by Ben Hewitt
In any event, the default assumption in 21st-century America is that if one is to buy or build a home, one will be borrowing a fairly hefty chunk of dough. At the time of this writing, the national median home price was a bit over $200,000. Let’s assume a quaintly responsible 20 percent down payment, which means the borrower is staring down the fine print of a $160,000 loan. Let’s assume further that the bank is abiding by reserve standards; as such it need hold only $16,000 of the loan total. The remainder—$144,000—comes from, well, nowhere.
Accepting this reality requires a pretty profound shift in our cultural assumptions. When we borrow money, we imagine the lender transferring its assets to us, based on the promise that we will pay it back, with interest, to accommodate the assumption of rising prices, devalued currency, or (as is generally the case) both. It is difficult to picture it any other way; it is even more difficult to grasp the simple fact that prior to our borrowing it, the money didn’t exist. There is no “transfer” of funds; there is only an accounting entry that amounts to an exchange of promises. The bank promises the money to us, and ultimately to the seller, while we promise to repay the loan, or forfeit the house.
The question that begs asking is: What does it matter? After all, this is a voluntary arrangement, and at face value, it would seem that everyone gets precisely what he or she wants. Sure, we might gripe about the terms, or moan about the convoluted and cumbersome process, but ultimately the buyer gets the house, the seller gets the increase in bank credit, which it has been conditioned to think of as money, and the bank gets to collect interest, on top of the original principal.
This would all amount to a small, contented circle of commerce, if not for one fact: The house is real. This might seem an absurdly obvious statement, but given the fictitious nature of the medium (I’m not sure I’m comfortable even using the word “money” anymore) used to purchase and construct the home, it’s a statement that bears examination. Consider the constituent parts of the house: the verdant forests cut to make the logs, the logs shipped and milled to make the lumber, the lumber dried and trucked and stacked and finally, measured and cut and assembled into floors, walls, and rafters. Each and every step along the way to homeownership is at its heart a claim on our world’s bounty of natural resources and on the labor necessary to extract them. One might argue that the lumber, at least, is renewable, but the same argument cannot be made on behalf of the fossil fuels utilized to harvest, transport, and process it. The same argument cannot be made for the asphalt roofing shingles, a petroleum by-product. Or for many of the other myriad products that in aggregate compose the modern American home.18
In other words, the house is a product of the natural world. It was called forth from dense forests, from deep oil fields, and from the sweat that beaded on the brows of numerous workers; these are the entities that truly “paid” for the structure with a percentage of their assets: the worker’s time, the forest’s lumber, the oil field’s bounty of concentrated labor. Of course, to an extent we all pay for the house, because the resources utilized are part of humanity’s underlying reserves, on which we depend for the essentials of our very survival. Indeed, the only things of real value in the entire exchange are the resources that have been shaped into a house, which have been extracted from the true economy via nothing more than a promise to pay, symbolized by digital numbers in a computerized account ledger.
There is one other aspect of the money-as-debt model that exacerbates the harm passed along to the general populace: This promise to pay dilutes the money supply, which in turn causes a drop in the value of everyone’s savings because when the supply of money increases faster than the inventory of available goods and services, prices tend to rise. On a loan-by-loan basis, the drop in value is slight, even imperceptible, but over time, loan by loan by loan, the losses add up, and we find ourselves hard pressed to maintain our standard of living, much less afford the very basics of human survival. This is what we commonly call “inflation,” and we think of it as rising prices, although the true definition of the word relates to the supply of money. Rising prices are merely a symptom of a money supply that increases faster than the total quantity of goods and services. If I were an economist, I’d call rising prices a “lagging indicator” of inflation. Fortunately, I’m not.
It is interesting—and somewhat dispiriting—to consider what happens as the money supply is diluted in a way that exacerbates income inequality,19 which is precisely what has happened over the past few years. In 2010, the top 1 percent of earners captured 93 percent of the gains in personal income. Given this disparity, is it any surprise that lower income earners have been forced to go deeper and deeper into debt? And given that the majority of new debt is simply loaned into existence, it effectively dilutes the money supply, which only accelerates the process of eroding both our purchasing power and our underlying true wealth.
As we examine the way in which money is created, what begins to take shape is an absurdist scenario, and it occurs to me that more than any other reason, this almost surreal absurdity explains why discussions of monetary policy and design are so rare in workaday America. The workings of our money system and the manner in which it pits us against the environment, each other, and ultimately ourselves is so nonsensical that it becomes repellant; we know that it simply cannot work, that we cannot continue to leverage claims on finite resources with an infinite means of making those claims. Perhaps we even know, somewhere deep in our consciousness, that the increasingly commodified and monetized nature of contemporary American society is driving wedges between us all. Yet we also know that we have become dependent on these commodified relationships and resources in which they trade, and so we are presented with a sobering dichotomy: Our contemporary money system cannot work. It must work. It cannot. It must. It’s not hard to see why simply ignoring it becomes a compelling option.
