In no civilization is city life evolved independently of commerce and industry. Neither antiquity nor modern times show any exception to this rule. Diversity of climates, peoples or religions is as immaterial as diversity of eras. It is a rule which held true, in the past, in the cities of Egypt, Babylonia, Greece, and the Roman and Arab Empires, just as in our day it has held true in the cities of Europe, America, India, Japan, and China.
Its universality is explained by exigence. A city group, in fact, can live only by importing its food-supply from outside. But with this importation must correspond, on the other hand, an exportation of manufactured products constituting a counterpart or countervalue. Thus is established, between the city and the surrounding country, a close interrelation of services. Commerce and industry are indispensable to the maintenance of this reciprocal dependence; without the first, to assure a steady traffic, without the second, to furnish goods for exchange, the city would perish.
— Henri Pirenne, Medieval Cities: Their Origins and the Revival of Trade, tr. Frank D. Halsey (Princeton, 1952) p.130-131.
Recently my residential property tax assessment arrived from the City of Edmonton. I was pleasantly surprised to see that it was actually three dollars lower than last year’s. Meanwhile, a friend received his business property tax assessment and found it had increased about twenty-five percent over the previous year. As a note, my friend’s business is a very small business with (apart from himself) one full-time employee and two part-timers. His small shop provides local products to the local market employing local people and is owned by a local person who also pays residential property tax locally on his own home. This friend is the epitome of “buy local”, “shop local”, “support local”. He is also the quintessence of true “Capitalism” and an example of the fundamentally “bourgeois”. And, if you are one of the 30% or so of Edmonton’s workforce who work for the Government (in healthcare, education, the civil service, or in the government-grant-supported arts), my friend and people like him are paying your salary.
There is no such thing in civilized society as self-support. In a state of society so barbarous as not even to know family cooperation, each individual may possibly support himself, though even then for a part of his life only; but from the moment that men begin to live together, and constitute even the rudest of society, self-support becomes impossible. As men grow more civilized, and the subdivision of occupations and services is carried out, a complex mutual dependence becomes the universal rule. Every man, however solitary may seem his occupation, is a member of a vast industrial partnership, as large as the nation, as large as humanity. The necessity of mutual dependence should imply the duty and guarantee of mutual support . . .
— Edward Bellamy, Looking Backward, chapter XII, 1888.
Pretty much all of us pay various forms of taxes and in return, of course, we all gratefully receive public services and infrastructure. To describe things very simply, those public services and infrastructure are bought with the revenue raised through taxes. And some of us, the above-mentioned 30% or so, get our wages or salary out of that same tax revenue in return for providing those services to, or building and maintaining that infrastructure for our fellow citizens. That seems a fair description, doesn’t it? Sort of?
But . . .
Let’s pretend there are 1000 people in the world, 30% government workers and 70% Bourgeois Capitalists and their employed proletarians. Furthermore, we’ll pretend each Government worker is paid $10,000 and pays 10% of that, $100,as taxes. That’s $30,000 in tax revenue contributed from workers with a combined income of $300,000. But that income comes directly from Government revenue. Clearly, $270,000 of Government revenue has to come from somewhere else, and that somewhere else must necessarily be the 70% of the population, 700 people, who are Bourgeois Capitalists and their employed proletarians. On average then, the non-Government workers and their employers will have to pay over $370 in taxes, *just to pay the Government workers wages and salaries*. Why would anyone chose to start a business? Indeed, why would anyone chose to work in the private sector?
And, really, when you sit down and think about it, even ignoring (sort of) the public/private split, how is this whole economic system in any way sustainable?
