Extractive vs. Productive Anti-meltdown measures

Douglas Rushkoff makes a very important distinction in the following post at Arthur Magazine:

(the original has links and is more comprehensive than this excerpt)

“First off, and I can’t stress this enough: Commerce is good. Commerce is not the problem. Monopolies are.

Except in a few rare cases, corporate charters and centralized currency were never intended to promote commerce. They were intended to prevent locals and non-chartered entities from creating and exchanging value. They are not extensions of the free market, but efforts at extracting value from the free market. Corporate monopoly charters were extended to a king’s favorite companies in return for shares. Then, no one else was allowed to do business in that industry. Centralized currency forced businesses to run their revenue through the king’s coffers. Likewise, in its current form, centralized currency is more akin to a ponzi scheme of interest rates, each borrower paying up to the banker above him.

Both of these innovations—corporate charters and centralized currency—tend towards resource exploitation rather than innovation. They are extractive in nature, not productive. And, more importantly, these particular innovations cause wealth to end up being generated through speculation rather than creation. They cause scarcity, not abundance. Over time, it becomes easier to make money by having money than by doing anything. And this was the pure, stated intent of centralized currency and banking in the early Renaissance: to keep the wealthy wealthy, in the face of a rising merchant class.

This isn’t some extremist perspective. It’s just historical fact, though largely forgotten and seemingly refuted by our collective false memory of the Renaissance’s greatness. If you’re interested in finding out more about this, or seeing the evidence on which my research is based, take a look at the best historians writing about the era: Fernand Braudel (The Wheels of Commerce: Civilization and Capitalism: 15th-18th Century, Volume 2, Univ. of California Press, 1992), Carlo M. Cipolla (Before the Industrial Revolution: European Society and Economy, 1000-1700, WW Norton, 1994) or Bernard A. Lietaer, whose book On Human Wealth used to be available for free download off his site, but doesn’t seem to be anymore. In these books, you can find out about the sustainable local economic systems of the Late Middle Ages, learn that the Black Plague actually began after mandated centralized currency had impoverished Europe, and find support of my contention that cathedrals were built with local money before the Renaissance, not Vatican money during the Renaissance.”

This important distinction has immediate importance on the policy choices we are making, and this is why the Obama Administration’s attempt to restore the predatory financial economy is such a bad choice, as Douglas explains:

“I’m not saying we get rid of money—only that we learn to make it ourselves, as communities. I’m not saying we get rid of banks—only that we stop outsourcing our banking to Wall Street firms that mean only to extract value from our communities.

I have always admired hackers—computer hackers and social hackers. I’m just trying to expand the range of technologies and institutions we feel ready and willing to hack. We should hack money. We should hack banking. We should hack business. This doesn’t necessarily mean hacking the dollar, which is just one kind of closed source currency. We should hack money by coding new kinds. Bank hacking has been around for a long time—it’s just that credit unions and other local or community-based bank models were driven down by the anti-competitive practice of banking conglomerates. It’s time for those institutions to be renewed, as well.

When I say it’s okay if the Dow Jones goes down another 70 percent, I’m not calling for an apocalypse. I’m calling for the re-balancing of the speculative economy. The speculative economy owns, represents and controls a disproportionate amount of money. There are simply too many investors, traders, and brokers trying to get rich off moving pieces of paper back and forth. These pieces of paper represent shares in companies (or derivatives based on the value of these shares), and trade at valuations unsustainable by real world commerce and activity. That’s why it’s a good thing, and not a bad thing, for these valuations to move back down to a level corresponding to the revenue stream of the company. This helps the company make decisions consonant with the needs of its customers and employees—its real culture—rather than people who invest from afar, with little personal human stake in its affairs.

The banking bailout is a fiasco because it is taking money from future generations to restore the lending-based economy. I believe it would be cheaper and better to use a tiny fraction of the money to actually employ people, and to educate communities in how to rebuild local economies.

5 Comments Extractive vs. Productive Anti-meltdown measures

  1. AvatarMarc Fawzi

    Hi Michel,

    Did you here about the government crackdown on P2P lending?

    This has a strong implications on the future of local currency and new kinds of currency (such as the one proposed in P2P Energy Economy)

    It’s easy for major stakeholders in the money game to sponsor legislation to ban this or that alternative currency.

    Maybe one has to buy a private island and declare a new kind of currency for their self-governed island nation?


  2. AvatarMichel Bauwens


    I think you are referring specifically to what happened to Prosper, but unfortunately I did not follow that closely and don’t know the details. I would caution against too rapid conclusions on this: there have been numerous long-standing alternative currencies in existence, including in the U.S. But certainly, one has to be aware of legal restrictions, though this are never as hard as one imagines, and a correct interpretation can lead to innovative results.


  3. AvatarMarc Fawzi

    What I mean and what you’re saying is that the government has to control it and its up to the government agencies like the SEC to interpret the law.

    None of the local currencies we have now change the nature of money to dis-empower the current stakeholders. So it’s very possible that if someone manages to popularize a kind of currency that dis-empowers the current stakeholders then they will be shutdown through an innovative interpretation of the law.


  4. AvatarMichel Bauwens

    It is possible but not certain, so one shouldn’t restrain from monetary innovation on the mere possibility, as that would mean they have won already, without firing a shot. But one should go to the battle prepared. Why was jesus killed and buddha not, both were equally dangerous to the status quo?


  5. AvatarMarc Fawzi

    You’re right. There has to be a better way to move the argument forward than through dramatic conclusions.


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