But even for those who have never given a moment’s thought to the underpinnings of our money and the strange truths that lurk within them, I wonder if there’s some level of innate or instinctual understanding that there is something unseemly about the basic construct of money. “For the love of money is the root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs,” Paul tells Timothy in scripture (Timothy 6:10). Has there always existed some degree of suspicion that the accumulation of money beyond our immediate needs is inherently bad?
Of course, money is only money, which is to say, it is merely a symbol and a representation of the resources underpinning all of humanity. It cannot be inherently evil or good; only we can imbue it with these values. But still I suspect that on some level, we understand how its accumulation, be it in actual cash or investments, erodes the sum total of true wealth.20 In other words, to advantage ourselves in this regard is to disadvantage others. Perhaps we even understand that it erodes us, chipping away at our autonomy and relationships by depersonalizing the nature of exchange.
I often find myself wondering why people seek to accumulate large sums of monetary wealth. And then I inevitably wonder if I am crazy for even wondering this, given the depth and breadth of the acceptance that such accumulation is a worthy goal. I would be remiss to suggest that no one else questions this assumption—clearly, Erik does, as do many others—but there is little doubt that the vast majority of Americans have been raised inside cultural, social, and educational systems that promulgate the righteousness of monetary and physical asset accumulation. It has become part and parcel of the American Dream that we hold up for ourselves and the rest of humanity to admire and strive for. So even to question it sometimes feels uncomfortable. What am I, a socialist?
Perhaps I am, although I’m not terribly interested in how my musing aligns with any particular political ideology. Instead, I’d rather consider the conditions that have given rise to the assumption of accumulated wealth. What is it, specifically, that drives a culture to embrace the notion of individualized asset hoarding in excess
of what could reasonably be considered necessary to meet immediate or even medium-term needs?
I’m going to take this opportunity to give credit where credit is due and insert a passage from Charles Eisenstein’s book Sacred Economics, which has had a profound impact on how I view issues of money and wealth: “In the context of abundance, greed is silly; only in the context of scarcity is it rational. The wealthy perceive scarcity where there is none. They also worry more than anybody else about money. Could it be that money itself causes the perception of scarcity? Could it be that money, nearly synonymous with the security, ironically brings the opposite? The answer to both these questions is yes.”
Eisenstein rightly points out that many of the goods, services, and natural resources once considered part of our collective wealth—often known as “the commons”—have been claimed by the monetary realm. The groundwater becomes polluted by industrial waste, but don’t worry, because you can always buy bottled water. And don’t worry, because the fish that are no longer safe to eat from the rivers can instead be purchased from an industrial–scale fish farm. Services that not long ago were provided on a neighbor-to-neighbor basis—childcare, for instance, or food production—have been extracted from our communities, to be monetized, consolidated, and depersonalized, before being offered back to us, complete with price tag. Consider the current hoopla over so-called social media, which is little more than the monetization of our relationships. True, it costs nothing to use Facebook or Google, but that’s only because the information we willingly provide—often, unawares, unless we’ve read through reams of legalese—is utilized by corporate entities to hone marketing pitches. To sell us stuff. As we do in the face of the commodification of most products and services, we fool ourselves into believing the pitch: In this case, that social media connects us to others and enriches our social lives. But of course every minute we spend “connecting” via the available mediums, while they scan our “content” for opportunities to profit from the exchange, is a minute we’re not connecting with people face-to-face, in the real world. It is as if, having scraped the bottom of the barrel of obviously marketable (and occasionally, necessary) goods and services, there’s nothing left to sell us but us.
As you might expect, when essential resources are monetized, they are imbued with a sense a scarcity. Consider the common economic phrase “supply and demand,” generally used to explain pricing fluctuations. We accept as a truism the notion that the scarcer an item, the more it should cost (or, conversely, the more abundant a product, the less it should cost). And so as prices increase and more of our nonmonetary wealth is transferred to the monetary realm, we hoard more fervently than ever, creating a vicious cycle that transforms perceived scarcity into real scarcity, which in turn drives the perception of scarcity and . . . you get the point. Of course, the truly tragic consequence of this cycle isn’t the damage it does to the hoarders. Sure, we might feel sympathy for those who have so completely given themselves over to the realm of money, but let’s be real: At least they have a roof over their heads and food in their bellies. Rather, the true tragic outcome of our scarcity story is our inability or even unwillingness to connect those in need with what they need. The difficult truth is that the world does not lack for resources; it is simply the misallocation of resources that creates the perception that there is not enough to go around.
All of this is not to suggest that resource depletion is not real, or that we needn’t embrace conservation. Clearly, we have extracted a fair chunk of our underlying wealth base in exhausting a broad spectrum of natural resources. We’ve overfished our waters; it’s estimated that global fishing fleets are 200 percent to 300 percent larger than our oceans can sustain. We’ve overdrilled our oil and gas fields; recall that the United States now imports nearly 70 percent of its oil, up from just 8.4 percent 6 decades ago. And we’ve overfarmed our soils; according to Cornell University’s David Pimentel, modern mono-crop agricultural practices are causing our farmland to erode at a rate that’s 10 times greater than the rate of natural topsoil reformation. And that’s just in the United States; even more troubling are the statistics for China and India, where soil depletion is occurring at a rate 30 to 40 times faster than natural replenishment.