(the following is really just a rehash of a bit of Classical Social Credit)
My Bourgeois Capitalist friend is in debt and some months just breaks even after dealing with expenses. He and his (government employed) wife are managing to make mortgage payments on their modest house in a working-class neighbourhood — they have no extravagance. He pays his three employees a little better than minimum wage. Each employee, including the Bourgeois Capitalist, produces in an hour an amount of product which retails for more than his hourly income. This is as it must be as it is a vanishingly rare product that has the cost of labour as its only production cost. Even if profit were ignored, there must always be other input costs. So, like pretty much everyone in the private sector, each worker produces more value than he can afford to buy. If the workers cannot afford to buy that which they produce, who can? An external seems necessary for all the widgets the private sector produces or there must someday come a collapse of either price or economy. If the price collapses to an affordable level, the widgets will be priced below cost, and there will come a more general collapse. But in today’s interconnected world, where can this outside market be?
Is this necessary “external” market provided by the public sector and public sector employees? Perhaps, in the short term. But remember, the buying power of the public sector is nothing other than tax revenue from the private sector. The public sector is, in a sense, a somewhat parasitic appendage of the private sector. But, to be kind, each public sector worker, we hope, produces more value in services and infrastructure, than that worker can afford to buy on her salary. Just as the private sector can’t afford to buy all the widgets he makes in an hour, the public sector worker can’t afford to buy the bridge she helps to build.
With the ever growing interconnectedness of the global economy, there are really no longer true external markets: the global workforce of consumers produces more widgets than it can collectively afford to consume. Why do so many Canadians carry more debt than they can reasonably hope to pay off? Maybe because so many Canadians can’t afford to buy what they produce and so must borrow.
How has this continued so long? Can it be our whole economic system is nothing other than an exceptionally long-lasting financial bubble. Or, less generously, a multi-generational Ponzi scheme?
Han-headed Cathay saw it first,
Bright as brightest solar burst;
Whipped it into boy and girl,
The blinding spiral-sliced swirl:
And Yin . . .
Hegel saw it, saw it clear;
Jackal Marx drew near, drew near:
O’er his shoulder saw it plain,
Turned it upside down again:
and Yin . . .
–Frederik Pohl, “The Midas Plague”, Galaxy Science Fiction, April 1954, p. 32.
“Long live the Communist Revolution!” I hear some of you yelling at the back, and I read some similar cry on the malignancy of Twitter nearly every day.
But is that a serious solution? Surely things called Communism have been experimented with. Yes, Cuban health-care has been marketed well around the world, but some of us are old enough to remember Peter Fechter lying beside the Wall. I once had a dedicated Marxist-Leninist professor tell me that Soviet-style and even Maoist Communism weren’t “real” communism — that the only “real” experiment with communism was Hoxha’s Albania, and he held it up as a glorious example Canada should follow. I suspect that none of you, if you had any awareness of Albanian history, would choose to live in Hoxha’s Albania instead of 21st Century Canada.
Whatever -ism we use to describe the “system” by which our economy is organized, I don’t quite see how we can avoid real functional elements we might call, “labour”, “production”, “consumption”, “management”, and, yes, “Capital”. And, whatever its limits, there will be a good deal of dissatisfaction if there is not “Growth” of “Markets”. If there is not growth, however equitable the distribution, in very short order none of us will be able to afford to consume what our labour produces. And the bubble that began to expand with the growth of mercantile cities in Late Medieval Europe will finally burst and we will be forced into something like a barter economy. While I fully realize many vocal persons on social media and elsewhere think a simple barter economy an attractive and nostalgic solution, I doubt many of them would truly enjoy living in a Medieval world. And a barter economy didn’t produce smart phones or the xanthan gum that makes their gluten-free, egg-free, vegan bread possible.
What is the answer?
How would I know? I’m just another Bourgeois in my ivory tower. But since you ask, I don’t think there are any easy answers, and, I kind of have a feeling we — especially you Basic Income campaigners — would do well to revisit the thoughts of a British engineer by the name of Clifford Douglas. But there’s a fair amount of mathematics involved in that. And math, like Revolution, is hard.
But not hard like understanding the world’s money supply . . .
When we start talking about money supply, we have to talk about fractional reserve banking, and then the mind-bending headache really sets in. Fractional reserve banking may well be a contract with the Devil.
“Zu wissen sei es jedem, der’s begehrt:
Der Zettel hier ist tausend Kronen wert.
