WHAT IF MONEY GREW ON TREES?
Asking the big questions about economics
editor
foreword by
At a time when the banking system seems to be failing and the whole idea of capitalism appears to be up for debate, What If Money Grew on Trees? challenges a team of experts to put their minds to 50 speculations on economics. The questions they address turn accepted concepts on their heads, consider what would happen if existing constants were changed and ask why we do things the way we do.
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Presents 50 sideways views on the world of economics, each one written by a leading scholar
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Thought-provoking speculations engage the reader while conveying the essential basics
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A new way of digesting knowledge that brightens up the dinner party debate
First published in Great Britain in 2013 by
Ivy Press
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Lewes
East Sussex BN7 2NS
www.ivypress.co.uk
Copyright © The Ivy Press Limited 2013
All rights reserved. No part of this publication may be reproduced or transmitted in any form by any means, electronic or mechanical, including photocopying, recording, or by any information storage-and-retrieval system, without written permission from the copyright holder.
British Library Cataloguing-in-Publication Data A CIP catalogue record for this book is available from the British Library.
Print ISBN: 978-1-78240-046-2
ePub ISBN: 978-1-78240-117-9
Mobi ISBN: 978-1-78240-118-6
This book was conceived, designed and produced by Ivy Press
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Publisher: Jason Hook
Art Director: Michael Whitehead
Editorial Director: Caroline Earle
Design: JC Lanaway
Illustrator: Ivan Hissey
Historical text and introductions: David Boyle
Distributed worldwide (except North America) by Thames & Hudson Ltd., 181A High Holborn, London WC1V 7QX, United Kingdom
Contents
Foreword
Introduction
Money
What if we were all rich?
What if money grew on trees?
What if we wiped the slate clean?
What if money obeyed the laws of thermodynamics?
What if there were no such thing as money?
Historical: What if we just keep printing banknotes?
What if gold were worth peanuts?
What if we started a world currency?
Work
What if work were fun?
What if the working week were three days long?
What if jobs came first?
What if teachers were paid more than investment bankers?
What if we were paid what we are worth?
What if we all earned the same?
What if we retired at 30?
Historical: What if the government gives everyone enough money to live on?
What if nobody wanted to work anymore?
What if you needed a PhD to stack shelves?
People
What if ‘irrational economic woman’ replaced ‘rational economic man’?
What if there were such a thing as society?
What if we found a cure for cancer?
Historical: What if we abolish slavery?
What if Marx was right?
What if we paid people for housework?
What if we let anybody live anywhere?
Markets
What if the economy stopped growing?
What if there were no interest?
What if women were in charge of finance?
What if we only imported things we couldn’t make or grow ourselves?
What if houses cost the same as 30 years ago?
Historical: What if tulips are priceless?
What if one country defied the markets?
What if we stopped buying stuff?
What if the bulls and bears were locked up?
Green
What if the world stopped flying?
What if we all had to pay for the damage we do to the planet?
Historical: What if charging interest is made illegal?
What if every village had its own currency?
What if we could only buy fairtrade bananas?
What if there were enough food for everyone?
What if well-being was the main purpose of economics?
What if we all had our own carbon ration?
What if we left the oil and coal in the ground?
Finance
What if car production grew as fast as financial trading?
What if money needed a passport to cross borders?
What if there were no banks?
Historical: What if all money is based on gold?
What if the banks crashed again?
What if we really thought ahead?
Business
What if we banned adverts?
What if there were no insurance?
What if foreign trade was banned?
What if we broke up all the big companies?
What if everyone stopped shopping on the high street?
Historical: What if we fine countries when they misbehave?
What if we relied on the private sector to enforce contracts?
What if we stopped inventing things?
Resources
Contributors
Acknowledgements
FOREWORD
More than four decades ago I was a young mother with very young children. I had never taken an economics course in school or college, but I had a burning question that caused me to seek out the Boston location of the US Statistical Office and pick up a copy of the statistical abstract of the US Census, 1970. I was intensely conscious of the economic value of parenting, home health and nutrition activities, and other kinds of homemaking, and painfully aware of how little society tends to value that work or pay for it. I wondered how much we would have to tax paid work to pay for the absolutely vital caring work. (After many hours poring over my statistical abstract I came to the conclusion it was at least 25 per cent.)
What made me feel as well as think was looking at the statistics for agriculture – seeing the number of farms in the USA decreasing year after year. I remember sitting with tears running down my face, because I knew how much heartache went with the loss of those farms. Irish playwright (and co-founder of the London School of Economics) George Bernard Shaw used to say that it took ‘a civilized man’ to be ‘deeply moved by statistics’. That may be so, but it convinced me – as a relatively civilized woman – that it also took an economist. So, realizing that I was heading inevitably for a career change, I went back to college and became one.
To start with, the question I most wanted to answer was ‘Why don’t our wages reflect the real value of work to society?’ I have also been motivated by a range of related questions, such as ‘How might the economic system reflect our human values better than it does at the moment?’
