The Morality of Money: Investing in Each Other

Money, as Karl Marx spent thousands of pages in his book titled Grundrisse trying to convince us, is not a “thing.” In modern economics this idea is expressed more succinctly. Money, we are told, is “a medium of exchange.” But an exchange of what for what?

Even though they say money is about exchange, economists usually talk about things in connection with it. “You sell me one thing. I give you money. You take my money and buy another thing. That person takes your money and buys more things, etc.”

Marx’s view of money as an medium of exchange was quite a bit more profound. Marx viewed money as a “social compact.” When the society that created and agreed to use a certain kind of money no longer functioned, neither did its money.

You can see “social compact” money any day of the week in Berkeley, California and other cities in the U.S. and the world. Merchants, even farmer’s market sellers, accept “local” or “community” currency as payment. There are no government resources behind this printed money, but it’s legal. It’s a way local businesses use to keep their local economy thriving.

Money is a sign of relationships among people. This is the true value of money. When those relationships break down, money as a medium of exchange, does too. The night they “drove old Dixie down” was also the night the Confederate dollar became a worthless collector’s item rather than a medium of exchange.

Many people think gold is a tangible kind of money that will protect them in a crisis. But like other forms of money, gold is only as good as the relationships within a society at the time it’s used. If we’re all starving, who is going to take gold in exchange for food?

Many people think too that a dollar is something that can be made as easily as it can be lost. “Easy money,” or as John Dos Passos called it in his 1930s book, The Big Money, has been the downfall in the U.S. economy during many periods before our latest crisis of 2008. Behind every financial bubble is a whole slew of people believing in “easy money,” and an even bigger number of con men just waiting to take advantage of that belief.

There are always a few people with exceptional talents for whom, at times, making money can happen easily regardless of their personal relationships with others. But time and money invested by members of society as a whole when societal relationships aren’t strong yield heartbreak in the end. To become wealthy in the final run, all of us have to be able to rely on others to deliver what is promised when paid our “good money,” the money we put our honest labor into.

This is why even a despised nineteenth-century “godless communist” could see that the present penchant of our financial system for betting customers’ currency on its own investments rather than making good on its promises to help local businesses, workers, and consumers is nothing short of self-destructive lunacy.

Our financial system has “evolved” to become a giant global gaming parlor. As John Plender of the Financial Times remarked on June 30, 2010 in “Fragile state of banks means recovery is still precarious” the banking system has become “the political equivalent of a leper colony,” and governments do not wish to get further involved with it.

So now we’re requiring banks to keep higher capital reserves so banks can “more safely” risk losing their customers’ dollars. What a brilliant non-solution! Both banks and large companies are hoarding their cash. They won’t spend their cash on entrepreneurial projects (the supply side). And working people do not have cash to buy consumer goods (the demand side) because many are underwater with their mortgages and/or out of work. And so, we’re still stuck.

It’s a truism of macroeconomics that if the private sector has a surplus, the public sector has a deficit. The private sector has a big surplus right now because it isn’t spending the cash reserves it has. And no surprise, the public sector, which has been futilely pumping money into banks and the auto industry to try to jump atart the private sector, is now deeply in debt.

The biggest crisis in America and elsewhere in the world is stagnation of businesses and joblessness. There HAS to be a way to get banks and large companies to invest their money in the growth of our economy and more jobs. If big businesses keep hoarding their cash and banks go on pumping their funds into risky investments that yield no tangible benefits to anyone but a select few who love money only for money’s sake, we’re violating the essential social nature of money itself. We’re sacrificing our all for the benefit of a few.

To grow, we need an economy based on community and mutual honesty in financial exchanges. We need an understanding that circulation of money is essential to preserving the vitality of our nation. We need to see that the morality of money requires creating real value with it, not just using it to play games where a few “win” at everyone else’s expense.

Next time: What is Investing? It’s a Kind of Gambling Called Pari-mutuel Betting

Copyright © 2010 Nancy K. Humphreys (All rights reserved. (You are free to use material from Brucenomics in whole or in part, as long as you include attribution to Nancy K. Humphreys followed by a live link to http://brucenomics.com/.)