Notes on "Capital and Ideology" - Thomas Piketty

 

This is a fantastic book. Highly recommended. What follows is just a home for my notes on the book.

Also, see Christine Desan, a commentator on money and the institutional structures that support it.

There is a connection with my AI deliberations. "Money" is in the eye of the beholder. Piketty points out that the social structures behind it are also in the eye of the beholder, such as class, property, and borders.

This leads to the observation that many see elements of capitalism, such as inequality, are real and not "subjective." Economic inequality tangibles to actual results. The human "economy" is built on top of a real environment. Money is imaginary until you have none. Wealth is in the eye of the beholder until you look at the physical destruction involved in our economic history (war, depression, climate change).

Since all aspects of the "economy" and the structures of society are subjective, it is not surprising to see wildly different visions of what is going on. "they tend to see things as going pretty well except for certain threats to their status. "Losers" see systemic evil. If articulated, this evil uses the "poor" as machinery to create wealth for the "rich."

Piketty is uniquely humble in many ways. He recognizes his limitations in ways you seldom see in this kind of writing.

"Real" stuff (not fundamentally mental):

• Population - headcount;
• Life expectancy;
• Violence - varieties of murder from official to private;
• Actual inequality, such as access to "stuff";
• Pollution and other forms of "externalities";
• Consumption of real resources, especially energy;

"Mental" stuff - "in the mind of the behavior:

• Law;
• Class;
• Perceived inequality;
• Financial wealth;
• Liberty and restrictions to it;
• Happiness;

It is fair to note that Piketty moves back and forth between these types of "reality." The general thrust is to treat all types of "data" as part of the real world, like mountains and thunderstorms.

Is inequality socially theory. There seems to be evidence that a more egalitarian society is more productive. This is at the heart of the "top-down" economic approach.

Useful to compare all this to studies of the actual lifestyles of the world's population as a whole.

Note that tax breaks for the rich who "deserve it" also benefit those who don't. It's also worth noting that the paradigm examples (such as Bill Gates) owe much to the social structures, such as patent law and education - specifically the education of Bill Gates himself.

Excellent treatment of the emergence of the idea of property during and just before the French Revolution.

A case can be made that inequality before the French Revolution was less than it was in the "Belle Epoch" around 1910. You might say that the enlightenment project failed.

(My guess is that high return on investment prior to 1914 failed to factor in the risks that were exposed by WWI and the Russian revolution, which destroyed vast quantities of wealth).

"Inheritance from father to son should not be taxed since it's just continued enjoyment of the property."

(for some reason, the same logic is not applied to the income of a working father that is spent on food and rent for his family).

"Proprietarianism" - capital sacred right, no need to provide access to info - 18th century. Extend the forms of property without limit. The confrontation is between owners and workers difficult. Not sure about this. The sacred status of a "bond" is strongly related to this concept. Slavery exchanged for the "right" to assume debt. "Quasi-sacralized" property/debt.

When slaves were freed, owners were generally compensated, part of the logic of the sacred status of the property. This is similar to the compensation of landowners in France. Nobody, until recently, has talked about compensating slaves.

Shifting idea of whether or not Christianity condones slavery. Wasn't it slavery that allowed for the "tighter classes" to engage in the arts and sciences? There were arguments that the abolition of slavery would result in a lack of competitiveness. 

Slave rebellion and the fear of it played a key part in abolition. These lead to tens of thousands of execution.

Note that other forms of bondage were abolished at the same time slavery was abolished. This contrasts with public debt, which doesn't get forgiven.

There is a parallel logic between emancipation and what happened in Russia (chapter 6). As in Haiti, the idea is that the slave is expected to buy his freedom. This converts slavery into perpetual debt. The slave was worth 4-6 years of wages for a free worker. Proposed to deprive former slaves of property rights.

Replacements were "indentured" servants. In debt for the cost of their transportation - about 10 years. Not "identical" to slavery, but not much different. "Free" to assume debt. "Only revolutions confiscate without compensation."

"Coercive debt strategies"

1-1.5 million Mexicans were deported from California in the dirty thirties. Many were born in the USA.

The tie between the end of slavery (bondage) and the modern dependence - monetization - of debt is notable.

Interesting to note that Lincoln proposed compensation for slaveholders. Everyone probably knew this was not going to happen.

