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the price system

Why Salvage This Price System?

Walt Fryers 1998 Published in: Technocracy Digest, 2nd quarter 1998, No. 328 

Life Extension For A Bankrupt System

Whatever happened to that long-awaited crash, that new depression, that widely-feared economic crisis? It was not just anticipated by gloomsters and pessimists, or by reformers and futurists looking for a new deal. It was accepted as the inevitable outcome of a period of vigorous growth which could not continue. Indeed, it seemed to be happening in the early eighties when inflation reached double digits — nearly 20% — in the U.S. Instead, North American economies resumed steady growth. The Price System had been salvaged.

How?

Call it innovative bookkeeping, creative financing, or what you will. The rules were changed in unprecedented ways — ways seldom defined, little noticed, but drastic and fundamental, as we will discuss. Most importantly, the changes were temporary measures which cannot be repeated or sustained. The great crisis had been deferred, but not for good. Here, now, we will discuss some of the novel devices being invoked to salvage a moribund Price System. First, it is necessary to understand the usual life cycle of a Price System.

The Rise And Fall Of Price Systems

Briefly, modern economies grow by the creation of debt — corporate, private, and governmental. And debt grows by the prevailing interest rate. This accumulating debt rests upon physical growth of the economy. As long as there is sound physical growth, interest can be earned and paid on the growing debt structure. The interest `validates’ the integrity — the value — of debt. If growth lags, or ends, new debt cannot be created, and old debt withers as interest rates decline or default. It is an oft repeated recipe for an economic crisis.

The process is described here in terms of debt. But a debt is the lender’s term, corresponding to a credit to the borrower. The process can be described as readily in terms of credit. In either case, it is the banks and other financial institutions that are the main players and the best indicators of the total action.

History is littered with collapsed debt structures and with the economic chaos that results. (Now, in late 1997, Asia is presenting a cluster of examples; before that it was Mexico; and before that some countries in South America, and now Russia, all of recent date.) Some are worse than others. Sometimes foreign intervention modifies the result. In the worst cases, resort to unlimited inflation ends in worthless money, a new currency is substituted for the old currency, and a new growth cycle begins. Somewhat less severe, the great Depression of the 1930’s was not countered with inflation, but rather with deflation. Debt was massively defaulted, and the money supply dried up. World War II started a new cycle of debt creation, ending the Great Depression.

The period of reconstruction and new growth following WW II survived a series of minor recessions until the late `70s and early `80s, when a very serious threat of economic collapse threatened. But it did not happen. The problems were overcome. How?

Innovative Banking

Possibly the most outstanding example of this maneuver can be found in the deregulated Savings and Loans institutions of the United States. Freed to speculate in real estate, this ended up in multi- billion dollar bankruptcies of the S and L banks, which were then partially settled with `sucker’ (read: taxpayer) money.

Bankruptcy was traditionally a shameful end of unsuccessful or fraudulent enterprises. Not anymore. In the desperate search for places to invest surplus funds, banks and other money sources recklessly underwrite ventures of all kinds. Generous write-off terms, by law, indemnify the banks from the predictable harvest of tens of thousands of bankruptcies, great and small. Who pays? However indirectly, it is John Q. Public, suckered again.

Managed Inflation

In the past, inflation was the last resort of bankrupt economies. Economies, that is, where the debt structure exceeded the productive capacity of the economy and/or the purchasing power needed to sustain it. A temporary solution was to support purchasing power by printing money or expanding credit with no corresponding increase in productive capacity. The result was inflation of prices, the printing of more money, more inflation, higher prices, and so on until the currency approached worthlessness and was replaced with a new currency at, say, one new to ten old. In short, inflation was a case of too much money chasing too few goods.

In America, the situation was different. Here the productive capacity seemed almost without limit. Modest inflation was tolerable and productive capacity quickly adapted. Monetary or credit expansion of around two or three percent became the norm. So growth of the economy and of the debt structure moved forward to salvage the Price System once more. However inflation of any amount penalizes those on fixed incomes. These include those on `un-indexed’ wages, salaries, and pensions, as well as holders of fixed income investments. So add these to our list of `suckers’ caught in the salvage procedures.

