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Uninteresting Usury.

By Peter Emerson.

If you buy a house, you’ll have to maintain it. Any car will have to be insured. Jewellery is best kept in a safe deposit. Works of art also need to be protected. In other words, being rich can be costly… unless, that is, your wealth is in cash. For if you go to a bank with, oh, €10,000, and say please, please, please! look after this for me, it will cost you nothing; in fact, they’ll pay you!

The two words, ‘ecology’ and ‘economy,’ both start with ‘eco’ meaning ‘house.’ The similarity ends there – the words mean the ‘study of’ and ‘management of’ respectively – and if something is ecological, it may well be aesthetic and wise… but uneconomic. Take, for example, a tree. A tree is beautiful, it certainly serves good purpose, but it is worth nothing, financially, until, that is, like wheat or barley, you cut it down.

Here’s another example. If I go to work on my bicycle, I consume not, I pollute not, and if I manage to avoid all those car fumes, I keep fit. Such a selfish act, however, does not help the Gross Domestic Product, GDP, at all. If you, in contrast, go by car, then you consume, you pollute, and the GDP improves. Let us now take the logic one stage further: if, heaven forbid, you have an accident and wrap yourself round a lamppost, then you create employment for the ambulance crew and the insurance company and the police and the garage and the nurses and the lamppost factory and… in a nutshell, while you languish in hospital with your leg in traction, rest assured, you have prompted a healthy improvement in the GDP.

What a crazy way to run an economy… and here’s another instance. The ecologist argues for more self-reliance. At home, for example, I grow my own spuds; then, every year, I put some aside to go to seed, and the rest, over time, go into the pot.  In other words, year on year, I am working (but getting no wage); harvesting (but getting no income); investing (without spending money); in a word, I’m being ecological. Economists do not measure these activities because they can’t: no money is involved.

An economy based on debt

For many countries in Africa and elsewhere, one pressing priority is self-sufficiency in food; a big part of the problem, therefore, is current fiscal policy, for the latter promotes dependency, the very opposite. Just to demonstrate the point, here in Ireland, most two-year old children know what a banana is, even though it comes from 3,000 miles away; but most 20-year-olds don’t know what a loganberry is, even though it is indigenous. We could grow loganberries, but we don’t; we can’t grow bananas, and we have allowed ourselves to become dependent on the multi-nationals concerned.

We are independent politically, perhaps, but not economically, and not least because we’re in debt.  As are most countries.  Ireland, of course, has the bailout.  Things do not look good for Greece. The UK is up to its ears.  Despite its reserves, China is in serious trouble with its debt-based economy, and so it goes on: most developed and many developing economies are in the red; many former Soviet countries are struggling; and underdeveloped nations are even worse off.  So who’s in credit?  Well, a few countries like Saudi Arabia, Qatar and Monaco are wallowing in the black (gold) but, on balance, the world is a debtor.  So who, I ask again, is the creditor?  Mars?

Well, whenever a country is in trouble, it borrows from the bank.  If, later on, the bank gets into trouble, then the country, even though it is already in debt, might provide a rescue operation to the bank by borrowing money… from the bank.  Now admittedly, the first bank might not be the same as the second, but even so, they’re all lending to each other.  In short, it is, yet again, a crazy way to run the economy!

Gambling or speculation

At the moment, then, the world is in a mess.  And it’s getting worse.  The rich are getting even richer.  If you and I go to the races, then you might win a few bob and I might lose; but the day is zero-sum.  When the rich play games, however, they can’t lose: it’s win-win. They put their money in the bank, in yen perhaps, and it earns interest; they may take a gamble and switch it over to yuan, or dollars or whatever, but it still earns interest. Then, if the currency appreciates, they get a second prize. And the poor who aren’t even playing are the losers; the world, after all, is zero-sum. The bankers pretend it is not by using the phrase ‘wealth creation.’

Furthermore, when you are really really rich, you can begin to actually control the currencies. Taking £Xtrillion out of sterling causes a flutter; the price drops; the market begins to panic; and the price tumbles.  So now, via your various companies based in some off-shore tax haven like the Cayman Islands and operated by those nice people in HSBC in Geneva, you put your money back into sterling. As a result, confidence is restored; the price improves… and you make a fortune from your fortune so you go laughing all the way to the bank… where you are already. Even if such speculation is small its whole tendency is to achieve this effect – it’s the essence of the way markets work.

Furthermore, if your timing is clever, the rise in the value of the currency means the political party you support will win that vital next election. This partly explains why, generally speaking, business tends to support not only the more right-wing parties, but also the current adversarial political system itself. On the scale writ small, in the board room for example, they might try to achieve a verbal consensus; when the going gets serious, however, as in politics so too in business, majoritarianism takes over: it is the majority stakeholder who dominates, and the majority vote which dictates at the AGM.

Negative interest rates

Part  of the solution to these inefficiencies and injustices could be negative interest rates. Money in a bank is a lodgement, not an investment. An investment, as it were by definition, must be for a fixed minimum period: five years, say, will get a small return, ten or more will pay a better rate.

In other words, if you’re rich, any mere lodgement will cost you. No matter what your wealth – a home, a car, jewellery, art or cash – it will be expensive.  €10,000 in the bank will be worth, let us say, €9,900 after one year; about €9,800 after two, and so on. By the time you’re 100, there might not be much left; so, if you want to do something with it, use it – (a) invest it, (b) start a business, or whatever, and the sooner the better. In time, if (a) the investment pays off, you may get interest plus dividend plus an increase in the share price (shareholders like to both have and eat their cakes); or (b), if the business is successful, then profits will begin to accumulate.

If, however, your money is just sitting in the bank, a mere lodgement being transferred perhaps from one currency to another, from one commodity to another, from one futures market to another, then it is not an investment, it is a lodgement if not indeed a speculation. So each transfer should be subject to a Tobin tax, of course, and until such deposits become investments, these lodgements should be subject to negative interest rates.

Such a policy would have immediate beneficial effects. It would help to redistribute wealth. It would mean that money would be cheaper to borrow, so reducing Greece’s debt burden, for example, not to mention our own. It could be part of a broader fiscal reform in which GDP – or Gross Domestic Happiness, as they say in Bhutan – could be recalculated on the basis that the annual budget includes not just cash but finite reserves in the earth and/or territorial waters as well, things like trees and oil deposits. This will help ensure, if we do extract part of ‘our’ mineral wealth, that we do so responsibly; that we do not take without taking care, to use Naomi Klein’s phrase.  Maybe then, the two words – ecology and economy – would be similar.

In summary, negative interest rates would help return the world to the situation in which usury was not regarded as a virtue named credit but, as was (and sometimes still is) the case according to Jewish, Christian and Moslem beliefs, was held to be a vice, a sin. •

Peter Emerson,