Ihm liegt gesichert, als gewisses Pfand,
Unzahl vergrabnen Guts im Kaiserland.
Nun ist gesorgt, damit der reiche Schatz,
Sogleich gehoben, diene zum Ersatz.”
— Goethe, Faust, Part II, Act I
But the magic (slight of hand?) of fractional reserve banking is stunning! And I, for one, have a strong feeling that fractional reserve banking is the single pillar — a pillar of blind faith and/or ignorance — supporting the inconceivably heavy roof of the bubble we live under.
On a spring day more than 5,000 years ago in the Mesopotamian city of Ur, a foreign merchant sold his wares in exchange for a large bundle of silver. He didn’t want to carry the bundle home because he knew he’d be back in Ur again to buy grain at the end of harvest season. Instead the merchant walked to the local temple, where valuables were often stored, and asked the priest to hold onto the silver for him. . . .
“Breaking the Bank”, Alexander Lipton and Alex “Sandy” Pentland, Scientific American, January 2018, p. 28.
In brief, fractional reserve banking creates concrete value-added through a more efficient use of money. I have cash I’m not using at the moment. Need capital to open a pie booth at the farmer’s market and to make a lottery deposit for your new play at the Fringe Festival? Use my cash and pay me back before I need the cash to start my new coffee roasting place. When the fractional reserve banking is finished there’s a new coffee roasting joint, a new pie booth at the farmer’s market, and we’re enjoying a new play at the Fringe. Concrete value added to our community. If I’d had to sit on my cash we’d just be roasting coffee. No play. No pies. Less value. A poorer community.
Could it be that fractional reserve banking is what lets us consume all the stuff we produce even though we aren’t paid enough to afford what we make?
Well, yes, perhaps mainly because governments and businesses and most private individuals avail themselves of the value-creating opportunities of fractional reserve banking. Those private sector tax payers don’t have to pay much of the salaries of government workers because governments borrow money to pay workers, borrowing from the worker’s own assets as often as not. And businesses do the same. And when my bourgeois friend makes his mortgage payment each month, he’s paying back money he’s borrowed from himself, and from his employees, and from every person with a bank account. We’re all shopping with money borrowed from our bank accounts and from the future and that’s all just fine — in fact, it seems to be the wonderful source of the amazing science fiction world we live in — but look out, brother, if we all decide to cash in our savings on the same day!
Pirenne, writing in the early 20th Century, concluded that “The antagonism between capital and labour is . . . as old as the middle class” (p. 154). But who is it in more recent, social-media fevered days, that cries out against capital and embraces the cause of labour? Who, too often for comfort, throws twitter stones through the windows of business, both small and large, local and global, willy-nilly? It is a rare person in Canada who is not living on capital leveraged from their own future capital, or intends (perhaps without full understanding) to one day soon be such a bourgeois, home-owning petty capitalist.
But few of us are interested in quitting working for others in order to invest our (usually meager) savings in a personal business making widgets we hope will interest the public. Instead, without realizing that we are ourselves Capital, we rail against Capital while continuing to play at being the proletariat. And we in the West do this while consoled to varying degrees with the comforts and protections of the Welfare State that has developed for most of us over the course of the last century. This isn’t the world of Marx and Engels, of Lenin and Hoxha. We live in a world of fiat currency, not of the gold standard. We live in the world envisioned through a fog by Goethe and Clifford Douglas and Robert Heinlein in his early days. We live in a world of imaginary money that buys more and greater real things than ever could have been produced at any other time in history. And we live in a world the workings of which few if any understand, of dangers we can little imagine, and of unprecedented feelings of entitlement, unprecedented levels of misinformation and ignorance masked as knowledge and wisdom, and of unprecedented ability to communicate masses of sophistry to vast numbers of minds aching to be filled with something.
Reality is hard. The world is difficult.
Nothing will change that.
But we really should make the effort to understand how things actually work .
Go ahead and dream of utopias — but not all the time!