600,000 dead in Civil War. 

No compensation for slaveholders or slaves. What about the 40 acres of land and a mule? No law to this effect was ever passed.

In the USA, a slave was worth 10-12 years of free worker's wage. Compensation at public expense was not feasible. In 1860 value of slaves was 2x the annual GDP for the States. That would mean former slaveholders became bondholders. Debt resulting from the war itself was 30% of GDP.

Jefferson and Maddison did the math on compensating slaveholders. Jefferson saw no way to free the sales. He called it like holding a wolf by the ears (1820).

One argument was slaves were better off than the poor in "civilized" countries. Plausible argument.

Deportation of slaves relocated 13,000 - a tiny fraction. They worried about allowing free blacks to stick around. In Liberia, political power was in the hands of the "Americos" until 1980.

Interesting history of the evolution of the 2 party system.

A fascinating account of the debate over war debt coming out of the civil war. Denial of the right to vote connected to both immigrants and blacks. The 14th amendment (right to vote) was never enforced. Similarly, the 15th was left to the States to enforce.

1877 end of reconstruction. Then segregation kicked in, resulting in a huge reduction of black participation in political or economic society. In the end, a gradual migration to the North. Numerically, this was not a big deal.

1884, Dems win the presidency. Birth of Social Nativist / Democratic ideology. Dems jettisoned this and switched to social justice in the 1960s.

-------------- BRAZIL -------------

Fascinating story. Slave revolts. Lots of racial "mixing." The idea that children born to slaves were "free" with strings attached. Abolition in 1888, then the fall of the regime in 1891. Slavery was abolished, but the poor were excluded from voting until the 1980s. 

--------------- RUSSIA -------------

Again, the issue of compensation to the "owner" of the serf. Serfs needed to buy their freedom. But the State was weak, with local enforcement and no justice system. No tax system. No way to compensate through public financing.

Experiment with the abolition of slavery is similar to the abolition of serfdom. A civil war in the US, and a revolution in Russia.

=============== Chapter 7: COLONIAL SYSTEMS OF INEQUALITY =======

Colonies developed for the benefit of the colonial power.

NOTE: Piketty's account of how property and debt arose parallels the usual story of how debt-based money replaced money based on species.

In the 19th century, slavery was replaced by modern serfdom and debt - a process that went on well into the 20th century.

The brutal treatment of indigenous people adds to the slavery story.

1520 Mexico 15 - 20 million to less than 2 million in 2 million with lots of interbreeding. 5-10 million to 1/2 million in Canada/US, but not much interbreeding.

2nd colonial era peaked in 1938. 450 million in the British empire.

Generally, he needs to get a head count of the "elite" in many different situations. Nobility in 1700, whites vs. backs in slave societies.

The Colonial system used the administrative structure to dominate the population.

Inequality is constrained by the "subsistence requirement." Useful to compare incomes in multiples of "subsistence" level.  Obviously, the richer society is, the higher this multiple can be.

Owning classes can own more than 100% of the wealth by putting the bottom tranche in debt.

Figure 7.6 is key to the underlying math. I have been looking for this. It undermines Reich's analysis.

% of wealth can go nuts in "neo-proprietarian" societies.

Multi-dimensional nature of poverty can't be measured in one number. The world moved from 3x to 30x subsistence. You need to look into the details of lifestyle.

Note the problem of the top guys persuading the bottom guys that the arrangement is just.

Note that competitiveness is still used to justify high profits and low wages.

Balanced budgets in the colonies meant taxes were paid by the poor for benefit of the colonizers. Such as regressive "head task." providing comfortable salaries for the colonizers. Health and education were for the colonizers. There is an echo of this in the modern USA.

All education then and now is elitist. "No country is in a position to give lessons on this subject."

Niggling transfers from the colonizers were to pay for the salaries of the elite and "keep order."

Bottom line, colocalization offered high returns at low cost. Fabulous profits that benefited the elite at home.

We have the suppression of the "poor whites" by the local aristocratic system.

Foreign "investment" was brutal at first, with extraction kinda literal. In the second wave, it was "return on investment" that became the neo-liberal regime in current times. The effect is clear in the case of Greece or other situations where the IMF "saves" countries from debt. Compensation to slaveholders stretches into the 20th century and many others. Opium wars. WWI debts imposed on Germany.