Since then, I have been a working economist, and have written textbooks and struggled to fill in some of the gaps in our understanding about the things that really matter. The heart of economics needs to be asking difficult questions about the world. This is a book of difficult questions, too, asking ‘What if?’ sometimes about the present and sometimes about what actually happened in history. The answers are not definitive – they are written by a range of people who do not necessarily agree with one another. But they are designed to encourage people to think deeply about the way the world is, and the way the economic system is – and whether it might be different.
The questions cover everything from money to work and beyond, and I hope that reading the book will get people into the habit of asking difficult questions themselves. Why do we believe in money? What choices – or lack of choices – lead us to the work that fills our lives? Why do bankers get paid so much more than nurses? Because the questions we ask are not just the beginning of wisdom, they are also the beginning of change. To quote George Bernard Shaw again: ‘Some men see things as they are and ask why; others dream things that never were and ask why not.’ I might also add: they ask ‘What if?’
Neva Goodwin
Co-director of the Global Development and Environment Institute at
Tufts University, near Boston, Massachusetts, USA, and lead author
of Microeconomics in Context and Macroeconomics in Context.
INTRODUCTION
Economics began with the ancient Greeks, and came into its own after the Scottish moral philosopher Adam Smith published his book The Wealth of Nations in 1776. The next generation or two threw up a whole range of statisticians, political economists and mathematicians who founded the discipline we know today.
But it is a strange discipline, part art, part science – with advocates on both sides. Some economists prefer graphs and formulae; some prefer – as the great British economist John Maynard Keynes put it – an idea that starts with ‘a great woolly monster inside my head’. These days, the emphasis is on the graphs, so much so that in 1999 there was an uprising against economics teaching at La Sorbonne in Paris by students who wanted to be taught in what they called a less ‘autistic’ manner.
The Post-Autistic Economics movement begun by these students had an important objective, which was to make sure that all those formulae and models of the way that money works did not prevent economists from being able to see the real world. They wanted economists to understand the insights that other disciplines, like psychology or biology, can provide about the way people live, behave and spend their money.
The Sorbonne students achieved their objective. There was a government inquiry into economics teaching which vindicated them, and the curriculum was changed. There were also follow-up petitions along similar lines by economics graduates in other parts of the world. However, despite this success, there is still an issue about the way some mainstream economics departments cling to their formulae, allowing them to compromise with the way the real world actually works – and forget that economic history was once full of other possibilities.
So let us dream for a moment that economics was not, as they say, the ‘dismal science’, and was really the barefoot, enthusiastic business that its greatest proponents would like it to be. Let us imagine that you could be an amateur economist, armed only with a notebook and a calculator, going out like Sherlock Holmes to understand a complex world. Because that is what we have tried to achieve in this book.
We have asked a number of economists and economics writers, who come from very different points of view, to do what economists are trained to do, which is to predict and to explain. What would happen if money grew on trees? What would happen if a whole number of shifts occurred in the way that the economy or the world happens to work at the moment? Don’t let us guess the answers – let us have expert speculations by people who have been wondering about these issues for their whole lives.
So that is what What if Money Grew on Trees? tries to do. It suggests what the implications and causalities would be if the world changed and, by doing so, it opens up a series of possible futures. It lets us imagine what the world would be like if things were a little different – or sometimes a great deal different. It takes us out of our comfort zones and lets us see the world in a new way.
It is, as such, a revolutionary book, encouraging, I hope, a taste for change, in a small way. Because if things can be different in the future – and they will be, we can be certain of that if of nothing else – then we might be able to look into the way that things actually happen in the real world, and plan things differently.
But it is not just revolutionary, because all these speculations also carry within them a serious warning. Change never comes just by itself. It carries a whole range of peculiar side-effects and unexpected secondary shifts that might have been impossible to predict if it wasn’t for our economists. The law of unintended consequences has been unleashed here and we can see what it means on nearly every page.
‘Give me a one-handed economist!’ exclaimed US President Woodrow Wilson, complaining about the way that his economists used to answer his questions with the phrase ‘on the one hand… on the other hand…’. That is what unintended consequences mean, but it is also true that traditional economists have tended to guard their predictions with a whole series of qualifications which might protect them if things turn out differently.
The economists writing here, looking at a range of questions – from the nature of money to the environmental limits of the earth – are all one-handed, in the sense that they are straightforward, they mean what they say and they don’t beat around the bush. You may not agree with them – and sometimes they don’t agree with each other – but what you will get is an unambiguous prediction or speculation about the future and the way the universe stacks up when it comes to money, cause by intricate cause.
So I hope that, by dipping into the pages that follow, readers might be able to recapture the pioneering spirit of economics, when people like Adam Smith set out with their notebooks and calculating machines and interpreted the world – as it was and as it might be in the future.
David Boyle
MONEY
INTRODUCTION
MONEY
T he Venetian traveller Marco Polo introduced a chapter in his book on China with these words: ‘How the Great Kaan Causeth the Bark of Trees, Made Into Something Like Paper, to Pass for Money All Over His Country’. Polo marvelled at the banknotes he had seen and described how they worked, enforced by the will of the Great Khan himself. There was no question of whether or not you should accept one of his paper notes – the Great Khan demanded it.
