There is a saying that in politics there are long periods when nothing happens and short periods when a lot happens. The opening of the Ukraine war has shaken loose some fixations and a lot of things are happening fast. This means there is a lot to write about.
The world’s currency systems are changing fast, so this is another thing to write about. This is an especially interesting topic because there are more crank theories about money than almost anything. As well, the present economic war and change in the global trade and currency systems are agitating monetary cranks all across the ideological spectrum.
Most of these ideas come from the the fallacy of reification; treating an abstract idea as a material thing or a commodity. They also derive from libertarian ideas, that anything done by government is not to be trusted. There is also an ultraleft group of monetary cranks who think that all social problems can be solved by government just issuing enough money.
If you get rid of all the ideology, money is really pretty simple. It is a unit of account and a medium of exchange. It is not a thing in itself. It is not wealth.
Money is what the sovereign power of a country decrees to be the money; what it accepts as payment in taxes. Money has value because it is needed in order to pay taxes.
Gold and silver are not money. When minted coins were the main form of money, silver was usually used and only those coins minted by the sovereign power could be used as money.
The act of the sovereign power in minting the coin made it functional as currency. If the silver in the coin was what made it valuable, it would have been profitable to melt the coin down and recast it. Silver was used to make coins because it was easy to work and reasonably abundant, and looks impressive.
Eventually it was discovered that it was much more practical to print the money on paper. More recently money has been mere digital entries. There is no practical problem with any of this.
What can be a problem is the idea so many people have, even otherwise intelligent ones, that money has to be ‘backed’ by something. This comes from the idea that money is a commodity or thing in itself, rather than an abstract idea, a unit of account.
Governments and large institutions will hold gold or silver and move it between themselves as a convenient way of conducting some kinds of transactions. They can state that their currency is theoretically backed by gold although nowhere can gold or silver be used as money. They are often used as investments.
To repeat, money is what is issued by the sovereign power of a country and taken back in taxes. Thus its value in relation to other currencies is based on the strength of that country’s economy and how valuable its exports are. Multiple currencies inside one country, or privately issued currencies, or local currencies, have never worked because no one is obliged to take them and so they have no real value.
The deep problem with capitalism and imperialism is that in most countries governments have been coerced into giving banks the power to control the money supply through the issue of credit. If governments took back their power over money by creating their own state banks and issuing their own credit, most of the problems resulting from capitalism would disappear.
In fact, capitalism would disappear, along with imperialism and wars and many other unfortunate things. Thus countries ruled by private banks, meaning by capitalism, will not tolerate countries who use national banks to issue their country’s credit and currency. That is what the world wars were about.
What the present great turmoil is about is that some countries are issuing at least part of their money in this way and are defeating efforts of capitalist countries to bring them into conformity.
Open warfare has been out of style as a means of resolving these problems ever since the invention of the atomic bomb at the end of the last world war. More indirect means have been used to either eliminate or isolate any noncompliance with capitalism. These are not working well any more and in the case of the sanctions against Russia over the Ukraine situation, have backfired.
A new international trade and currency system has been in the works for some time. The crazy behaviour of the western, global capitalist countries has greatly speeded it up. Many writers on money and trade have noticed this change, but are having trouble understanding it because they are still locked into the ideas from the old system, especially flaky ideas about money.
The Chinese Communist Party (CCP) are taking the lead in bringing about the needed changes. They now command the world’s most powerful economy; the big driver of world trade. Being the best kind of communists, they are not tied to bad old ideas about money.
The Chinese have a good idea of what is really needed. First, the whole world needs a system for moving money around which the sanctimonious sanctioners of the west cannot track. Thus these people will no longer be able to sanction anyone.
The CCP also understands that what the world needs is not to return to using some commodity like gold or oil as a marker of a currency’s worth. There needs to be some kind of international currency which circulates only between countries and against which their currencies are valued. This is a brilliant innovation but to make it work there must be some International issuing authority.
We have the beginning of that with the “BRICS bank”, formally called the “New Development Bank”(NDB). It makes loans to the BRICS countries so they can finance development without having to go to Western banks. The BRICS countries are Brazil, Russia, India, China, and South Africa.
As this new system develops it will replace the old imperialist system. We will have money working the way it should work, with each country issuing its own currency through national banks. Assuming an adequate democracy and a low level of corruption, this will allow countries to manage their economies for stability, even development, and fair distribution of goods.
As for international trade, there is no need to move so much stuff around. Soon imperial powers will no longer be forcing weaker countries to export all their production in order to pay for loans. Countries will be able to organize their economies for import replacement and for meeting human needs.
The only things imported should be what cannot be produced locally. A system of floating currencies, marked against an international currency, would balance International trade so no country is exploited.
Since every country cannot be a net exporter, in this way countries which are net importers can do so without being ruined. Their currency goes down against other currencies, which makes whatever they do have for export cheaper for foreigners to buy.