Morrocco great example - conquest leading to "rescue" and heavy debt and debt accounting for 1/2 of Morocco's revenue and so forth.

The "invisible hand" doesn't have much to say about the economy in the mid-1800s. The wealth of nations depended on slavery, compensation to slaveholders, and substantial returns on investment from colonial investments. Accumulation of wealth is not about the "invisible hand." It's about the emerging concept of property and replacing serfdom and slavery with debt.

"Fairy tales" in economic textbooks. Property relationships are always tense and are enforced by law.

Chapter 7 - a side trip on the issue of racism and mixed-race marriages, and women as property.

In South Africa, again, we see a reluctance to redistribute property. Property rights are sacred no matter how violently they were obtained.

============ Chapter 8 - India ===============

The clergy was a prototype for the corporation, which is an organization that has income and wealth distinct from its members. Celibacy requirements specifically supported this.

Anti-Muslim motives were key to the alliance between Europeans and Hindus. A shadow crusade continued into the 19th century. 1492 was when the Moors were kicked out of Spain. There were echoes of this in the Gulf War.

======== Chapter 9  =========

"night watchman" functions need tax income > 1% of GDP ... a weak state

enforcement of property rights requires a "night watchman" function ... more tax revenue

this transforms the State into an ownership State

the arms race between states of Europe lead to strong states

in 1550 moguls and European capacity about equal. By 1780 150,000 to 450,000 plus others

organization and tech plays a role too

Adam Smith's ideas bear little resemblance to 18th-century reality-China more like it.

The amazing history of the Opium wars.  Added book on the subject to Kindle.

The military force behind the "modernization" of japan could not be more explicit.

Japan became a colonizer.  

"Pre-modern inequality regime" - Japan is an example of a very quick transition to a modern regime.

1856 slavery of "Roma" abolished 

----- China---

Confucianism is a civic theory rather than a religion. Respect for the property is important.

Official influence from the 2nd century to 1911. Part of the state rather than apart from it like the European Papacy. Contributes to the fragmentation of Europe. Communism is also a "State Religion."

In the early 2010's Confucius returned to a place of honor.

China was too weak to be despotic. Never more than 1% tax in the 17th century. 0.02% in civil service and military. Lacked the means to ban opium import. Early Spanish state similar ...

Lack of data caused by the weakness of the State. 1742 attempt to reduce the warrior class. Proprietary micro-societies. Exam system. Right to testify and others. You could actually BUY a certificate in the 19th century; for example, sons of the wealthy could be eligible. Passing the exam correlated with a high-status family. Somewhat similar to the admission system to top schools in USA Today. 1/2 of the posts are reserved for "bannermen" - warriors. Applied to only "federal" posts - 10%. 1911 Empire fell. The purchase of certificates went to general revenue. Tai Ping peasant rebellion 1853, noticed by Karl Marks. European powers took the side of gov't over property rights and debt. Boxer Rebellion - Europeans again backed the regime (10 European powers). 1911 government respected property rights and made redistribution impossible. 1912 Western Govts backed even more right-wing regimes.

IRAN

Related to the trifunctional nature of Islamic governments. Shias follow the Immam. Sunnis follow the Caliphs. Shias, therefore, denounce political leaders popular with the poor. Possible link with Zoroastrian ideas. High priesthood, Shiite clergy, is a class or caste. Echos of the opium wars with tobacco. In 1951, the privileges of the oil companies resulted in the ouster of the elected government. Specific recognition of religious orders in the constitution, Religious authority dominates the "secular" branch. This is unique in history.

His breakdown of Middle East politics is worth the price of the book.

Religious ideals have regularly ended in disillusionment. Religious messages of equality are coupled with rigidity and the general inability to underlie a religion and flexible enough to paradoxical support of things like slavery.

========= GENERAL =========

The modern world is the result of tripartite systems being replaced by proprietarian systems with legal (regalian powers) authorities gathered in the Nation State.

============ CHAPTER 10 ======

Interesting frame from the beginning of WWI to 9//11.

End of colonialism

1914 - 1945 huge transformation

private property vanished in USSR and China

Many ways that private property was challenged

• Progressive tax;
• Expropriation;
• Change of ideology and challenge to the sacred nature of the property and the marketplace

Classic ownership structure has been replaced by "neo-prioritarianism." He has a big issue with unequal access to career paths that leads to astronomical management salaries, especially education. Also, wealth inequality is always greater than income inequality.

