The Votive Economy III – Banking, Government and Law

If you’ve not read them already, please read The Votive Economy Part I and Part II as this post builds on the ideas developed in those posts from the outset.

Part III will look at the areas of Banking, Government and Law, framed in terms of how votes and money interact in each area. The main purpose is to establish axioms describing the relationship between votes and money. Once a set of axioms is established we’ll use them as the basis for a new political economy which I’ve termed the Votive Economy.

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The Royal Exchange and the Bank of England, Lithograph by T.Picken, 1851

Banking

A Central Bank committee takes a vote on a new round of quantitative easing. The vote succeeds. These votes create money, which is used to buy securities on the open market such as government or corporate bonds, introducing money into the economy. As the money is created by fiat, a decree, this money is created out of thin air, from the collective word of the bankers. This hints at the occult nature and history of money creation and banking.

The money created contains within it and is dependent upon the power and function of the vote. The vote is an encapsulation of the decisive word or decree. The word vote comes from the Latin votare, meaning a wish or a vow, and is an expression of the creative power of the word or the logos. Fiat lux – let there be light. Fiat pecunia – let there be money.

Money incorporates the vote, the vote incorporates the word.

To test this axiom we can ask if it’s possible to vote for something without spending money. The answer is of course, yes. Can we spend money on something without, in effect, voting with our wallets? In other words, can we spend money whilst removing from it all the inherited characteristics it has from the vote? No. If it were the case, consumer boycotts and international trade sanctions would have no power whatsoever as you could happily continue to spend money on something whilst stating that you’re not giving it any support. When you spend money on anything, you are voting for it. Equally importantly, you are also voting for the money in itself. Every transaction using money is a vote for the overall network power of that money.

Commercial banks create 97% of the money in circulation, out of thin air, lending to individuals based on their credit rating. The creation of money is done via double entry bookkeeping in which the bank creates a liability on their own books that is simultaneously an asset that generates interest – the plus of the credit exactly cancels out the negative of the debit. The credit score of an individual is based on a collection of facts gathered by credit agencies that appraise the individual’s ability to accrue money and service their debts. The loan is created when the bank purchases a security or promise to pay issued by the customer when they sign the loan agreement, as the economist Richard Werner deftly explains here. The loan is nothing more than the bank’s record of what they owe you when they purchased the security.

This rating or valuation of a bank customer seeking a loan is a reversal of the normal dynamic of customers rating products, as seen for example in star ratings on e-commerce platforms. The customer of a bank is also a product, rated by a credit scoring agency, whose ability to generate value through their labour is then purchased by banks via money that they create from nothing. The person desiring a loan has to sell themselves to the bank.

This dynamic of large scale money lending by commercial banks does not lend itself easily to the voted money dialectic, as there is no direct human decision in the rating system, which is essentially a vote of confidence in an individual’s market value. The credit agency pre-calibrates the vote for the individual borrower based on an algorithmic measure of their success in exchanging their labour and products for money in the labour market and their ability and willingness to service the interest on the loan. This vote does not care about the beneficence or goodness of the debtor or the real value or social or ecological desirability of the enterprise that the money issued will be spent on, only that the debtor can keep paying, regardless of the cost.

At best we might say that the vote incorporated within money is voting for more money. In this way it can be understood as money voting for its own increase. As they are entirely removed from real living human values, these credit rating votes are the closest thing we have to a psychopathic artificial intelligence directing society. Or perhaps it is money as grey goo, replicating itself across the earth and eating up people and the natural world, leaving devastation in its wake.

A Central Bank committee takes a vote on whether to raise interest rates or sell securities in open market operations. The vote succeeds. The raising of interest rates makes credit more expensive and contracts the money supply as people borrow less and use money to pay off debt. As the selling of securities proceeds, the Central Bank holds the money taken in exchange. These votes remove money from circulation. The vote can also be used with a negative effect against money in mind, to destroy it or remove it. Even though the money is ‘held’ by the Central Bank, the main purpose is not to store money but to effectively remove it from existence. As the bank can create money from nothing but a decree, holding any amount of something it can simply create from nothing makes no sense. The money is returning to nothing from whence it came.

Within the voting framework of the International Financial Institutions (IFIs) of the World Bank and the International Monetary Fund (IMF), each nation state has a share of voting power. This is split between what are called ‘basic votes’, which are apportioned equally to all nation state members, and ‘share votes’. Share votes, or Special Drawing Rights (SDRs) in the case of the IMF, can be purchased in exchanged for money. The IFIs and their subsidiaries apportion votes to their members based on varying formulas that all share the same ultimate result, that the voting power of basic votes are completely outnumbered and overpowered by the amount of shareholder votes. The balance of voting power is overwhelmingly based on money.