At the same time, countries which are big exporters find that they can only take in so much foreign currency from selling their goods. They need to buy something with it from countries they are exporting to and whose currencies are low.
This means an end to countries being forced to sell their resources for nothing so as to buy expensive imports, while prevented from producing anything themselves. In other words, imperialism.
These changes to the way international trade works will bring about positive changes to the way national economies work. Presently, most countries have most of their surplus value sucked out to pay foreign “investors” or rentiers. Instead, it can stay in these countries to provide capital to domestic businesses.
This money will be available to allow domestically based businesses to plan for long term viability. They will no longer have to focus on the short term extraction of profits for a rentier class, usually foreign based. Rentiers, people who live off investments, are finding it harder all the time to operate.
National governments will be able to do that thing which is such an anathema to capitalism; plan their country’s economies to meet the human needs of the population. Even highly repressive governments such as in Brazil and India are finding it necessary to move away from the old imperialist ways of doing things. Governments ideologically committed to ‘free market’ economic ideas are being forced to adopt state planning and local production.
The best example of this latter trend is the Putin government in Russia. It started out after the fall of Stalinist style Communism with a strong impulse to adopt the opposite of that and to integrate into the Western economy. They have gradually understood what that entails, and are recognizing the need to separate instead from the imperialist west and to interact with China.
This has greatly disturbed the old line imperialist capitalists, who have gone after Russia fiercely for slipping partially out of their grasp. This is what the Ukraine war is about. But this western imperialist bloc, the Atlanticists, are failing.
Many are noticing that the world is dividing into these two blocs, the Atlanticists and the Eurasianists. That is, the old private bank, capitalist, imperialist, profit extracting model versus the state bank, planned production for need model. This is a temporary condition because the Atlanticists will soon be eliminated.
Until that happens we will live in exciting times because the Atlanticists are not going to go quietly. They no longer have the military or financial power to impose their will, though they do not seem to realize it yet. However, their two biggest weapons are all the crank ideas about money, and the uncertainty among most governments about how to use their new power over their currency.
To be able to manage their own currency and economic planning, these governments will need internal political reforms. This will be opposed by old vested interests within as well as from without. They will also need to be able to listen to economists who study how economies really work, rather than trying to impose their crank ideas about how they think things should work.
One of the more dangerous crank monetary ideas is the exact opposite of the “money must be anchored to something valuable” dogma. That is, that governments can simply issue whatever money it wants. This is often called “modern monetary theory”. There is nothing modern about it; it has failed many times.
The key to a successful sovereign national currency is this; that government must have the power and competence to manage the economy. There must be a sufficiently advanced political system in place that the right people are brought into government to serve the national interest, and not interfered with by special interests.
The BRICS countries and smaller countries aligning with them are moving stepwise into the new global system. They are figuring out how to make this work for their own countries, but they are closely following China’s example.
People with various economic and political ideologies are seeing in this development what they want to see or are conditioned to see. Some of these preceptions are really ridiculous; the Chinese “reds”, “communists,” “collectivists” are taking over the world. Or, this is the final triumph of the “globalists” rather than their final defeat.
Monetary cranks also have divergent views about this. Some love it; they think we are about to get a new “reserve currency” based on the value of commodities.
This is a misunderstanding of what the NDB is doing. The currency being planned will circulate only between governments. It will be based on a complex formula which includes a floating valuation of each BRICS country’s economic strength, plus the relative value of a basket of commodities, plus some other things they are still working out.
Other cranks are of the libertarian tendency. They are opposed to government doing anything, including issue the money. They want this done by private bankers, just not the ones who are “crony capitalists”; like there is any other form of capitalism.
The worst cranking is about using cryptocurrencies as some form of new international medium of exchange. Blockchain methods have some limited uses, and may become a means of money transfer if its security problems can be resolved. It will never be the basis for any form of currency for a vast number of reasons it would be absurd to go through.
The global economy is in a turbulent state at present, due to a pandemic, misuse of resources, and conflicts created by a failing imperial system trying to stay in control. Eventually we will come out of this period with a new international order, including a new system of international trade which does not depend on a single, national currency.
Once this is worked out it will seem very simple and obvious. However, it is certain that it will be unsatisfactory to most monetary cranks. They will fuss that governments are using “fiat money”, like there is any other kind, “printing money”, or “Taxing and spending” or, horror of horrors, “Planning”.
However, I believe that once we have this new multipolar world in place, with systems of trade, finance, and money which are designed to work for everyone, not just an old imperial oligarchy in a few countries, the world will work much better. The cranky ideas, really based on insecurity running to paranoia, will fade away.
Monetary cranks are not people who are cranky about money. The name comes from the exact opposite. It refers to people who think you can just crank out money without any consequences.