These days, economists describe the kind of money that exists because those in authority say it does as ‘fiat’ currency, using the word borrowed from the beginning of the Book of Genesis (fiat lux, ‘Let there be light’). But then, these days the business of understanding money, let alone defining it, would make Marco Polo’s head spin. About US$4 trillion circulates around the world every day, most of it speculation. Around 97 per cent of the money in circulation is not made up of coins, or even of the banknotes that Marco Polo saw; it is made up of the bytes and bytes and bytes of information that circulate electronically.
We have gone from a period when money was underpinned by gold sitting underneath the vaults of the Bank of England or the Federal Reserve of New York City, which has looked after much of the world’s gold reserves since World War II, to a period when nothing is quite what it seems. For example, now that money is no longer metal or paper, but information, there is almost no limit to how much you can store. It also means that debits and credits are very much the same: they are computer blips, and they are regarded as prized assets by those who hold them.
That slow shift in the form that money takes raises a whole range of questions, and our authors wrestle with some of them in this chapter. What if everyone was rich? What if we wiped the slate clean and everyone started from scratch with no debts? What if gold was worth peanuts or money grew on trees? The chapter also looks at some of the peculiarities in the way we use money today – should we all have one international currency, or would that cause curious side effects in the difference between rich and poor? Should we all have our own local currencies, or would that have peculiar side effects, too? You can test your answers against those of the experts here.
WHAT IF
WE WERE ALL RICH?
Tim Leunig
Being rich is both an absolute and a relative concept. I am rich because I have enough food to eat, decent accommodation – and so on. Many readers of this book will be in the same fortunate circumstances. It would be possible for all of us to be rich in this sense. But being rich is also a relative concept. You could say the rich are those who own paintings by Picasso, who have houses in fabulous locations, such as overlooking Central Park in New York. It is impossible for all of us to be rich in that sense, because these goods or opportunities are finite. A world in which everyone was very rich, and equally rich, would see different people live differently according to their tastes, but all equally well. Those who preferred fine art to speedboats would have the fine art, but not the speedboat. If more people wanted to live overlooking Central Park, skyscrapers around the park would grow taller, and, failing that, other desirable locations would spring up. The ultimate expression of being rich is often to have servants. Yet if everyone is rich, the wages of servants will be very high, and the rich will not be able to afford to hire them for more than a token amount of time. This means that servants’ work will largely be mechanized. This has already happened to a large extent: washing machines, tumble dryers and dishwashers are standard in middle-class homes, so that few people feel the need for a full-time servant. Battery-powered robotic vacuum cleaners that can clean an entire floor on their own, before returning to base to recharge, are becoming more common. Self-cleaning glass will replace too-expensive-to-hire window cleaners, and the same sort of technology will be applied to the inside of baths and other similar areas.
What Then?
By historical standards almost everybody in the world is rich. 200 years ago, few if any people in the world had adequate access to all the following – food, safe drinking water, proper sanitation facilities, health care, shelter and at least a primary-level education. Today five out of six people have these things, and the proportion is growing rapidly. There are people alive now who will probably see the day in which no one meets the classic definition of absolute poverty.
What Gives?
13 Domestic servants as percentage of the working population in the UK in 1900.
0.4 Domestic servants as percentage of the working population in Canada in 2008.
11 Domestic servants as a percentage of the working population in Saudi Arabia in 2008.
What Else?
What if there was no such thing as money?
What if we all earned the same?
WHAT IF
MONEY GREW ON TREES?
Tony Greenham
In a sense, money once did grow on trees. In medieval England the king paid his bills with sticks. Hazelwood sticks had notches cut down one side to show the amount owed, and were then split down the middle so that one half could be used to prove the other was genuine. These ‘tally sticks’ were really just a promise from the king – an IOU. People were happy to accept them for payment because they knew they could use them later on to pay their taxes. Tally sticks were used in many countries, and remained in circulation until the 19th century. Many other items have also been used as money, including large stones on the Micronesian island of Yap. Paper money was first introduced in 7th-century China. Some forms of money, such as gold coins, are valuable in themselves, but tally sticks and paper banknotes are examples of money as a token. If these tokens do not grow on trees, and are not dug out of the ground, then where do they come from? Today, most money is digital in the form of the balances in our bank accounts. But we do not own the deposits in our accounts. Just like the tally sticks, it is a promise to pay, but this time from our banks rather than the king. When the banking system makes more loans, it creates more promises to pay and so increases the amount of money. If too much money is created relative to the amount of exchanging and investing that is happening in the economy, the money will lose its value. But if too little is created, the economy will suffer falling investment and higher unemployment. So it does not matter what money is made of. What matters is how much money is circulating in the economy and how confident we are in its value. We would not be very confident in the value of leaves. As historian Niall Ferguson says, ‘Money is not metal. It is trust inscribed.’
What Then?