Today we can hear more and more critical voices on the world economy. Critical voices around the world ask whether it is the only possible way for humanity to exist. “We have seen nothing better so far” one can say…But are we doomed to remain within these artificial money borders? Could we invent something new?
Recently I was lucky to meet a great thinker, an Austrian professor Franz Hörmann who is not only a brilliant and knowledgable critic of the capitalistic financial system but also an innovator in this complicated field.
I would love to share some quotes from his interview.
What is wrong with the current economical system?
“It is now becoming apparent to the broader pubic that something is fundamentally wrong with our system, that the problems confronting us cannot be explained away with reference to ‘business cycles’ or to the ‘incompetent economic policy of particular countries’. Standard explanations are no longer sufficient in view of the comprehensive nature of societal indebtedness (companies, states, banks and individuals); the simple logic of double entry bookkeeping requires that each liability is balanced by an opposing claim of an equal amount.”
“The true root of our problem is neither Europe nor the euro (as a currency), but can be traced directly the booking method used by banks to extend credit: claim (of the bank on the borrower) on liability (of the bank on the same borrower). This is how a double entry debt is created, in which the bank’s debt corresponds exactly to the borrower’s credit in his/her bank account. We use this bank money to ‘pay off’ bank debts which – assuming we don’t withdraw the money as cash – are never actually paid off, but are used over and over again, indefinitely, as a means of payment. That bank balance sheets do not survive this process over the long term is a matter of simple logic.”
How a fundamental system change could look like?
“Far more helpful would be a fundamental system change, as proposed for example by “positive money”, that is, the creation of money as purely electronic equity and not as borrowed capital (e.g. booked as ‘cash on equity’) under transparent, democratic control, i.e., not in the hands of private, profit-seeking companies (see e.g. http://www.positivemoney.org/).”
“Society will split into two groups in the foreseeable future. One will consist of those who have understood the principles of bank debt and thus refuse to accept accounting entries as legal tender or as legal ‘debt’. The other will consist of those who have not understood the bank debt system and thus persist in seeing money as a thing of value, as a tool well suited to effecting transference of private property. At some point, the former group will, in large numbers, begin to inform the rest of the population about the existing system, after which reform will be possible.”
It is not only about the money, the whole attitude to work itself will change!
“The end of the exchange system and the transition to a cooperation-based society through “Information Money”: if we progress our thinking a little further, we see that we don’t actually need to conclude contracts with each other (out of which claims and liabilities then arise) to be able to cooperate economically. In today’s system (money as a medium of exchange) we have an abstraction of an exchange medium. We behave as if we are passing valuable (gold) pieces around in a circle, even though what is being ‘moved’ are valueless digits in bank computers. Nothing is really being passed around. Numbers are simply created and deleted. If all citizens were to conclude their (life) contracts with the whole community (the network or the “democratic central bank” responsible for creating legal tender as an abstraction of the exchange partner), prices could be established asymmetrically. In other words, a seller receives e.g. 10€ for each widget sold, an amount that is then booked/created as an accounting entry under “cash on equity (at the democratic central bank)”, e.g. via a UID such as a social security number. But his/her customers pay individual prices; one pays say 5€ for the widget, another perhaps 20€. These ‘prices’ belong to their personal life contracts (booked as “expense on equity”, but this ‘money’ remains in their individual accounting circuit from which it is also destroyed)…..Well, we don’t need to concern ourselves with awkward questions on money supply and circulation, positive or negative interest rates, inflation etc. Prices, wages and baskets of goods can be individualised for each person. “Information money” is thus not a medium of exchange. It is purely a measure or reflection of an individual’s social activity which only has relevance within the biography of each individual. “Information money” only serves as a personal comparison within an individual’s timeline, not as a medium of exchange. It’s like your blood pressure data; it’s not used for exchange, not really compared with others’ either, but is indeed very relevant to your personal history. “Information money” makes possible the political transition from collectivism (in which baskets of goods, prices, inflation, wages etc. are “regulated” collectively for everyone by the free market) to individualism (each person develops according to his/her personal abilities and passions) as a basis for sustainable and exchange-free cooperation.”
Would this then lead inexorably to a more just society?
“What I find particularly attractive about this system is that it would give rise to a society free of redistribution. Information money is created for each individual in accordance with their unique needs and then destroyed on payment. The two great sources of social conflict, namely exploitation and expropriation, are impossible in this system. Land and productive capital could be purchased from their owners by the democratic central bank (using freshly created money) at simply and transparently calculated prices, a purchase that would bring land and capital into cooperative, moneyless production. Only goods and services (while they are still ‘scarce’) would be ‘bought and sold’ (distributed) in accordance with information money rules.
Goods and services that are already available in abundance would simply be ordered and distributed with no need for any symbolic ‘service in return’ (payment). Premiums (in the form of vouchers, but also perhaps as personality shows, i.e. as immaterial values) would function as an incentive for innovators to improve existing methods of production so as to produce still scarce goods and services in sufficient quantities to meet total demand. So while today’s owners of resources and means of production would be reimbursed with freshly created money in payment for use of their property, the lower echelons of the income pyramid would be furnished with purchasing power (likewise with freshly created money) in the form of a guaranteed income, but all without any need to take these amounts away from anyone else. We would be leaving the zero sum game of today’s system behind us and entering a “plus sum game”, in which all participants can win simultaneously, as one person’s win would never be to someone else’s cost.”
Which other factors contribute to this “plus sum game”?
“Because prices are individually regulated, the purchasing power of information money is sustained. This money is no longer a medium of exchange that only retains its value by virtue of being kept scarce. Information money therefore represents a record of personal social activity, and is not a medium of exchange. It is created at the level of the individual (‘out of thin air’) and then destroyed, echoing what we see as quantum noise in the vacuum where virtual particles endlessly appear and disappear. Moreover, because this money is bound to a personal basket of goods and a personal price and wage system, it is also no longer comparable between people, just like blood pressure data. It is thus an entirely relative ‘money’ that can only be meaningfully interpreted within each person’s biography. We would thus be mapping quantum and relativity theory to economics. This advance would free individuals to cooperate in a self-determined way.”
It looks like a paradise…and actually why not? Why not move towards it?