Word of the Wörgl’s success spread. More than 200 other towns and villages in Austria wanted to adopt this complementary currency system to address their own economic concerns. The French Prime Minister, Edouard Dalladier, made a special visit to see first-hand the “miracle of Wörgl.”
It was at that point that the Austrian central bank reacted. Like its German counterpart, the central bank decided to assert its monopoly rights, making it a criminal offense to issue the currency. The complementary currency was banned and in a very short span of time following, the town of Wörgl returned to 30 percent unemployment. Predictably, as in neighboring Germany, Austria’s economy continued to decline.
During the Anschluss of 1938—the occupation and annexation of Austria into Nazi Germany—many Austrians openly welcomed Adolph Hitler as their economic and political savior.
America’s Fateful Decision
The success of the Wörgl soon caught the attention of U.S. policy makers, who were then struggling with the Great Depression and massive unemployment. Conversations ensued between Yale professor and noted economist Irving Fisher, Harvard economics professor Russell Sprague, and Undersecretary of the Treasury, Dean Acheson. Each became convinced that the Wörgl model offered a clear and prompt way out of the Depression. Fisher stated for the record: “The correct application of stamp scrip would solve the Depression crisis in the United States in three weeks!”168
The three men met with President Roosevelt in which a Wörgl-type scrip was recommended. Fisher reported that though Roosevelt was himself impressed, the final decision regarding complementary currencies was left to advisors who instead favored a series of new centralized programs for which political credit could be more easily claimed. These new programs included the expansion of the Reconstruction Finance Corporation and large-scale work-creation projects managed by the Federal government, all part of what would eventually become popularly known as “The New Deal.”
The “emergency currencies,” the code name given for complementary currencies, were banned by executive decree. This ban applied to any and all such currencies then in existence and any that might be proposed. No official reason is known to have been given for the ban. The end result, however, was that the United States failed to take advantage of such monetary innovations to address the economic crisis of the 1930s.
Contrary to popular belief, the centralized initiatives taken by the Roosevelt administration did not actually pull the United States out of the Great Depression. Certainly, the public works programs that were enacted did provide employment opportunities to many hard-working people and built vast, vital public infrastructure that we take for granted even today. But most economic historians today agree that the U.S. economic recovery was due mainly to the war effort. Roosevelt himself declared this to be the case, stating: “It was Dr. Win-the-War, not Dr. New Deal, that ended the Depression!”169
It bears noting that the disregard of such a solution by the United States is ironical given the particular history and struggles of this nation regarding monetary matters. Complementary currencies were in widespread use in the American colonies prior to its struggle for independence from Great Britain. “Colonial scrip,” the term given to these currencies, was issued in each of the thirteen colonies, beginning with Massachusetts in 1669 and ending with Virginia in 1755. The suppression of this scrip with the Currency Act of 1764 by the English Parliament has even sometimes been presented as a cause for the American Revolution.170
Social and Political Lessons
What may initially appear to be boring technical decisions related to banking and currency matters are found to hold profound social and political implications. It cannot be irrefutably proven that Hitler would not have been elected, or that Anschluss and World War II would have been avoided, had complementary currencies such as the Wära and the Wörgl been allowed to flourish. Many other variables certainly impacted upon such sweeping phenomena as well. Nonetheless, historical records do clearly show that the suppression of these popular grassroots initiatives had a significant negative impact on employment and the economy in both Germany and Austria. It is also quite evident that deteriorating economic conditions contributed directly to the degeneration of these sophisticated democracies into ruthless dictatorships that went on to embroil the world in conflict.
Monetary crises invariably provoke fear, despair, and anger. This is an explosive social mix that reckless demagogues can and do exploit, even today. What started as a monetary problem in the former Yugoslavia, for example, was aggravated by the IMF readjustment program, and degenerated into intolerance toward “others.” Minorities were used as scapegoats by ethnic leaders to redirect anger away from themselves and toward a common enemy, providing the sociopolitical context for extreme nationalist leaders, such as Milosevic in Serbia, to reassert their power. Within days of the 1998 monetary crisis in Indonesia, mobs were incited to violence against Chinese and other minorities. Similarly, in Russia, discrimination against minorities was aggravated by the financial collapse of the 1990s.
Just months prior to such economic disturbances, few among the intelligentsia in these countries had imagined the possibility of such dramatic social turmoil. Yet, particular monetary decisions dramatically impacted the economies and sociopolitical framework of their societies. It is often forgotten that until the monetary collapse of the 1920s and the takeover by the Nazis, Germany was among the most advanced, educated, and cultured nations on Earth. Outlawing well-designed local currencies likely contributed to the tragic events of that period.
