Hierarchy and money in a global hall of mirrors

by Mary Logan

Many authors have written about alternative forms of money, so I don’t need to canvas the topic. But I’m still thinking about the digitization of money and its role in our current monetary predicaments.  I recently watched a movie about time as an alternative currency, and I also attended a local lecture on time-banking. These thoughts converge for this post about traditional and alternative forms of money as an illustration of the hierarchy of money. Our economic information systems evolve with increasing complexity to match the complexity of our economies.

Digitized money systems at the top of the hierarchy

BIS Pyramid Global Liquidity circa 2007–Traditional economists’ view of money hierarchy

When I google “hierarchy of money” I get some mainstream Federal Reserve publications from traditional economic thinkers that are tightly focused on traditional fiat currencies alone, without mention of qualitative forms of money such as barter, or commodity monies made of metals or other trade goods. We are conditioned to think of fiat systems in isolation from more traditional means of exchange. One goal of this post is to propose a hierarchy that combines both.

In inflationary times, the value of the underlying commodity exceeds the representative value of the money, as is the case now for the copper in pennies and the value of gold in bullion in the figure below. As fiat currencies lose value, governments debase bills and coins through various methods including silver shaving, coin clipping, and substitution of metals.

Brown & Odum, 1997
1911 Poster from “The Industrial Worker”

Digitized and electronic money systems represent the top of a hierarchy of systems of information that has developed over time to buy, sell, enable trade or exchange value. In the US, our government backed the fiat currency with gold until Roosevelt partially debased the dollar in 1934, and Nixon removed the dollar from the gold standard entirely in 1971. The Bureau of International Settlements divides money into a hierarchy of four categories; power money (bills and coins), broad money (checking accounts and digital forms of money), securitized assets, and derivatives. While fiat currencies allow flexibility, control, and more complexity in the system of trade, over time governments debase fiat currencies, so they tend to follow a trajectory from commodity-based money to representative fiat money to failure through defaults or hyperinflation.

Modern fiat currencies only value human economic contributions of goods. Contributions of nature are not valued, as Mother Nature deals in currencies of energy and material flows instead. “Whereas the contribution of environmental resources to the economy is not measured by circulating money, money circulating in the markets increases with the emergy and transformity of the products once they are above a threshold for economic use and processing within the economy” (Odum, 2000, p. 11). At each step of hierarchy

Bezemer & Hudson, 2012 

and increasing complexity in the human economy, value is added and prices increase. At the highest level of hierarchy in financial districts around the world, abstract pieces of paper are far removed from the real world economy that they represent, circulated in city centers in increasingly abstract derivations of value. In the US in particular, the system appears to be diverging into a real economy and a separate, urban iron triangle between finance, real estate, and the government that circulates paper assets within itself to try to sustain its structure as it loses emergy and starts to fail, in a receding hall of mirrors. As is typical, the diagram above by economists lacks energetic inputs so it fails to incorporate the big picture by ignoring the power in the system. But the diagram captures the circular nature of the paper-pushing and transfer of debt now occurring between the government and large, powerful corporations. In the linked paper, the authors also label credit as the engine of growth, when the engine of growth is driven by energy, not money. If you take away the money, most of the economy will reboot and regain function. But if you take away the energy, the economy comes to a screeching halt. Money as the primary driver is a common fallacy among economists, since they fail to consider the importance and limits of energy inputs. This is where the idea that “you can’t push on a string” came from. Loose monetary policy can pull when there are resources to pull from, but it can’t push.

The lower hierarchical levels of money systems consist of historic forms of exchange such as simple barter and gift economies. Most of these are not depicted in hierarchies, and are not considered by economists. Non-monetary societies relied primarily on gift and debt, with barter reserved for more distant trade with strangers or even with enemies (Graeber, 2011). In gift economies, the altruism and selflessness of sharing fostered community by strengthening the bonds of relationships in setting with limited available resources. Gift economies such as potlatches were actually banned by US and Canadian governments at the prompting of missionaries in the mid 1800s through mid 1900s as opposing “civilized values” and perhaps not in keeping with Americans’ virtuous, expansionist “manifest destiny.” The culture of a gift economy has goals in direct opposition to the culture of a growth economy, with cooperation as the goal and not acquisition. Gift economies may promote karma, but they don’t grow the GDP, as Eisenstein points out. These alternative money systems are mostly ignored by economists, but local communities are resurrecting alternative systems as we descend.

Alternative money systems at the lower end of the hierarchy

“In Time” movie, how do we value assets?

The dystopian movie In Time (probably based on a 1965 Ellison short story) is a metaphor for alternative money systems. In the movie, money is represented by living-time, which is displayed on a clock on people’s forearms. Living time can be traded and used as payment for goods and services. Wealthy people are nearly immortal, and poor people die young. Time zones sequester people into hierarchical zones of relative wealth, and Timekeepers police the system and protect the status quo of wealth inequities and the wealth hierarchy. The wealthy control the system by manipulating the dispersal and rules for time, while the poor are obliged to work in factories to repay debts. At the end of the movie, the heroes rob time from the rich and liberate it to the poor, disrupting the hierarchy of wealth. People stop working in the factories, as the initiative to continue the system has disappeared. The message of this movie is that the hierarchy of inequity is part of what perpetuates our system. Breaking down that hierarchy could be an important step in reversing capitalism’s goal of growth and inherent inequities. While hierarchy is a natural energetic ordering of systems, and a new system will need some sort of hierarchy, deconstruction of the old way comes first. Smaller communities with local moneys will need a simpler system geared towards a flatter, smaller network with different goals of efficiency of energy use and cooperation. Traditional valuations of labor and resources are skewed towards growth and expanding complexity, creating a hollowing out effect of nature. A functional currency in descent must properly value nature within the metric.