Globalism And Foreign Trade

The term and the concept of `globalism’ have been sold to the public on a massive scale and so successfully that the idea is now commonly accepted as inevitable. It appears to be a new dimension of foreign trade. Trade barriers are being dismantled as never before. The credit which facilitates these transactions provides a new growth of the debt structure — a new, and for the time being, a profitable assignment of surplus funds for investment. The Price System is salvaged again! This exploitation of foreign trade is not new in kind, just in dimension. Under the guise of `globalism’, it is essentially an extension of foreign investment. It is a temporary measure which can, and often does, collapse in failure when markets cannot absorb the increase in productivity.

Privatization

Many functions that were formerly government responsibilities have been `privatized’; that is, handed over to the private sector. Major airports are an example. This has provided an opportunity for private investment and a further growth of that share of the debt structure. The government, at the same time, has been relieved of incurring debt or levying taxes to accomplish the same objectives. It was a convenient arrangement for governments already overburdened by debt and at the limit of the tax resource.

The Charity Game

Better evidence of the failure of the economy (the Price System) and of governance could hardly be found than the proliferation of charities and other fund raising schemes. There are tens of thousands of them, preying on the gullibility and soft-heartedness of the middle class. Such a massive con game could only be perpetrated by systematic brain-washing of the public by all the institutions involved: the government, the media, the churches, and supported by business, industry, financial institutions, community organizations: in short, it is intrinsic to the status quo. All this in an economy of potential abundance!

Food banks have been around for over fifteen years, and are still growing. A myriad of other relief organizations minister to a growing sub-class of citizenry. The fund-raising drives in support of these efforts have turned into a small industry, highly organized and efficiently aggressive. Hospitals beg for funds to support new equipment and treatments. Educational institutions beg for support for libraries, equipment, tuition, and to stem the erosion of their capabilities as educational institutions. Societies beg on behalf of wild life, endangered species, anti-pollution, flood, fire and famine victims — the list goes on.

All this is testimony to the abject failure of the contemporary economic system, and the governance that allows it to continue. It is a massive cover-up, allowing business and government to avoid due responsibility for the society that sustains them. It is an important prop in sustaining and salvaging the Price System for a while longer.

Volunteerism

Complementing the legion of charity functions is an army of volunteers, picking up the deficiencies of a derelict government and a failing economy. There is nothing new in the nature of volunteerism; just in its extent. It has been elevated to the status of a pillar of society. Indeed, economist Jeremy Rifkin classifies it as an equal partner with the government and private sectors. Equal in importance, that is, but not equal in reward and status. So it is that the economy depends on a sub-class of citizen workers to sustain the game of the Price System. With moral suasion and meager rewards, the volunteer army carries on as a successful salvage operation for the Price System. For how long?

Et Al.

“And others.” There is a myriad of other schemes and promotions to create new debt and to reward the debt holders. Some are large-scale and obvious, such as the trend into crafts, and ventures into cottage industries; others are small and obscure such as the market play on “derivatives”. Many fail and join the bankruptcy parade. But the game goes on as long as majority debt-claim holders hold a winning hand. The uncertainty of that position has led to the many types of manure to salvage the Price System.

The Multilateral Agreement On Investment (MAI)

Waiting in the wings, as of this date, is something of a trump card, which may be played in a desperate and ultimate effort to salvage the Price System. If enacted, this international treaty will give unbridled scope to new debt creation without the hindrance of national borders, sovereign rights, labor rights, environmental considerations, resource utilization, or any other responsibility toward an exploited nation. Undoubtedly, dimensions of personal liberty would be sacrificed in the process. It is unbridled corporatism, and might be better labeled global fascism. Although conceived in secrecy, it is now coming into the open and may yet be defeated, if a concerned and aroused public rally in time.

Conclusion

Howard Scott identified the issue: “In the passing of the old and the institution of the new, human conflict will become the bitterest in history. Science is hated and feared by ecclesiastical institutionalism, by corporate enterprise, and political parties. The fear and hatred that will be directed by these, against science and technological application, will be far greater than those the Inquisition hurled against all the accumulated heresies. Only science and its technological application to the means whereby we live can produce for mankind the control of his (her) social destiny here on this earth.”

Those same institutions are not above using the tools that technology provides as means to further their agendas: that is, to sustain the Price System; to maintain the rewards for debt claim holders; to prevent the distribution of national wealth as a right of citizenship; in short, to maintain the status quo.

The threatened imposition of the MAI would be the equivalent of a new Dark Age, in which the bottom lines of global corporations would be the only criteria for social decisions.

Resist! And join the action!

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