Monetary issues are often painted in purely technical terms, supposedly to be left for so-called experts to resolve. As has been amply demonstrated down through history, however, monetary and financial problems become a most explosive powder keg with formidable social and political effects.
CLOSING THOUGHTS
A seemingly endless series of financial crises have plagued the world’s financial system for centuries. The fact that these crises recur in all kinds of economies and nations on a continuing basis, points to a systemic root issue.
Highly successful complementary currency initiatives in the years preceding WWII offer us important lessons. The Wära and Wörgl each produced nearly miraculous results in turning around the local economies at a time when the national economies were in dramatic decline. In America, similar complementary currency programs were advocated on a national basis to deal with the ongoing depression. One noted economist, Irving Fisher, estimated that such measures would bring about the end of the contraction in a matter of weeks. But President Roosevelt instead opted for the New Deal and America languished economically until WWII.
Economic concerns have important social implications. Before the Nazi period, Germany was widely regarded as one of the most civilized nations on Earth. Monetary crises cause great turbulence, which demagogues exploit. The lessons of Germany, Austria, and many other nations serve as important historical reminders for us all. Money matters are intrinsically linked to many important societal concerns.
CHAPTER TEN - The Blind Spot
The real voyage of discovery
consists not in seeking new landscapes,
But in having new eyes.
~MARCEL PROUST
The human eye has a biological blind spot, a place in the visual field of the retina through which the optic nerve passes, where we literally can’t see anything. Traditional economics has a collective blind spot as well regarding one of the most coveted and influential of all human creations—money. This blindness is directly linked to many of our most vital concerns.
A few of the many consequences of this collective blind spot are briefly examined below, along with a few of the mechanisms for its existence and continuance. We begin with a look at how our lack of understanding regarding money impacts the enduring divide regarding intervention in the marketplace.
ECONOMIC DOCTRINE AND MONEY
One of the many profound effects of the Great Depression was the spect
er of doubt it cast upon the predominant classical notion that an economy functions best when left to its own devices. Neoliberal free market orthodoxy has long maintained that public intervention into the private marketplace is misguided and unnecessary because intrinsic market forces can and will self-correct any disruptions such as the periodic ups and downs of the economy, especially over the long run. This perspective dominated economic thought prior to the 1930s.
A rare dissenter to such free market notions was the celebrated depression-era economist John Maynard Keynes. The job losses and prolonged suffering of the period prompted Keynes’ famous quip: “The long run is a misleading guide to current affairs. In the long run we are all dead.”171
It bears recalling that the drastic decline of the world economy during the 1930s persisted for the better part of a decade in many countries, and finally came to an end only due to a world war. In stark contrast to free market beliefs, the revolutionary idea of Keynes was that in the event of a significant market disruption, timely and sufficient intervention was mandated to restore the economy. He further argued that the only entity with the capacity to intercede in a sufficient manner was government.
A bit of review, however, reveals how our collective blindness with regard to money calls into question key underlying assumptions on both sides of this long-standing economic divide between neoliberal non-interventionists, and neo-Keynesian interventionists.
With regard to free market theory, a marketplace that is restrained by a monopoly in the issuance of money, with the predominance of one type of bank-debt money, should be considered anything but free. Our centuries-old monetary and banking paradigms continually reinforce a circumscribed set of industrial-age values and a narrow range of predictable outcomes, including: widespread scarcity, the concentration of wealth, short-term investment patterns, the amplification of the business cycle, and the resultant lack of not only meaningful work but sufficient job opportunities of any kind. Moreover, and again contrary to commonly-held notions of free markets, today’s globalized economic reality demands increasing conformity by virtually all its many participants, no matter their particular and oftentimes diverse socioeconomic requirements or aspirations. In essence, our monetary state of affairs not only pre-empts the possibility of a genuinely free market, but instead mandates strict compliance and the continued intervention by central banks and government to try and restore stability to an inherently unstable system. Free market doctrine in fact endorses a free market for virtually everything except the structure of the monetary system itself, and instead accepts the monopoly of bank-debt-based money as an economic fact of life.
The same blind spot regarding money also undermines Keynesian-type interventions into the marketplace. It has been argued, for instance, that the emergency measures undertaken by the Bush and Obama administrations, with the Troubled Assets Relief Program (TARP) and historic stimulus packages, were necessary to prop up the banks and avert a general economic meltdown. But to what end? The influx of trillions of dollars to the banks and other financial giants has not significantly impeded any of the high-risk activities by Wall Street that contributed to the most recent crash. Nor have these interventions resulted in notable job creation or increased liquidity to Main Street, several years later. These packages have instead diverted already-scarce public funds from other important socioeconomic concerns. Additionally, this allocation of taxpayers’ money, by definition, comes in the form of interest bearing, bank-debt currency, which was borrowed by government—and at a time when deficit spending was already dangerously high. The obligation to repay these loans with interest only serves to further aggravate the already-heavy burdens on the current population, and is likely to adversely affect future generations of taxpayers as well.