"Patrimonial middle class" - the lower class owns nothing. As an aside, what about the value of assets owned by the government and, for that matter, services?

Some comments on the disputes on the left in the time of Marx. It seems that Piketty's analysis of history is bound to be better than Karl Marx or Adam Smith.

Agriculture leads to the concentration of wealth in the form of land.

Note how he manages to get rid of money as a measuring stick. He uses worker earnings, ratios that cancel out money. Good to change your thinking, in addition to questions about fables like GDP.

How did the wars cause such a big drop in private property? Not just the bombing.

We have been persuaded that we participate in history through politics and voting. In fact, we participate through income and debt.

The concept of property changed. Expropriations increased equality in the "debtor" nations and created losses in the bondholder classes in the colonial powers.

*Progressive" systems redistribute income among taxpayers. The truly poor don't pay income tax at all but are subject to other taxes, such as VAT. Redistribution is, therefore, in the form of spending programs. For example, Canadian Medicare and pension program are forms of UBI. Health and pension support have become (except in the USA) the core of fundamental social support.

New Deal: "Bargain Basement Social Democracy."

Note - Canadian public owns the medical system. In the US it is a private asset. This contrasts with attacking the "problem" as a wealth vs. income issue.

"Nationalization" of the US medical system would involve owners' compensation. Probably staggering cost.

Contrast Germany's move to worker participation on boards with the US undermining of unions. This didn't happen by accident. Note that this could only apply to publicly traded companies. Or does any corporation need a board?

All this co-management is a harmonious compromise with Marxian ideas.

Thinking that increasing tax on vast management salaries can be avoided by just increasing the wage, but this effectively increases the tax on corporate tax profits.

Talk about national "competitiveness" in terms of taxes etc. but misses the educational gap.

Very low inter-generational mobility in the USA. This is perhaps a key factor in "injustice." How back does this go? Why do the "poor" fail entrance exams? Are the "Ivy League" universities for-profit capitalist enterprises? 10.1% return on investment in richest endowments.

"Trust fund babies."

 Lack of transparency. Effective in raising funds. Comparison with the Ching dynasty practice of buying qualifications.

Does he skip over the problems with meritocracy itself?  "Meritocracy Trap" - the new aristocracy. Deals with social unrest. Related to the ultimate rewards for beneficiaries of elite education.

He struggles to find reasons why central planning doesn't work and why you need just a bit of private property. Attempts to sort out where one kind of ownership is to justified over another.

==== Chapter 13 =====

A useful discussion of "National Income" vs GDP

Or "Net National Income"

Net National Income balances out globally except for tax havens.

Good analysis of climate change

Some note about "intellectual property"

"Washington Consensus" - neoliberal manifesto

Chat about central banking. 

    Euro was created with the understanding that the bank's job is limited.

======= Chapter 15 ==========

Account of how the makeup of the vote in the US reversed

- educated people started voting Democratic

- so now Democratic party is the party of the educated - good news bad news

- those who rose the most tended to vode Dem

How Our Politics Misses the Point

An excellent CBC Ideas episode is a nuanced treatment of how we tend to become more "conservative" as we grow older. I felt that the entire discussion was missing the point, or at least the "lefties" and "conservatives" were talking past each other. We have lost sight of the real world around us and have grown to depend on utterly unreliable ways of thinking about it.

There is a lot to unpack here.

For one thing, words such as "liberal" and "conservative" suffer from "reification" - slipping into thinking that something is a "thing" just because we use a name. "Socialists" have famously never agreed on what "real" socialism is - they are always accusing each other of not being "real" socialists" The idea of "conservatism" is just as amorphous, as illustrated by its defenders in the CBC episode. Why, for example, is Trump "conservative". Of course, conservatives are quick to say he's not a "real" conservative. There are echoes of religious schism here ...

It seems to me that terms like "liberal" and "socialist" are used mainly by "conservatives" as pejorative terms for an ideology that may or may not exist as a cohesive political ideology. On the other hand, those who lean to the "left" misunderstand the nature of their opposition. To cite just one element of this, I rarely find a "leftie" who understands the religious core of the Republican party. There are many who will not vote Democrat because they honestly believe that God is a Republican.