Money is borrowed into existence when banks make a loan to someone without having backing for it, so it is useful during periods of growth. Modern banks are allowed to loan out more money than they hold in deposits. Restrictions have been removed over time, to the extent that laws for banks require only negligible reserve ratios held for accounts. Systemic debt leverages the economy by funneling money and resources to the upper levels of the hierarchy, sucking the vital juices out of the middle class. Tom Abel describes it well. “All those information forms are still maximizing power, sucking in the last remaining big resources, maybe within my ‘enclaves of capitalism’. As we extend our debt to the future by expanding debt-based money, we create an increasingly inequitable and unsustainable economic information system. Our politicians and bankers expand on simple credit or debt with securitization of homes and cars in attempts to extend the growth party without a material basis in expanding resource inputs. In the US, we have maintained resource imports through petrodollar supremacy and financial securitization, creating a global debt empire. In the depicted hierarchies of money below, the central banks have increasing control as the hierarchy builds upwards.

A non-traditional hierarchy of money

In the hierarchy, the upper red zones reflect super-circulation of money in the iron triangle. Complexity builds at each level to match the underlying complexity of the economy:

  • Expanding size of the money system
  • Increasing digitization but decreasing energy transfer, and more dependency on the internet, computerization, and electricity
  • Increasing energy transformity, emergy and complexity
  • Increasing derivation and abstractness, and thus moral hazard
  • Increasing centralized control (IMF, World Bank, central banks, BIS)
  • Increasing circulation in wealthy urban centers, thus potentially impoverishing rural zones and less developed countries
  • Increasingly composed of debt rather than representative currency
  • Increased circulation and convergence on centers of complexity
  • Increasing vulnerability to manipulation
  • Increasing distance from underlying natural resources
  • More illusory value
  • Values of less altruism and more self-interest with accumulation as the goal

Since we are borrowing from a future that is not there, at some point the global system will fail, and many of the advanced upper forms of money and credit will default and disappear, along with some of the corporations connected to them in the financial and insurance industries. Systems based on debt demand future growth and expansion.

Deconstructing hierarchy en route to simpler money?

Local money systems also help to deconstruct corporate/global power imbalances by giving the consumer power to direct their money to small, local businesses. Local money initiatives are beginning to spring up. Hopefully some of these local moneys will be based on emergy or other energetically-based accounting systems that value the real contributions of nature. Emdollars (emergy/money ratio) use an emergy standard to put currency on nature’s terms. “. . . Ultimately we need to put the economy on the same basis as the work of the environment (that is, externalize the internalities)” (Odum & Odum, 1999, p. 22).

We recently attended a lecture on the benefits of a time-bank as a local alternative money system in Anchorage. The description of the process at the Anchorage time bank follows. “Drawing on your time, energy, skills, and interests, you give what you can and you get what you request. For every hour you give helping another member or the community, you earn one time dollar for yourself. You then spend your time dollar as you like on services offered by other members.” Thus, a doctor’s hour of time is no different from a farmer’s. Time banks could be constructed with differing values for people’s’ time, but in this case the exchange of time is equal for all. The equality of hours between users is part of what makes time-banks tax-exempt in the US. This equalization of our traditional labor hierarchy also serves to deconstruct our digital currencies, since there is no hierarchy in a monetary system based on equal exchange of labor that is measured in units of time. In the discussion that followed the presentation on time-banks, some people with higher salaries were resistant to the idea that their time would not be as highly valued as they were accustomed to. Lawyers in particular are used to the idea of billable time with high returns. Instead, “from each according to his ability, to each according to his needs.” No wonder the US government banned potlatches during westward expansion. The Anchorage time bank takes advantage of the networking effects of a digital platform, but timebanks are probably even more effective at community building in smaller, simpler face-to-face community settings such as “talking circles.” 

Time banks deconstruct our current money hierarchy in a number of ways that could help citizens during economic hard times. Odum suggests policies useful during transition to sustain the climax of civilization that converge with the communal goals of a time bank:

  • Maximize empower through high-diversity, efficient cooperation
  • Change industries concerned with new construction to maintenance
  • Reduce borrowing to that concerned with replacement (not growth)
  • Hold money supply constant
  • Don’t expect much unearned income from interest and dividends
  • Provide public works programs for the unemployed
  • Provide part-time jobs for the retired as long as health permits
  • Place a ceiling on individual income
  • Share information without profit
  • Develop a national campaign to respect people by their service, not income (Odum, 2007, p. 388)

Timebanks deconstruct the values promoted by current monetary systems, so they could create fallow ground for new monetary systems to emerge based on other values than pursuit of wealth. I am fairly busy already, so I am concerned about obligating extra time to this time bank. Since my husband and I have a lot of skills, we will probably give more than we receive. But isn’t that the point of an altruistic system? Resilience in the interim demands obligations to both the old system and the new as we build a new sense of community. And change also requires a leap of faith and a commitment. I’ll keep you posted on how it works out.