Fiat Money and debt

In answer to a post on Nakedcapitalism by Philip Pilkington on Kill the King – Why are we so afraid of fiat money, I replied:

I get a kick out of listening to Gold Bugs. They rail on and on about fiat money and fail to see the fact that ALL gold and/or silver based sovereign governments in history have also fallen. Non-fiat systems are more prone to deflation and the push for austerity, as evidenced today by Greece, and fiat systems are prone to inflation through government action, primarily war and the payments of debts related to war. Gold or fiat, monetary systems are created by society, usually elites, to create a means of commerce and control.

The problem, as Graeber shows, and others have pointed out, is the rise of debt to levels that are unsustainable. And of course debt is the engine of capital accumulation. The whole idea of interest is only a form of accumulation without labor or land (agriculture). Philip’s point is that the money unit is the measure of the debts owed. Not of any mystical “value” in and of itself. It is a social agreement, debts themselves are social and power arrangements as Graeber shows. Money is a social fiction, which the Sovereign must support, even if it is denominated in gold ounces or cowrie shells. Really people need to get over the idea that social fictions are somehow preordained and immutable.

In my opinion, gold can not sustain capitalism. Gold growth is less than the growth needed to sustain accumulation. If you want capitalism, and need endless capital accumulation at say 3% per year, then any commodity will be hampered as its unit of account, since accumulation must continue and usually (always) faster than any commodity growth. (I think petroleum in the years leading up to the peak were the exception.) Accumulation is why there is debt at the center of most civilizations. Many have had some form primitive accumulation, debt and also some form of Jubilee. A way to write off debts that have become too much to bear. In a blog some time ago I made the point that even should all the gold in Fort Knox be valued at $1,500 an ounce it would cover only 1.5% of the needs of the current US economy.

Our current civilization, the first global one, is now living in a state of wishful double-think. We blithely assume capitalist accumulation can continue to grow, debts can continue to grow, and all debt must be repaid. Alternatively, those debts that are not repaid will see the property which is mortgaged seized by the owners of the capital.

And those not mortgaged will see them paid back by the person’s body. Shylock’s “pound of flesh.” Which haunts all student loans these days. The debt is taken out of your life, and not against property. This is giving rise to the new feudalism. Indentured servitude to financial capital. Student loans are made into special purpose vehicles and sold as bundled loans to investors. Students are in servitude through investment banks packaging of the loans to nameless investors around the world. And the universities are nothing more or less than the originators of student debt.

The end scenario is not pretty.

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>