With regard to repayment liabilities, it should be noted that whenever a bank deemed “too big to fail” gets in real trouble, the recipe has been the same since the 1930s: the taxpayers end up footing the bill, thus allowing these banks to start all over again.
For each of the 97 major banking crashes around the world in recent decades, taxpayer bailouts have been the answer in every instance. The U.S. Reconstruction Finance Corporation from 1932-53, for example, was funded by government by way of taxpayer money. The U.S. government repeated the exercise from 1989-95 with the Resolution Trust Corporation for the Savings and Loan crisis, and once again with TARP in 2008. Other recent examples include the Swedish Bank Support Authority from 1992-96, and the Japanese Resolution and Collection Corporation, still ongoing, which started in 1996. During the 2008 crisis, among the first institutions “saved” in this manner were Bear Stearns in the United States and Northern Rock in the United Kingdom. Likewise, in October 2008, European governments pledged an unprecedented 1.873 trillion euros, combining credit guarantees and capital injections into banks, all by means of taxpayer money.
In essence, having overlooked the structure of the monetary system itself, each side of the economic chasm unwittingly contributes to outcomes that are quite inconsistent with its own cherished ideals and stated objectives. Supposedly free markets wind up requiring burdensome and expensive intervention. Keynesian-type deficit measures instead leave in their wake massive debt, oppressing taxpayers and society. Our collective blind spot renders traditional economics incapable of addressing the deeper systemic issues that contribute to our many repeated financial and economic crises.
How did this blindness come to be, and why does it persist?
Collective Conditioning
Our modern monetary and banking paradigms were not arbitrary designs that merely came into being without context. These systems are, as previously mentioned, reflections of a set of perceptions, beliefs, values, and objectives that emerged in Western Europe with the Enlightenment and the industrialization model that followed, and which, centuries later, continues to spread around the world. The particular competitive, hierarchical, and wealth-concentrating orientations of these systems, however, are not exclusive to our modern age, but can be seen as well in the monetary systems as well as the cultures of civilizations down through the ages, including ancient Sumer, Babylon, Greece, Rome, and Western society from the Renaissance all the way up until today.
Each of the aforementioned societies had in common a patriarchal emphasis accompanied by a monopoly of a single currency. That currency was imposed from the top down, was hierarchically issued, was either naturally scarce or maintained such scarcity artificially, and carried positive interest rates. The particular forms of these currencies varied widely, from standardized commodities and precious metals to pieces of paper and electronic bits. But each society held in common the crucial agreement that only their one specific currency could be used for payment of taxes, that this currency could be stored and accumulated, and that borrowing of the currency required payment of interest.
It bears noting that even societies and economies with very different ideologies, such as communism and capitalism, nonetheless share at least one trait in common—they all impose a monopoly of bank-debt money. The one main difference between the two ideologies with regard to their monetary and banking paradigms is that the banks in communist countries are state owned, while the banks in capitalist nations are privately held, with the occasional exception occurring during bank-related crises when governments must step in, as occurred with the downturn of 2008. While the ideological warfare between capitalism and communism has placed considerable emphasis on the myriad ways in which the two systems differ, their nearly identical monetary paradigm has been almost totally overlooked. This oversight is yet another expression of our long-standing, collective monetary blind spot.
Down through history, societies that instead tended toward a matrifocal orientation—whereby feminine values are honored as well, with a greater balance between feminine and masculine perspectives—were more inclined to make use of very different monetary structures.
Several prominent matrifocal civilizations are known to have embraced a dual-curren
cy system instead of a monoculture of one type of money. The first currency was used for trading long distance with foreigners, and was very similar to those used by more patriarchal societies. The second type of currency was, however, quite different, as it was mainly exchanged within and created by the local community, was issued in sufficiency, and didn’t bear interest. In the more sophisticated cases, this local currency even had a demurrage fee that, as mentioned previously, systematically discouraged accumulation, and instead promoted ongoing circulation of this currency as a pure medium of exchange, not as a store of value. This was the case, for instance, with the corn-backed currencies used for more than a millennium in Dynastic Egypt during the time of the Pharaohs, and was one of the secrets of that ancient society’s remarkable wealth. Another example, as noted, is the Central Middle Ages in Western Europe, whereby various local currencies contributed substantially to the remarkable collective wealth and wellbeing of the epoch. The link between the money and cultural values of these societies are examined in greater depth in Part IV of this book.
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