What’s truly striking is that all of this is happening in the context of GDP growth that’s based, as it has been for more than 30 years, almost entirely on debt. Since 1980, and continuing unabated until the economic crash of 2008 when our nation’s rate of debt accumulation went over a cliff, the United States has not seen a single 3-month period during which economic growth expressed in dollars occurred faster than the growth of new debt. Here’s another way of putting it: For more than 3 decades, every single dollar of economic growth has been offset by more than another dollar of accumulated debt. As recently as the mid-1970s, it cost the United States less than half-a-buck to generate a full dollar of GDP growth; recently, that ratio has risen eightfold, to 4:1. To create a single dollar of GDP growth now requires tacking four dollars onto our debt tab.
Our economic growth is illusory and has been for a generation or more. Whatever affluence we thought we had gained is merely a lie, obscured by the accumulation of debt, which itself exploits our true, underlying resource wealth. It’s a twofold tragedy that will, by necessity, come to light. These imbalances cannot be fixed by simply increasing our debt burden; we have gone too far over the edge to “grow” our way out of our current predicament. This is where, in a sense, the neoconservative deficit hawks have it right; where they have it wrong, of course, is how they would seek to rebalance the scales. Or, I should say it’s wrong for the overwhelming majority of our nation’s citizens; in the minds of those who would prefer to uphold the status quo, the methodology of making cuts primarily to those programs that support poor and working class citizenry is very right, indeed.
But of course, this is not the only way to rebalance our economy. As Charles Eisenstein points out, our modern societal and economic arrangements are ripe with the low-hanging fruit of enormous waste. Our resources are feeding a system of vast inefficiency. We invest 11 calories of energy into every single calorie of food we produce, with most of those calories being consumed by processing, packaging, and transport, and, along the path from field to fork, we discard an estimated 40 percent of the food we grow. Over approximately the same period that our per dollar debt-to-GDP ratio rose from 0.5:1 to 4:1, we have increased our per capita daily calorie production from 3,026 to 3,900; over this same time frame, the segment of the population receiving food stamps has risen from 2 percent to more than 14 percent. Concurrently, the average American home nearly doubled in size, from 1,400 square feet to 2,700 square feet, a fact that becomes somewhat less impressive considering the nearly 12 million foreclosures since the beginning of 2008. What good is a big house if you get kicked out of it? At least those forced to live in their cars will have plenty of parking options: By some estimates, the United States now boasts eight parking spaces for every car.
The pattern is clear: In aspect after aspect of our lives, we are faced with a mirage of wealth behind which lurks the true condition of our society. Ironically, it is the very maintenance of these mirages that causes most of our societal ills. Year after year, we feed our real wealth to the illusion; in ways both physical and spiritual, we let ourselves go hungry, for no other reason than to keep the story alive.
I have come a long way from the sugarhouse, and I return to it now only briefly, to make this final point. Because, finally, I have come to understand what it is about this spot that so captures my imagination and compels me to consider matters of wealth and money against a backdrop that would seem to suggest neither.
It is because, as antiquated and decayed as they are, these sugarhouse remains are no mirage. The story told by the industry that occurred under the roof that once sheltered my favorite foundation stone was a story of conscious economics, rooted in toil and nature’s regenerative gift of sap. It was not fueled by the false abundance ge
nerated by oil. The process involved in this early sugaring venture was extractive, to be sure, but in a manner that by necessity respected the natural resource, with the recognition that maple trees, if exploited through overtapping, will age prematurely and die. There was no way to externalize the toll of this small enterprise, which traded the sweet distillation of all the efforts put forth for the pockets of cash that would provide those essentials that could not be produced on a farm. It would have been understood that the value of the sugar bush could not be measured solely in monetary terms because to do so would begin to erode its vitality over the long haul. This was not altruism, or at least not wholly; it was simple recognition of the limitations inherent in the trees that—spring, after spring, after spring—gave forth a portion of their lifeblood.
It is only when the true costs of industry and wealth accumulation are hidden that the illusion of abundance begins to take shape. Often, it is simple distance that creates the opacity, but just as frequently, it is the lie that is told by this illusion. It says that we can lay down the “burden” of accountability and simple honest work. It whispers that life is better when this weight is lifted from our shoulders and we join the school of fish swimming in unison along the river of false abundance. But we forget that the factors making this arrangement the norm enjoy little historical precedent; we forget that the load does not simply disappear; it merely shifts, to be borne by the environment and the less fortunate. The illusory, self-generating nature of money is not the only reason for this shift, but it underpins all other factors, for it serves as their enabler.