My problem with the whole debate is that it is not really "about what it's about".

On the "left", the concern is officially about "social justice" - providing each citizen with a tolerable lifestyle and civil rights. "Lefties" regard the political project as engineering all aspects of the system toward this end. "Conservatives" tend to appeal to fundamental principles that they feel preclude the need for analysis. As with religious conservatives, political conservatives miss the rapidly evolving image of what things were like in the good old days.

On the "right", it's officially about money. Balanced budgets, GDP and taxes. They provide lip service to social justice but always want to know "who will pay". When talking to a "conservative", you always feel the implied answer: "Not me". Conservatives hate to pay taxes and they take it personally.

I think that other issues tend to "stick" to one side or the other out of a historical accident or careful "engineering" of the political climate. For example, there is no obvious reason why "conservatives" should oppose abortion rights or, specifically, the "right" of the government to have a say in the reproductive rights of an individual. There is no obvious reason why "conservatives" should be climate change deniers or gun rights advocates. It's a matter of strategic alliances.

The fundamental core division is, I think, over two ways of seeing the world: people who see the problems and opportunities of real people versus people who see the issue as a zero-sum game of who pays. This is unfortunate since you simply cannot see what is going on in the world through a lens of money.

• The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.
• The only function of economic forecasting is to make astrology look respectable.
• Under capitalism, man exploits man. Under communism, it's just the opposite.

John Kenneth Galbraith

In my reading of Galbraith, my "takeaway" was his insight that it's all about the "commons" - the assets we own together as a society. Political "left/right" fights, especially when taxes and balanced budgets come up, are about the "commons". For example, Should the "commons" include affordable medical care for all? Why do I have to pay for schools if I have no children? Why should I pay for libraries when I don't read?

Conservative opponents of "tax and spend" liberals tend to overlook the stunning expansion of the "commons" over the last two centuries, which has nothing to do with what kind of government is in charge. For example, a conservative that advocates that roads should be paid for by precisely the people who use them (toll roads everywhere) would be seen as a crackpot. We see this kind of thinking with privatized fire departments who watch buildings burn because the owner is not paying "insurance" to the right fire department. Perhaps we should have toll booths at the entrance to every park.

But that misses a deeper point. We have created an environment that is 99% artificial. Who are "we"? Increasingly, every object in our environment has been created by thousands upon thousands of faceless individuals in a production train. Sometimes we need to have our noses shoved into this fact by, for example, asking how we would make a toaster from scratch. I ask the reader to pick up any object nearby and ask if he could make it from scratch. A plastic spoon? A ballpoint pen? A sticky label? Do we have any idea how much every person in the production line of any of these things got paid for his contribution? Does such a question even make sense? The fact is that everything around us has been created by the human race. We have no idea who designed this stuff, who built it or how it came to be regarded as "ours". The money we paid for it is, generally speaking, an absurdly low estimate of its "worth". To a large extent, what we pay for things in this world is a pretty arbitrary measure of what their value is to us. We access the vast amount of that value for "free".

But how do we regard our money as "ours"? If we look closely, most of us are also involved in a production chain too Our own contribution is lost in a sea of other contributions, with some kind of value popping out at the other end as if by magic. For example, for 30 years I worked to improve aircraft safety. I have no idea if my contribution saved any one single life. It only makes sense to think of my efforts as a contribution to the work of millions in the transportation industry.

What I am left with is a vision of the "commons" as a vast universe of value. Each of us contributes and (maybe) gets paid for it. We withdraw things from the commons and (rarely) pay for that value.

We should have our political discussions around enhancing the value of the commons, reducing the cost of accessing it and fairly compensating those who contribute to it. Automation threatens to completely disrupt the "compensation" part of this system while driving down the cost of "things" that the commons produces. Some members of society see their access to the commons painfully restricted or eliminated while others seek to "fence off" the commons and call a chunk of it "theirs".

So why are some things so expensive and why do some people get paid almost nothing for their contribution?

It seems to me that it boils down to personal, individual, one-on-one service. You can't mass produce cancer care or Nobel Prize winners. But there is no shortage of people who will work in warehouses or flip hamburgers.

That's the status of my current thinking on this issue. The devil is in the details.

