Thinking about capital.

Here’s a way to clarify some aspects of money creation and capital. Let’s assume we decide to build a railway to Darwin. All the materials and labour could be supplied from within Australia. The government could simply pay all workers and contractors by printing money, i.e., cheques, (and if anyone was worried about this the government could promise to collect that amount of money later from the fare and freight income the railway generated when it started to function, and burn it.) This is how lots of things have been financed, i.e., simply by getting the necessary inputs together via an arrangement to pay for them later out of income the venture will generate. In a situation where the country (or region or town) has within it the necessary productive inputs for a venture no capital needs to be borrowed.

Money should be thought of primarily as an accounting device. You can’t build a railway with money. You need steel and cement and workers. We have all these. All we need to do is to organise their application to this task.

A LETSystem makes the nature and role of money clear. LETS just enables you to keep track of the value of resources, products, and labour you have provided to others and the value you have received from others.

If a commune wanted a log cabin, and possessed labour and a forest, would it make sense to borrow capital to pay a contractor to purchase and cut the forest and hire their labour to build the cabin, and then pay the lender of the capital twice as much as was borrowed (the interest repayments on large borrowings are often equal to the amount borrowed)…when they could just organise themselves to cut the logs and build the cabin for half that total outlay?

What then is the sense of a government borrowing "capital" from some very rich people, mostly living overseas, to pay for the blue metal and the labour, and then giving back to these people in interest maybe twice as much as was borrowed…when the money is in effect only going to be used to bring about the application of Australian resources to the task of building the railway. This is the capitalist way of getting things done. It is fabulous — for the very few with most of the capital. Whereas we could build the railway without paying them anything, the normal way of doing things like building railways ensures that when we spend a lot to get something like a railway we in addition pay them about as much as the railway cost, for doing nothing that is necessary for its construction.

Obviously Australia's capacity to build things depends on how much cement, steel and labour it has available, not on how much capital or savings we have. (Of course if some inputs must be purchased from overseas the situation is somewhat different.)

Consider the implications for Third World "development". Most of the people in the world are condemned to savage deprivation because they lack development of the relatively simple things that could provide all with enough clean water, food, shelter etc. "Development" has been defined solely in capitalist terms, i.e., it is only thought of in terms of getting capital to invest to build things that will make more money than any other possible target for the investment. Therefore things that will produce urgent necessities can't be developed, and development will only be of factories and plantations to export luxuries to the rich, because these will maximise the returns on the investment of capital.

So the only development that takes place is development that is not only totally inappropriate to the needs of the people, but which draws their land and labour and forests into producing for the benefit of rich consumers and shareholders far away. Development of any other kind is ruled out because it is taken for granted that development can’t begin without capital and you can’t expect to be able to borrow capital unless you agree to pay the capitalist about as much in value as the value of the development you are undertaking…which means the development can only be of high priced items for richer people.

But most if not all Third World countries have just about all the land, labour, stone, trees, skill, tools etc they need to construct for themselves all the farms, houses, health clinics, water supplies, edible landscapes etc that would easily and quickly produce just about all the things all people need for frugal but very satisfactory lifestyles. And these inputs are currently unused, … much productive capacity is condemned by capitalist development to lie idle; only the developments that suit capitalists are undertaken, and if it doesn’t suit them to develop anything in far away Tuvalu then its considerable productive capacity just sits there while people go without what it could be producing.

In general Third World people need to borrow little if any capital; they just need to organise for their available productive capacity to begin producing basic items. This would have to involve setting up a simple accounting system like LETS whereby those who contributed inputs, such as labour, can be paid later with an appropriate proportion of the produce. A government could easily print notes to pay for the inputs, and accept them in payment of rates and taxes.

Note that it is a serious mistake to regard the present neo-liberal or economic rationalist i.e., capitalist, system as irrational. It is a gloriously efficient, effective and rational system…it works like a dream…for the rich few who own most of the capital. The fault, the mistake, is on our part…for tolerating it. Note also that the system under discussion cannot be reformed; if we changed it so it did not have its grossly unacceptable effects it would no longer be a capitalist system.


The Simpler Way: Analyses of global problems (environment, limits to growth, Third World...) and the sustainable alternative society (...simpler lifestyles, self-sufficient and cooperative communities, and a new economy.) Organised by Ted Trainer.