Why everything you thought you knew about money, debt and austerity is wrong

Why everything you thought you knew about money, debt and austerity is wrong
Shadow banks, odious debt and the Euro fairytale — The Greek crisis has pitted people against the “laws” of economics. Documentary Money Puzzles exposes the myths at the foundation of neoclassical economics and goes in search of the reality on the streets of Athens, Argentina and the City of London.

Watching Germany and the EU give the Greek government another humiliating lecture on debt, austerity and growth, you’d be forgiven for thinking the economic “laws” they refer to were as unshakeable as the laws of physics. But what if their brutally concrete economic theory is all built on the shakiest of foundations, the shifting sands of mythology?

Documentary Money Puzzles by academics and filmmakers Lee Salter and Michael Chanan sets out to shatter our illusions about the nature of money, debt and austerity – and expose how much of the debate following the financial crisis is based on myths about human history. It adopts the same micro-budget, guerrilla style that freed them from constraints and allowed them to go for the jugular in their in their exposés of the UK’s corrupt media and financial centre in The Fourth Estate and Secret City.

As Greece continues to swallow the Troika’s prescribed medicine and grows more sickly with each dose, Lee and Michael have hit Athens to expose the suffering inflicted on people by flawed economics and search for the creative alternatives being developed by the grass roots.

They’ve launched an Indiegogo campaign to fund further shooting in Argentina, which defaulted on its debt to recover within years; Ecuador, which has resisted financial imperialism and is launching an alternative government-backed digital currency; Spain, where PODEMOS is developing innovative solutions to the crisis; Greece and the UK.

Lee spoke to us from Athens about shadow banks, odious debt and solidarity on the streets.

How will Money Puzzles present a different perspective on money, debt and austerity?
At the last election the UK Green Party’s Caroline Lucas referred to the “economic illiteracy” that underpins austerity politics. On the one hand, she’s correct: the plans by the Conservative government will do nothing to alleviate economic problems but will rather exasperate them. But on the other hand, mainstream economics itself is economically illiterate! There is a clear plan to use the crisis to push down wages in order to increase profitability for multinationals and large UK businesses. It creates a central paradox: if we have a consumer society but consumers are both loaded with debt and on low wages, then how can they continue to consume at a rate that will make the economy grow? Furthermore, when we start to look at money, we see even more deeply how flawed the austerity agenda is.

Perhaps the most important work on economics in recent times is David Graeber’s Debt: The First 5000 Years. Graeber, an anthropologist, makes a crucial point – economists themselves don’t understand money. From Oxford to Harvard, the education of economics students is based on a myth, the myth of barter. They are told that at some stage in history people exchanged goods of roughly similar worth – say, three potatoes for a bag of flour. When that became a little tiresome, some bright spark decided to invent money, so people didn’t have the hassle of trying to work out equivalent value. But Graeber has checked pretty much every significant anthropological study available – this never happened. Ever.

The myth of barter was invented my Adam Smith, the founder of what we now call capitalist economics a couple of hundred years ago to fill in a gap in his analysis. But no society outside a crisis has ever bartered, certainly not “primitive” ones. If you think about it, for most of human history we existed in extended kinship groups that became communities. People then would no more swap goods then than as a child you’d have bartered your toys with your mother or father in return for dinner. So the first perspective on money is to explode these myths.

Once we think of debt too, it becomes even more curious. Debt existed before money, not vice versa, but debt was a social relation between people. Whilst at times there was some pretty inhumane treatment of those who owed a debt (such as a blood debt for killing someone), for most of human history communities have practiced “debt jubilees”, wherein periodically, or with the ascension of a new ruler or for some celebration, all debts would be forgiven. It is only really with the rise of capitalism that debt became understood as it is today.

Moreover, there are contemporary examples of debt jubilees – most notably when the US demanded that international creditors must forgive Iraq its public debt after the 2003 invasion. Why? Well, in international law there’s the principle of “odious debt”. This means that if a public debt has been built up illegitimately, then it does not have to be paid – in order to overthrow Saddam Hussein, Britain and the US had to argue his rule was illegitimate, so therefore how can his debt be legitimate. So it was the US that successfully called for Iraq’s debt to be forgiven.

And so we must rethink our own relation to debt. Do any of your readers know why Britain has a public debt? Does anyone know who took the loans out, why and for what? Do we know who the debt is owed to?

This is not to say that debt as such is a problem. A mortgage is a debt that for most people is 4-5 times their annual salary. Yet people tend not to worry too much about such a huge debt. So why is it different for a country? After all, doesn’t the government control money? Once this is realised we start to see how fear around public debt is a tool that is being used to force political changes that people would otherwise reject.

