Mah Finance Sector Is Too Big

[Note: Credit for these ideas must go to many people, particularly Joshua Zeidner and Matthew Slater, both of whom are working on mutual credit, LETS and other alternative currency systems. Check out the Matt’s Complementary Currencies module for Drupal and, shortly, Josh’s JUNO API for connecting these systems together]

I’ve kind of tuned out of my daily Huffington Post emails, but today one arrived that I found pretty interesting (The Dominance of the Financial Sector Has Become a Mortal Danger to Our Economic Security). The title is a bit overblown and the article is selective and shrill, but most of the facts speak for themselves.

Some context: In recent months (well, longer than that really) the Republican party in the US has been trotting out the tired Reaganite “tax and spend liberals” rhetoric to attack every policy Obama tries to implement: the “Cap and Tax” policy for regulating carbon output, the “Socialist” medical system that will push up taxes and several even less creative redefinitions of what’s actually happening.

Meanwhile they crow about the stifling effect of regulation on the financial industry, complaining that the reversal of Reagan’s deregulation and Bush’s nails in the coffin will also roll back America’s prosperity to the mid-80’s.

Two problems here:

  • First, that much of the prosperity created after deregulation isn’t real. That’s why they call it a bubble. It’s built on unrealistic speculation.
  • Second, that the US Financial industry is so bloated and powerful that around $1 out of every $12 spent in the US goes to the financial sector, an industry, by some measures, produces very little.

You want to talk about tax? How about an 8.5% tax that goes straight into private hands instead of funding the public interest? A tax paid by every man, woman and child in America every day on everything, and one that disproportionately affects the poor.

Or how about the tax imposed on every US citizen by the private medical industry? The amount of money spent on prescription drugs in the US is rising by 20% every year, yet it would be impossible to argue that each year sees a 20% improvement in their citizens’ health.

There is a place for regulation in both the financial and medical industries. There is a place for government institutions that genuinely advocate and, yes, manipulate these markets on behalf of the common interest, because time-and-again history has shown that completely unregulated markets quickly become distorted by vested interests and that the perceived “wealth” created flows disproportionately to private hands rather than the public good.

I call this effect “trickle-up economics”. See what I did there?

So why not just start regulating?

Have you seen what’s happening in the US and other capitalist economies? Now that they have become deregulated, these industries (and I haven’t even touched on the energy sector yet) have become so powerful and tightly controlled by a few large companies that they can buy political influence and prevent the reimplementation of regulations. Here in Australia, our weak-kneed politicians dare not offend large industries with forward-looking legislation to protect the environment, and so we get pathetic half-measures. Just this week our conservative opposition party almost imploded over the question of whether they should even debate legislation to combat climate change. And this in an age when the overwhelming public and scientific consensus says act now.

So what can the little guy do?

Stop using Money… WTF?

We’ve tried protesting. We’ve tried writing to our representatives. We’ve tried to shop thoughtfully and buy Australian, buy Green, buy Ethical. We’ve subscribed to MoveOn, GetUp, Facebook groups, YouTube channels, mailing lists of every political stripe. Yet political rhetoric, and particularly legislation, is completely, provably out of touch with what people actually want.

I think the time has come to devalue money. Think about it: How often do you use actual cash? Me, not that often. At least half my expenditures are on cards, using credit. My speculative ventures (I have a few) use Australian Dollars to subdivide shares in companies, nominating value. Most of the money I shift around is not real – it’s credit in one system flowing into another. It has ceased to be important whether it’s measured in Australian Dollars, US Dollars, Rupees or bottle-caps. Yet I pay fees to move all this non-existent money around. I am paying the bank some insane amount of money just to decrease a number on one computer and increase it on another, only to have it flow back the other way a week later.

What’s more, modern currency systems are no longer backed by physical resources such as gold – they are all Fiat Currencies. Money has become, for better or worse, simply an accounting system – a way of mutually determining who owes who what.

So what’s to stop me and my friends from adopting our own currency for a particular project? Say, for example, we want to build a web site (I’m a programmer). It’s a club with membership fees. The site needs to be designed, built, documented and maintained and all these things take time, and this is before we have any members.

