and selling) of barter with a time logged, transfer-value information before the seller exchanges for his target goods for consumption. This solved barter’s problem of double coincidence of wants, in which the difficulties of matching buyers/sellers, difficulties of goods' handling/transportation (risks/damage/loss) and of finding a ready market are reduced. This is achieved when money makes the problem that of multiple or chain coincidence of wants i.e. deferred and/or transferred production and consumption. Money was originally intermediate goods of wide usage and acceptability, but later moved toward a property of predominant acceptability (e.g. gold) and finally maintained only acceptability (e.g. paper money). Money's properties of acceptability, divisibility, scarcity, durability, portability and recognizability are limited or have optimum levels beyond which it performs badly. In its widely-used-goods form, scarcity was ensured by the limitations/difficulties of production. Yet, its poor durability, and increasing scarcity due to its consumption and due to expanding economy (demand), meant that this sort of money quickly became a hindrance; unsuitable for exchange. Gold was better because apart from excelling in the other properties, it was not immediately consumed in large quantities. But the explosion of the 20th Century economy outstripped the production of even gold so that exchange could not be effective without massive quantities of paper money backed by a little gold to trick the confidence of the public (and foreign countries) into maintaining acceptability. As paper, the scarcity of money was no more limited by production but possibly by acceptability. An unidentifiable part of it is not backed by anything so that if ever “the music should stop”, those who hold it may not have chairs to sit on, let alone being served with lunch. Since money creation is organized in geographic communities, the whole community could collectively decide that the music should never stop. This is done legally. Thus money can be anything and nothing at the same time depending on whether it will further circulate in exchange for tangible goods. If "nothing" is to be accepted as exchange for goods (i.e. the lending/borrowing equivalency of buying/selling), the roles should reverse at another time. The law (i.e. the whole society) has to be a witness to this through legal liquidity, which is a kind of transferable, IOU contract of the acceptor of goods to the giver. The country that prints money in order to lend the services of its citizenry will also have to provide them services in return at another time. Even "unbacked" IOU money can be good for the community because it helps mobilize labour + resources and soon materializes as production to be shared according to the contract "weights" of input; provided this does not enable a faster rate of consumption than replenishing of consumable stocks. But in the use of convertible currencies, no social service follows the money across the border from the ultimate source of the money. In other words, the transferability property of money always camouflages all else, while initial source’s redeemability (of services), which is required is never policed. Yet, this "unbacked" IOU money can pose problems for trans-boundary trade that avoids barter. What if the music stops for one community, which has printed too much money and over-borrowed (bought) from the others? Transparent gold reserves was the solution, which later turned into currency- and mixed- reserves. Thus, the scarcity/value of money was again maintained through limiting money creation by the need for some ratio of wealth-backing (reserves). But even this arrangement did not work for long, due to its collapse at Bretton Woods. The world's monetary system then became a chaotic, confidence-tricking juggle. The developing countries lost out because their money is not accepted for international trade due to their late and uncertain (hence risky) start as countries. This means they cannot "buy" (i.e. borrow) world resources to start production. They have to be sellers (resource lenders) first before they can use the IOU of developed countries to trade among themselves. Therefore, they always suffer a big time-lag (sell first for money) before they also buy (genuinely) from the developed world. That is not all, the developed world can increase printing of currencies almost without limit by tricking smaller countries with loans so as to increase world-wide acceptability of "hard" currency. This is the role of the Bretton Woods institutions which are "financed" only with these currencies. This will be denied because printed money is first hidden/mixed among mature money before being "lent" out. On top of all this, an interest is added to this borrowed IOU money. Who owes whom? At creation and injection time, the money creator is the debtor to society. At circulation time, society at large is debtor to the holder of the money (for his previous production). North-South borrowing of money is mainly not circulation but injection into the world economy, even though it quickly turns into circulation. The least that could be done is for the lending North to forgo interest so that poorer states can have a unit of account and medium of exchange to trade among themselves. This is not the same as a hard-earning individual lending to another individual. It can be misleading to say that money is a store of value. Money should have represented a memory (mapping) of the substantial, collective creation of wealth as well as a memory of its (re)distributions. But because it is collectively authorized to have self-verification, self-witnessing and self-authentication, it can also have only an accounting function (of potential production) without necessarily mapping the information of substantial wealth created (once it “gets past the /mint/ gate”). He who controls the source of money excludes the others who are not “closer” to him from potential wealth creation. Even within countries, the rich will always become richer because of the unfair exchange practices due to (too much) perception of liquidity/acceptability of money and illiquidity of goods and services of the poor. In conclusion, we need a democratic world currency for international trade, the management/profits of which is collectively shared and, apart from that currency, no national currency should cross boarders for the purpose of trade.
Views expressed by the author do not necessarily reflect those of Ghanaweb.