This is the first fundamental corrupting error in the relationship between money and the vote in the current political economy. Votes must not be bought by money. If votes and therefore voting power can be purchased by money, then in effect they become indistinguishable from money, and democracy becomes indistinguishable from plutocracy. The essence of a plutocracy is a system in which money has ultimate power over the vote and is essentially money voting for its own increase.

Developing and transition countries have almost 80 per cent of the World’s population, provide 75 per cent of IMF income, are subject to 100 per cent of IMF programmes yet only have 36 per cent of the votes on the IMF board. – World Development Movement: Denying democracy – How the IMF and World Bank take power from people

IMF and World Bank loans come with conditions in the form of policies which debtor nations are obliged to vote for and implement in order to receive the loan. These conditions are effectively purchasing voting decisions on economic policy with money. If the alternative to not voting is for IFIs to asphyxiate your country’s economy, there is not much of a choice, unless you have the balls to implement a secret plan to create your own money.

Again, the aim of not just the policies implemented but the way they are voted for is to maintain the power of money over the vote. This is the second fundamental corrupting error in the relationship between money and the vote: voting decisions must not be bought by money. Private citizens or their representatives exchanging their votes or voting decisions in public elections or legislative votes for money is considered fraud, but that is exactly what is happening with the IMF, the World Bank, and the legislative assemblies that vote to take IFI loans in exchange for implementing IFI policies.

Government

Within the current political and economic framework there a number of paradoxes in the relationship between voting and money in terms of whether taking money in exchange for votes is considered illegal, fraudulent or corrupt. Much distinction can be made by stating that votes cannot be exchanged directly for money but instead can be pooled together wholesale and money can only be exchanged once the democratic process has finished, winners are announced and any re-distributive policies are enacted.

Casting your vote in an election, no matter who gets in, gives power to a government over the use of a country’s treasury through taxation and spending. These votes transform into power over collective money and conduct money from a collective pool to subsidise individuals or enterprises. The key distinction here is that votes conduct money to direct towards an end other than a direct monetary exchange as reward for the voter. The vote to direct money is a vote for the realisation of the vision or the enterprise being voted for, not an economically selfish vote for immediate monetary reward, such as a corrupt election in which votes for a political candidate are illegally purchased from voters by that political candidate in exchange for money.

Despite the distinction above and the attempt to remove corruption of votes by money via the filter of the democratic process, there still remains ample possibility for entirely legal voting for direct monetary reward within democratic institutions. Before the expenses scandal and creation of IPSAMembers of Parliament could vote to award themselves a pay rise. Kent County Councillors  recently awarded themselves a 15% pay rise, against an independent recommendation of 1.5%.

As well as positive votes assigning money to individuals or enterprises, negative votes also occur within government. A parliament can take a vote to impose economic sanctions on another country, preventing trade and certain financial transactions. They can vote to reduce the amount of subsidies given to certain industrial sectors, freeze the pay of public sector staff, cut the amount of benefits given to disabled benefit claimants, or reduce the amount of short money given to allow opposition political parties to operate. These votes remove money from circulation.

Law

This series of blog posts is an attempt to discover what could be called the de facto ‘natural law’ in the relationship between money and votes, the axioms that define the bounds of their interoperation outside of which they could no longer be rightly classed as money or votes, or which, if they are not observed, throws their relationship out of balance and leads to poverty, dissolution and plutocracy.

Law (which includes computer code as Lawrence Lessig observed) is the interface upon which money and the vote interoperate. The rules of the interface can in turn be altered by the usage of votes and money within it, such as through grassroots democratic campaigns, corporate funded political lobbying that influences democratic representatives, or smart contracts coded into decentralised applications stored on the blockchain.

In liberal democracies laws are passed by a series of votes that among other things determine the rules around how voting operates and how money is governed. Central Banks operate independently of the legislature but just as this arrangement was relatively recently brought in by an act of law, it could also be changed by an act of law, and so primary legislation voted on directly as bills of law and the votes that pass them are still supreme.

The application of law in trials by jury is determined by juries voting on a verdict. Punishment for crimes often includes a monetary fine, so that the votes of the jury conduct money from one place to another, without the jurors having any direct involvement.