So we create a pool of credits, say a million credits. Let’s call them SiteBucks. This is just like shares in a company. We allocate SiteBucks to particular tasks – 2000 for a design, 10000 for programming, and so on, as decided by the founders of the venture. The people who work on the site accumulate SiteBucks, and we store each person’s tally in a register. When the site is built, we may have expended 20% of the available SiteBucks, spread around everyone who did the work.

So far, this has operated just like any other kind of speculative venture.

The interesting part comes next. How much longer can you sustain your “virtual” currency? How else could you spend it? As membership of the site grows, or offshoots are created, could you continue to use SiteBucks to pay for stuff?

The answer is, surprisingly, yes. The only thing you need is an exchange rate. Some notion of how your SiteBucks translate into other things, whether it’s currency or apples.

This is where computers come in. Computers are insanely good at storing registers of numbers, lists of members and, most importantly, modelling complex systems like exchange rates. Thank you financial industry – you’ve invented suites of tools that can balance hundreds of currencies off against each other. Now let’s scale that up to thousands or even millions of currencies. Easily done – computers are fast and cheap.

But wouldn’t this just result in chaos? Surely most currencies will not be traded enough to have a stable exchange rate against every other currency

Well, yes, but even so most speculative companies fail before they hit the market anyway. Just because you’ve invented a currency doesn’t mean you’ll grow to the size that it can be meaningfully exchanged.

Also, when your venture reaches a size where it’s producing mutually-agreed value, you can swap your unstable currency for a more stable one. Over the last 40 years or so that would typically have been US Dollars. Now it can be anything. I mean, fuckit, it could be WoW Gold. It doesn’t matter.

Or you can continue with your private market in your private currency and only trade for other goods “at the edges”, for goods and services that can’t be produced internally. This is what’s called a Community Currency or LETS (Local Exchange Trading System). A great site discussing issues around community currencies is

But isn’t this illegal? Actually, no. Creating your own physical currency is illegal. Creating a “points system” that a closed group uses to track mutual credit levels may be in a gray area, but I’d love to see a government try to detect and eliminate it if it’s all happening inside a private computer system.

What about tax? The basis for a Fiat Currency is that it’s the means by which the government demands tax payments. Creating your own currency is a neat way of avoiding paying tax on things like Capital Gains or sales taxes because no money is changing hands. Republicans and Libertarians rejoice! Overdoing it may land you in jail though.

What effect will this have on the Real Economy(tm)?

Oh, a whole bunch! Some positive, some negative. In real terms (i.e. productivity) the economy should grow because of the reduced friction for capital to enter speculative ventures. But the one effect I’m interested in is this: there will be a huge shift in the balance of economic power. The general population will be empowered to shrink the Dollar-economy because Dollars won’t make up as much of the traded currency. This will reduce the influence of companies that have spent most of their energy accumulating financial and political power and not so much of it actually helping people.

In other words, more of the energy you expend working will go towards actual value, and less into hidden, private taxation by banks and other large, opaque, private industries that have flourished in the past 20 years.

I’ll sign off now – no doubt I’ll come back and edit this at some point. Interested on people’s thoughts on this though. I’ve begun meddling in a few virtual currency projects, so if anyone’s interested in hearing more let me know.

2 thoughts on “Mah Finance Sector Is Too Big

  1. brent

    been taking too much caffeine lately have we?

    such bartering organisations exist – I heard once about a movement where the members buy nothing new except for food and underwear: everything is bartered 2nd hand from other members.


  2. Jct: LETS is a lot more than barter, it’s time-barter.
    With Africa trading with mobile-phone minutes, Arabia trading with mobile-phone card credits, with Hours being traded in Ithaca, with Greencredits being traded in LETS, the banks get no interest. And the movement is growing.
    When the local currency is pegged to the Time Standard of Money (how many dollars per hour of volunteer labor, children too) Hours earned locally can be intertraded with other timebanks globally! In 1999, I paid for 39/40 nights in Europe with an IOU for a night back in Canada worth 5 Hours. You can too.
    See on growth of the international time-trading network.


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