Debt and Money

In a previous post, I wondered about how debt becomes the "civilized" mechanism to form the skeleton of a structure that recognizably similar to the kleptocracies documented in "Thieves of State". The theory is that over time (and a few political revolutions), "Western" societies settle into a way to suck the blood out of the poor "legally", eliminating the need for overt corruption such as bribes and kickbacks. In many of these "democracies", bribery continues to be important in the form of "dark" political contributions that constantly outweigh the desires of the general public. Money itself becomes a corrupting influence. But let's take a look at debt first - especially its connection to "capital" or "wealth" - the material goods of a society.

Especially with the appearance of cryptocurrency, we find people believing the myth of "fiat currency" - the idea that the government can print pieces of paper and convince us all that they are worth something. That's not how money is created in a capitalist system. Money is based on and backed by debt. If you get a loan of $100,000 from a bank, the bank owns a piece of you in exchange for the $100,000 that they create out of thin air. Every dollar is brought into existence by the creation of an equal but opposite debt.

The idea is that the bank will only "lend" you this money if you can convince them that you are able to repay the loan. Ideally, you will put up collateral that the bank will seize if you fail to meet your payments. So the entire system, especially the "money" is based on (a) credible assessment that the borrower can repay (b) value of the collateral. All this came unraveled in 2008, causing trillions of dollars to vanish from the system due to (a) banks creating money and fees for themselves when there was no realistic hope of the loan being repaid and (b) crash of collateral values (houses).

So, if all money is created by debt, where does the money come from to repay the debt? In the big picture, this comes from value added. The borrower somehow creates more value than what he borrowed. For this to happen, the entire economy must "grow" - causing the total value of its assets to constantly increase, or the value of the money must decrease (inflation). In effect, this means that the borrower is repaying the loan with dollars that are worth less than what he borrowed.

It's distressingly easy to game this system. For one thing, the traditional analysis ignores the role of crime, especially international crime and "money laundering". It's common for major players, especially in real estate, to use bankruptcy as part of their business plan. They never intend to repay the loans. Banks create money out of nothing and hand it to the Trumps of the world. Magically, the money slips away, another Trump business declares bankruptcy and Trump buys himself another jet. The bank actually looses only the interest on the loan. The debt vanishes and Trump keeps the jet.

It's also possible for the Trumps of the world to accept "loans" from international criminals - loans that will never be directly repaid, especially when the enterprise in question declares bankruptcy after all that now "clean" money slips away.

Another problem is that money itself becomes a commodity, resulting in what's called "finance capitalism". Money no longer stands for value in the "real economy" or even the credit worthiness of the society. It "floats free" - just numbers in computers. As we have seen, these numbers have a distressing tendency to crash for mysterious reasons. They actually behave like the mythical "fiat currency" because they are actually based on smoke and mirrors. Actually, what happens is that "trust" between the lender and borrower (who may have actually met face to face) is gradually replaced by a mathematical construct of "risk" evaluated by an opaque computer algorithm. Of course, you can't hold an algorithm accountable or toss a computer in jail.

For the "little guy" with a mortgage, car loan and a student loan, this debt is a crushing daily experience. Unlike Trump, he can't walk away from it. Unlike the banks, he is not "too big to fail". All this debt compels him to work - maybe two or three jobs. It is debt that locks him into the existing economic structure. By debt, he is "assimilated". As a citizen, society owes him nothing.

Especially during the 1930's, there were a lot of ideas about how we could solve our social issues by tinkering with the way money was created in the system. "Social Credit" was tried in Alberta but failed partly because the Province didn't have the legal right to print money (and lots of other reasons). In the American colonies, and during their civil war, various attempts were made to create a currency backed by the "goodwill" of the society (government) in general.

The perverse role that debt-based money plays in our economy is outlined from a neo-Marxist point of view in "Killing the Host".

Behind these schemes is the idea that value, like they mythical fiat currency, is created "out of thin air" by human effort. Is it possible to create money that reflects this value? It's amusing to note that many people think that this is the way things work now.

I like the idea of money being created as a byproduct of creating value. For example, a bank could create the money a farmer needs to buy seeds and pay expenses. This would look a lot like the way a loan is currently made, except it's backed by the production of value, not the "collateral" of the farm and buildings. If the farmer fails to create a crop or can't sell it for the planned amount, the loan is only partially repaid or simply written off. The bank loses nothing by not being able to collect the loan since it created the money out of thin air in the first place. If things go as planned, the money created by the loan "stands for" (part of) the value of the crop.