Votes can actually be cast whenever you want. You can cast one now – for example you could stand up and say ‘I vote for fracking to be banned worldwide’. The only problem is that there’s no system or network of laws in place to count it. Even if everyone in the world who wished it stood up and said that they were voting to ban fracking, and this turned out to be a majority, it would make no difference. You might as well shout into a well.

However, if enough people hold the belief, communicate and act in a network, the de facto natural or axiomatic law is of a higher order, as the recent referendum in Catalonia showed – it was carried out despite it being illegal, and returned a result. The police, enforcing the law de jure, tried to stop it, but they could not. De facto natural law, the power of creativity, adaptability and cooperation built upon interpersonal trust and directed at a shared objective, is more liquid and more powerful than de jure enforced law, which can be thought of as law that retains the power of an oligarchy through force.

Spanish police remove ballot boxes full of votes from the 2017 Catalan referendum

However, if enforced de jure law does not change in response to de facto natural law, the change involved is only effective up to a point. The action of de facto natural law, of natural agreement, rule setting, creativity, and cooperation between people, must be allowed to either remain in and create its own culture or lead to a state change in de jure enforced law. If either of these fail to occur,  de jure enforced law, usually imposed non-locally and from a higher and less populous legal office, will simply reassert itself through violence or incarceration, or if this is not possible due to the sheer numbers of people in agreement through de facto natural law, can do so by just waiting out a stalemate in which it has the veto position.

As well as voting whenever you want, you can also issue money whenever you want. Try it. Write on a piece of paper ‘IOU 10 ultradollars’. If you give it to someone and they accept it in an exchange, you have just issued money. This is exactly what you are doing when you take a bank loan, and the bank gives you legal tender in return. The only difference is that by de jure enforced law you must accept legal tender in lieu of payment, whereas you are free to reject an offering of ultradollars (you fool). If your friend accepts the ultradollars, then uses that promissory note to pay someone else, who also accepts it, and that person in turn pays you, and then you in turn pay your first friend back, you have created a mini version of our fiat money system, in which a single promissory note was issued, circulated and drove activity. The de facto natural law that allowed the issuance and acceptance of the money was trust, or faith, in another person, that their word was good, and the overall trust in the network created by that interpersonal trust and by the rules of exchange. As stated above, every transaction using money is a vote for the overall network power of that money as well as whatever the money is being spent on. It is the network of votes behind money that gives money its power.

One of the most famous and successful issuances of community money was the Wörgl Experiment in Austria, in which the Mayor of Wörgl, the marvellous Michael Unterguggenberger, arranged for the provision of community money based on Silvio Gesell’s ideas of demurrage. The decision of the issue of the money was put to the Wörgl Welfare Committee in a decisive session after the Mayor had already consulted with each member of the committee individually. Presumably, although I cannot find evidence of this, the issue was decided on by a vote, which was the agreement on the rules of demurrage that would govern the Wörgl currency. The experiment was shut down after a court case brought about by the Austrian Central Bank, who wanted to reassert its sovereign ability to create money. The eyewitness accounts and interviews with the people of Wörgl at the time make for fascinating reading.

Another experiment in money created by de facto natural law and shut down by de jure enforced law was Social Credit, created by Major Clifford H. Douglas, not an economist, but an engineer. In Canada a party espousing his theories, the Alberta Social Credit League, actually got into power after a shock landslide vote, but the bills intending to implement some of the Social Credit policies were blocked by federal and commonwealth judiciaries and refused Royal Assent by the Lieutenant Governor John C. Bowen. At one point the Lieutenant Governor threatened to use his reserve powers to sack the entire Social Credit Party from government. This would have triggered another election in which the Social Credit Party would have been voted back in, and was thus a stalemate between the power of de jure enforced law invested in the high office of an individual and the de facto natural law vested in the power of the vote in the hands of the wider population.

The history of early American currencies during the colonial period and the various British Currency Acts that were imposed to control them is another good example of monetary systems created by local de facto natural law being destroyed by a distant sovereign power via de jure enforced law. The history of the use of wampum is another good example, and the other uses of wampum, not least in its use as a legal language to record the Great Law of Peace.

To sum up, law operates primarily through limiting whose voices can be heard by limiting whose votes can be counted and whose issue of money can be recognised. This law is borne by every individual within a particular culture, and can be changed by the power of the word.

The next part of the essay will focus on the relationship between votes and money in the area of Commerce.

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