So in what sense is debt a problem? Or rather, is public debt the problem or is it something else? To cast our minds back, the crisis in 2008 was reported as a crisis caused by the sub-prime mortgage sector in the US – a fact conveniently forgotten in today’s mainstream media. The whole economic crisis was caused simply by a crisis in capitalism. What tends to happen in particularly finance capitalism is that investors invest in a growth area, that area eventually ceases to grow so profits reduce and the investors go elsewhere. What happened by 2008 is that the profits were being demanded but there was little profitable production, so the investment was sustained on the basis of debt. Cheap credit was handed out and when the bubble burst that money really just disappeared.

This was made possibly largely because, as we explained in Secret City, the City of London has for decades pushed for banking deregulation, and in the meantime constructed a “shadow” banking sector, bigger than the actual banks we know of, but with little or no regulation or oversight. It was this that enabled them to plunge us into a credit crunch and debt crisis.

The response of governments beholden to banks was to simply give money to banks – in the case of the UK banks were given around £1.5 trillion! As most of the corporate media and politicians have vested interests in sustaining finance capitalism, and given the key role of the Corporation of London in determining economic policy (and remember the misunderstanding of economics), there was no significant disagreement among the elites that this was the correct course of action. But who would pay? Whose money would be given to the banks? The poor and working people of course. And so we still have the dominant rhetoric that spending on disabled ramps, education and healthcare caused the crisis. It is one of the biggest and most effectively propaganda campaigns in human history.

What do you mean by the “illusory and contradictory nature of money and debt”?
So we have an illusory view of the origins of money. But we also have an illusion of money, as if a double illusion – pick up a bank note an see what is says: “I promise to pay the bearer on demand the sum of ten pounds”. So that means the bank note is not itself ten pounds. The note is a promise to pay ten pounds. But if the note is not ten pounds then what is? The answer is not “gold”! The other illusion is that money is just coinage and notes. Yet coins and notes constitute around only three percent of money in circulation. The rest is a strange mix.

Similarly with debt. What would happen if there was a debt default – if the UK population said, “Actually, the vast majority of debt has been built up to fund illegal wars, to subsidise tax avoiding companies, and in sweetheart deals with international financial houses, so we’re not going to pay it” – as we were told today in Greece, “I didn’t ask for this debt, and my children certainly didn’t.” As with if one declares themselves bankrupt, it would simply be the case that creditors would not lend willingly. But if a county controls its own currency, as does the UK, that’s not such a problem.

What have been the most important things you’ve learned from your time in Greece? What has the Greek crisis exposed about the real workings of money, debt and democracy?
We are in Greece at the moment and have been listening to a range of people here. The situation is utterly awful. Perhaps the greatest impression so far is that the money puzzle here is about power, political power.

We listened to the Syriza MP and professor of economics at SOAS Costas Lapavitsas the other day. His account of Greece says everything. The Greek oligarchs – their “captains of industry” are, as in the UK, pretty contemptuous of their fellow citizens, and are more interested in their friends in the international elite. So when it was proposed many years ago that Greece join the Euro, they decided to go ahead even though they must have known it could never work.

As Lapavitsas said, it is a system that benefits the major economic powers in Europe at the expense of everyone else. As the Greek economy wasn’t ready, they did what the international banks did throughout the 1980s and 1990s – they cooked the books to make reality look different. So the Greek oligarchs who’d bought the government knew, the banks knew, and most importantly the Eurogroup and the Germans knew this façade had been created.

In the meantime Greece was structurally adjusted to enable profiteering out of public goods – it was plundered. So when the financial crisis hit, the Greek debt became more clearly unsustainable but the government was forbidden from enacting policies that would solve the problem, because it would have potentially destabilised the Eurozone as it stood.

What we saw instead of the financial crisis being sorted out was the same as we saw in 1930s Germany – the construction of scapegoats (immigrants rather than Jews) and the rise of far right (neo) Nazi groups. Golden Dawn, like Hitler’s mob, tried to turn people’s frustrations against the weakest, and of course achieved nothing.

When Syriza was elected, things changed massively. One of the first things that happened was that the police were taken off the street, and some degree of liberty returned. Next they started making alternative economic proposals – largely to reduce debt payments. Now, this is crucial – the debt built up by the Greek oligarchs is such that the country is hardly able to make interest payments, let alone pay the principal sum. So all this nonsense about an EU “bailout” is part of this big lie – the money from Europe would go straight back to the banks that caused the problem in the first place. Imagine that in any other sector – the victim gets punished over the perpetrator!

The conditions to get this “bailout” were to destroy the people – reduction in pensions, extending the working life, tax cuts for the rich, higher taxes for the poor, and the sale of state assets. As Lapavitsas said, it is a recipe only for recession! It’s unsurprising that a condition of clamping down on tax avoidance wasn’t part of the deal, and it is perhaps equally unsurprising that the biggest tax avoider in Germany is a company called Hochtief, which runs Athens airport! Similarly it is unsurprising that Greece wasn’t told to spend less on its military spending, which is much higher than, say, the UK’s, given that Germany is the largest military supplier to Greece!

