Tuesday, June 10, 2014

Debt: Facing the Music

What is music?  An agreement.  What is debt?  An agreement.   They are the same thing. No, they aren’t the same.  Let me explain.  

Music is an activity that people do together based on an agreement about the value of units of time, frequency of beats, frequency of tones,  loudness and dynamics and the intervals between tones in melody and harmony. Of course when I say it that way it seems kind of complicated.  What I’m getting at is that music exists based on human agreement and can’t exist without it.

When musicians play together they must agree to these musical standards and conventions in order to create music rather than chaos.  If the musicians are able to play at the same tempo, same dynamics,  same frequencies, and same harmonies, in effect, play the same song, then they create music together.  What happens when people play music together is a kind of surplus value, that is created when the group agrees to abide by certain standards and conventions.

Before money, which is a kind of handy intermediary between people, lenders lent things and borrowers paid back in the surplus value that they earned over time from utilizing the things that they borrowed. Things were more informal back then so there had to be a lot of fudge factor in the equivalence of loan to debt.  that changed with the invention of unit of account.  You know -“money” .

Nowadays, a  debt or IOU, is an agreement that I am borrowing something that equals an agreed amount of units of value and that I  will pay the equivalent back  plus some agreed upon extra units of value sometime in the future.  The lender agrees to lend the “money” and the borrower agrees to take it and then pay it back later.

With a loan, there has to be agreement or trust between the parties.  If I, the prospective borrower, say:  “ I’ll take your money but I have no intention of paying you back.”  chances are good, that you, the lender, are not going to enter into an agreement. If I have a history of defaulting on my debts, no-one is going to trust me or lend to me.

just as music is made possible by the agreement of the musicians to abide by the rules, debt is ideally about  the possibility of surplus value coming from capital by an agreement between borrower and lender about what is given and what is owed.

Many people, when they say the word “capital”  mean the money needed to get some enterprise going.  “It takes money to make money”  That sort-of thing.  But it’s not the money that creates surplus value it’s the real aspects of capital.

 Money is only virtual.  It only exists by virtue of agreement, and ceases to exist when the agreement breaks down.  Think of wallpapering your house with worthless money and what that says.  

Debt allows capital to be used by someone without having to pay for it now. I, Mr Capitalist, promise to pay you, Mrs.  Investor later, when, presumably I’ve made a profit from your investment.If I as a lender or investor own a debt, it’s because I believe that in the future that debt will generate income.

That’s where money comes into the picture.  Just as a debt represents the promise of future income, money represents the promise of future goods and services.

  If I have money, then I don’t have a thing.  If I buy a thing I don’t have that money anymore.  Thus I hold money because I believe that in the future I will be able to use it to purchase goods and services.  

Is this anything like music? No, because music is a real experience, not just a promise.  Consider songs.  Songs are composed by people and then they enter human society and history.  songs are reproduce-able: other music artists can cover a song, or anybody can sing along with a song.  Some songs are very popular for a generation, other songs like: “twinkle twinkle”  last for generations.  If I can sing in key and follow the right rhythm and melody I ought to be able to reproduce a song so that everyone who hears it recognizes it.  I suppose you could say that songs are a medium of re-creation.  I can pass along a song to others by teaching them or motivating them to learn it.  

Songs are much more than a medium of exchange, they are a medium of shared experience.  I can sing a song with my mother, and both of us can derive deep meaning from it.  I can sing a song in church with the congregation and we will all derive inner strength and passion from singing it together.  

sorry, money can’t do that.  Money is virtual and music is real.  My point here is that surplus value does not come from money it comes from our creativity in using resources and energy to produce goods and services.
Money lowers transaction costs, so it facilitates exchange. It is like adding oil to the gears in order to make the wheel turn easily.   But it has no value in itself.  Music has value in itself: we enjoy it, we teach and learn it, we pass it on, it has social, political,  emotional, and spiritual significance for us.   

Ideally, money as a unit of account, is a kind of messenger that informs us as to how we should organize our wants and desires. But the more debt we carry the more pressure that’s on us to make  more money, and to do the bidding of our creditors independently of what is going on in reality, and the higher the general level of debt the more pressure there is on governments and banks to create money or to favour creditors.

 This is where we find ourselves today.  We have a society where many children believe that the point of life is to grow up and make lots of money.  we have a society where some of the best and brightest go into financial services instead of science and education because that’s where they can make the most money.  We have a global system and global institutions that are about making the flow of money and capital easier, but the protection of human rights and the environment harder.  we have an economy where a tiny minority takes in a huge income and the vast majority barely get by.

someday this will all change and we will realize that money is not a measure of our lives or our happiness. Make music a part of your life, because music adds value by enriching your experience.  The same cannot be said for money.