This concept could be applied to any situation where the value is being created, such as construction, infrastructure, and even retail. It could not be used in many situations where the value is not being created, such as real estate which only moves value from one pocket to another.

In theory, the government could simply create the money needed for infrastructure projects - even public health or education. This would eliminate the need for a lot of taxation and public debt.

There is a connection between this idea and the concept that there is an intrinsic, minimum value of human labor. In other words, there should be a living minimum wage. If a business cannot recover the cost of its labor inputs by selling its goods or services, it should not be in business.

Is there value created by simply having a pulse? There must be, after all, a consumer side to the value equation.  We need not assume that every consumer creates as much value as he consumes. This is certainly very far from the case in the current system, where the top 10% consumes the lion's share of the value created by the sweat of the other 90%. There is no obvious reason why the government could not create money to cover the as healthcare and shelter, plus an allowance for incidentals. The logic for this "hand out" is that all citizens are entitled to a share of the value created by society at large, simply by virtue of being citizens. It is the same logic that permits the lowliest panhandler to use the roads, the water, public parks and the clean air.

There would be nothing stopping someone from lending money for a mortgage, except that the money could not be created in the process as it is now. (since no value is created). The lender would need to actually have the money to lend. It is obviously necessary that the old and new system must be compatible and able to run side-by-side - possibly by creating two types of loans or two types of banks. This would probably involve sweeping changes to banking regulations since it is banks that create money in the current system. Banks are incentivized to create as much money as possible since their fees and interest go to their bottom line. This incentive is perverse in the sense that the bank's assets are not at risk.

Definition of what constitutes "creation of value" would be tricky. We see a germ of the alternative banking system in what's called "microloans" in third world economies, where the loan is based on a business plan rather than collateral. Such banks are the darling of the politicians who love "small business". Anyone who has owned a small business knows that banks are not in the business of lending money to people with great ideas (don't believe the ads). They want collateral. "Value-based loans" would look a lot like the loans we see banks giving out in the TV ads but not in reality.

The other type of bank would need to operate the way most people think banks do now: lending money placed on deposit, not printing it.

The idea is that money would ultimately be based on value rather than debt. The individual's connection to society would depend on his ability to create value plus the benefits of being a citizen, not his ability to repay debt.

Intuitively, it would seem that the transition to this system would result in a dramatic reduction in consumer loans - mortgages and car loans, for example. Such loans would only be available on the basis of the "fire sale" collateral value of the asset backing the loan. Ability to repay would be a minor consideration. "Sub-prime" loans would make no sense since the lender's actual assets are being put at risk. We would see much higher down payments on houses and an end to "zero down" car loans. That would deflate the real estate bubble and bring some common sense into the auto industry. Sadly, we would see a lot less money in the system - precisely the money that tends to find its way into the pockets of the very, very rich.

Is it workable? Would it reduce corruption? Would it be more fair and just? My guess is that the idea is not original. Some research is called for. Perhaps it's best to start with a few impertinent questions:

• Is there some reason why the government could not simply create the money needed to fund infrastructure and basic medical care? At present, governments tend to avoid funding their operation by taxes (especially corporate taxes or royalties), so they borrow more and more. An increasing share of revenue goes to service debt - to the banks.
• What would be the case for and against the minimum wage and a basic income?
• How would "value added" banking fit into the existing system?
• How could the central bank increase its balance sheet requirements in a way to phase out the ability of banks to create money?
• Does any of this appear in the platform of any political party?

This post returns to my long-standing concern with money versus value. I have re-posted an entry from an entire blog on this subject here. That blog was concerned with an "impertinent question": What, if any, is the relationship between money and value? After giving that question almost a two-year rest, perhaps it's time to take another look. Coming back in from the "assimilation" and corruption angle leads me to ask if there are toxic effects in society when the two ideas are confused. Coming at the question from the "Christian Skeptic" angle leads me to ask if such confusion can lead to bad personal decisions or what a Zen master would call "unhappiness".

The idea presented here: that creation of money could be tied to creation of value is new to me and, I confess, much in need of clarification.

Backing up a bit, I recall that "impertinent questions", like "imagination pumps" are an important way to shake out unexpected insight by challenging everyday ways of seeing the world.