So they held a referendum to see if people would accept further immiseration so that banks could be given more money. Unsurprisingly more than 60% voted no. 80% of young people voted no. They wanted a future that was not debt slavery. Perhaps most importantly they held a debt audit. Whereas in the UK the government led a “comprehensive spending review” to work out which sections of the population to punish for the actions of the bankers, in Greece they decided to find out what the loans were taken out for, why, by whom, and who the lenders were. They concluded that a significant part of the debt was in fact illegitimate and therefore ought not be repaid.

Yet of course democracy is not allowed if it clashes with the interests of finance capital, so this was dismissed and Greece forced to accept the conditions imposed by Germany. The other element to this was that if Greece had been allowed to pursue an alternative that put people first, then so would Italy, so would Spain, so would Portugal and Ireland. This is what the really meant by “contagion” – democracy is catching!

The story is not over, though. Whilst two days ago the Greek parliament voted against the people, the people don’t seem like they’ll accept it – they’ve had a taste of real democracy and seem to want to continue with it.

It has been a phenomenal struggle – to think this little movement grew in opposition to the entire political establishment, to the banks, to the oligarch-controlled media and managed to get most of the population onside. Yet still the international institutions will not relent.

It is not clear yet why the government – or at least key figures in it – capitulated but we hope to get to the bottom of this in the film.

How are you planning to use the crowdfunding money to take you deeper into the story? Who are you planning to shoot with and what are you hoping to learn in Argentina, Spain and Ecuador?
We have made our previous films without money. We are only too aware of how funders, intentionally or otherwise, affect such projects, often acting as constraining forces – money affects film makers as everyone else.

However, given the international nature of this film, we need to raise funds in order to film the crisis in Spain and Greece in particular. Both Michael and I are salaried academics and we do not seek any money for ourselves, so it would just enable us to travel and to pay local people to help us gain access to local movements.

The reason to focus on Greece and Spain is that those countries are at the forefront of resistance to the banks and to finance in Europe. The Greek government at the moment, and perhaps for not much longer, came from a social movement, as did PODEMOS in Spain. What we’re seeing is grassroots movements of ordinary people, who are not prepared to suffer for the banks, affecting political change. At the same time we are seeing the institutionalised resistance to these movements.

Argentina is a country that has successfully challenged the banks, defaulting on its debts and recovering reasonably quickly. Ecuador similarly has broken from the ties to US domination of Latin America, and most interestingly is launching a digital currency backed by the government.

It is true that it is only in crisis that movements rise up to change the world. This is the story of human history. Out of chaos comes change, so we’re hoping to be able to chart this struggle, as well as to show what we expect to be a largely British audience that not only is another world possible, but that it might be emerging right now.

The UK is also a case study, so we’ll be traveling around there a lot too. There is plenty going on all over the UK, but we’re hearing very little about it in the media. Indeed one thing that has struck us in Greece is that despite having a media controlled by an oligarchy that also controlled the economy and politics, Syriza still managed to reach out to people. In part this was because of the gravity of the crisis but in part because of the plurality of the media. We do not have that plurality in the UK, where five companies own most of the media. Moreover the same class structure has existed in the UK for nearly 1000 years, so they have far more effective mechanisms of control that may well take a different strategy to overcome.

Both Money Puzzles and Secret City seem to present the dominant the city/finance as all-powerful. Are there any people or groups you’ve met who are winning important victories against the financial behemoth? What have you discovered in the course of making these films that makes you hopeful for the future?
Just yesterday morning Michael and I went to film a food distribution project near Athens. I don’t mind saying that interviewing the volunteers made me cry, not out of pity, but because these people didn’t blink when they reflected on what they were doing. We were told, it is simply human solidarity, wanting a world where people come before money.

The goodness that I think does indeed exist in most people is crushed by the dehumanising effects of money. I find it very sad, but also infuriating that those at the top know this and seem to enjoy it. Rather, they need it in order to prevent change to a system that places them at the top. It’s so interesting to reflect for example on how crises are depicted in film and in television fiction – when the status quo breaks down, people tear each other apart, roaming gangs inflict brutality on the weak, until the individual hero imposes his order with violence. It’s as if Hollywood uses Thomas Hobbes’s Leviathan as its bible.

But what do we see in actual crises? What did ordinary people do during the Asian Tsunami, during the Nepal earthquake, during such horrific events? They come together, they show solidarity. They don’t ask if people can pay for help, or even barter help, they just do it, instinctively. So by forming solidarity networks, whether food banks, time banks, or unemployed workers unions, people in their everyday actions resist the corruption of money. It is this fact that gives me hope for the future. The question for us in the film is, how can we complement human kindness and solidarity with a neutering of finance?

Find out more about Money Puzzles and support the Indiegogo campaign.

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