A Brief History of Money

An Issue Paper of the Thai Community Currency Systems project

By Jeff Powell

Money. Perhaps no other creation of human beings is so sought after and yet so little understood. How great a misunderstanding most of us have about money is indicated by the failure to appreciate the difference between money and wealth. Many would have us believe that someone who has millions of baht is very wealthy. To clearly see the difference between money and wealth, imagine this same person deserted on an island with nothing but a wooden chest filled with all of their money.

Is this person still wealthy?

Ancient Money

In order to better understand what money is and what role it plays in our lives, we should begin by defining what we mean by the word ‘money’. Simply put, money is nothing more than what is offered or received for the purchase or sale of goods and services. The earliest money came in many forms--cattle, salt, grain, tobacco, whiskey and stones, to name a few. In Southeast Asia, the use of cowry shells (bia) dates back to pre-history.

Traders realised that it was easier to assess the quality and weight of metals than other commodities. References to the use of gold and silver as money can be found in 3000 year old Hindu epics. During the Srivichai period from 850 to 1450 (1400 - 2000 BE) each region in what is today Thailand had its own distinct form of money. In the South, the 'namo’, a coffee bean shaped silver piece stamped with a Sanskrit letter, was introduced via Indian traders. Silver bracelet money ('gamlai meu'), droplet money ('ngoen tork') and Chinese money were all commonly used in the Lanna kingdom in the north; while, in the Northeast, merchants under the influence of the Lan Chang empire, used bar-shaped ingots made of various metals, known as 'hang', 'tu', 'hoy', and 'lat'.

With the emergence of Siam as a modern state, the use of bullet money ('ngoen paduang'), became more widespread. The bullet money, 89 to 95% silver and marked with the stamps of the King, the government and the smith, was known to villagers as 'bent leg' money ('ngoen ka ngor') or 'coiled pupa' money ('ngoen kad duang') due to its appearance. Initially, bullet money was produced by both government and private silversmiths; while the bullet money of the government was supposed to be uniform, the bullet money of the silversmiths varied greatly in size, weight and composition. Various attempts were made to restrict the production of bullet money to government-sanctioned smiths.

After the Bowring Treaty in 1855 (2398 BE), foreign coins began to enter Siam along with the flow of trade. During this period, Mexican, Peruvian, Dutch, Chinese and Indian coins were commonly used. The Royal Minting Department produced the first Siamese coins, known as 'pae' in 1860 (2403 BE). Along with increased usage of coins came the discovery, as had been made in Europe, that by slightly altering the coins--lowering the precious metal content slightly or shaving a little bit off the edge of the coin--enormous profits could be had. Eventually, the Siamese government was forced to re-stamp all foreign coins coming into the country in order to assure Siamese citizens that they were genuine. The use of bullet money was finally outlawed in 1904 (2447 BE) by Rama IV--silver artisans could simply not produce enough bullet money to meet the increasing demands of foreign trade. This coincided with the introduction of both coin presses and foreign-made paper notes to the Siamese Kingdom.

The Development of Banks

In the 16th century, as the silver and gold the Spanish had stolen in their conquest of the Americas poured into Europe, merchants stored their coins with smiths. The merchants noticed that the warehouse receipt signed by the smith was more convenient to circulate than those heavy coins made of soft metals that were quickly worn out or stolen. So the smiths printed up receipts in convenient denominations promising payment in coin to whomever presented the receipt. Some depositors took to writing notes to the smith ordering him to transfer the ownership of some of their coins to someone else. Thus the personal cheque was born.

Then one day one of the smiths had a brilliant--and dishonest--idea. He noticed that people so much preferred his paper money to its gold backing that the precious metal in his vault hardly circulated. So he printed up some extra paper money and lent it out to gain the interest. From this initial deception, it is only one small step to the development of the modern commercial bank.

The story of one of Europe's first banks is very revealing in this respect. The Bank of Amsterdam, established in 1609 (2152 BE), was located in Europe's most important trading port. Amsterdam was also the centre of operations for the Dutch East India Company, the world's largest trading company. The Bank accepted silver and gold coins from all over the world and credited the depositor’s account with the equivalent amount in the standard money of Holland. Initially, the coins remained in storage for the depositor until transferred to another individual or withdrawn. A small charge was paid to the bank for the costs of storage, but no interest was received by the depositor and none of the deposit was loaned out.

The directors of the Dutch East India Company, a very powerful bunch, just so happened to be good friends with the owners of the Bank of Amsterdam. The directors saw no point in allowing the gold and silver coins to sit idly at the Bank, when they could borrow some of it to outfit ships and, then, return what they borrowed, plus profit, before the depositor ever wanted to withdraw their money. The bankers had an innovative idea of their own. If they were going to loan out money, why loan out the gold and silver coins themselves, when they could just loan out the paper notes? (Remember the story of the dishonest smith!)

So now, the Bank of Amsterdam could accept deposits of silver and gold while making loans in paper--paper on which they could charge interest. This arrangement proved very profitable for the bank's owners. At first, they only lent out as many paper notes as they had an equivalent amount of gold and silver in their vaults. But, after some time, they realised that they could loan out as many paper notes as they wanted, as long as their customers did not all come at once to withdraw their deposits of silver and gold. Just like that, money was created. Magical!

This all worked fine until the fortunes of the Dutch East India Company changed. In 1780, the war with England brought heavy losses of ships and cargoes. Word got out that the company would be unable to repay the enormous quantity of loans which it had withdrawn and panicked depositors went in hoards to get their money from the bank. The bank, in a precursor of what was to become a very routine event, eventually went bankrupt. Very few of the depositors got their silver and gold coins back.

For over three hundred years, bankers have been following this original, fraudulent formula for money creation. Lend out as much money as you want and charge interest on it. If cautious, keep some 'real' money (gold, silver or, later, government notes) on hand to calm people down if they come to withdraw their deposits. Or, better yet, don't bother with reserves, make as much profit as you can and then disappear in the night when the inevitable bank run occurs (or, maybe, if you're lucky, the government will bail out the bank with public funds).

This omnipotent power bestowed upon commercial banks explains why foreigners were so eager to set up bank branches in turn-of-the-century Siam. The first banks in Siam were all branches of European banks, beginning with the Hong Kong and Shanghai Banking Corporation, which opened its doors in 1888. The first locally owned bank, Siam Commercial, didn't begin operations until 1906. (Until that time it was common practice for foreign banks to discriminate against Thai borrowers by charging interest rates which were twice that of foreign borrowers). Regardless of ownership, the history of Thai banks is very similar to that of banks in nearly every other country--it is marked by either dizzying profits or catastrophic failures. During the most recent bubble era, banks and finance companies dominated the Thai economic scene, reaping obscene profits. However, by 1997, the government had spent more than Bt 1 trillion in its attempts to keep these same robber barons afloat.

The Birth of the Central Bank

Perhaps one of the most absurd developments in the history of money was the creation of the central bank. In 1694, William of Orange, King of England, was desperate for money to continue his wars with Louis XIV of France. But because he had exhausted his credit in the previous decades of war, and because he was Dutch, English nobility refused to give him what he needed. This is where a Scotsman, William Paterson, comes in. Paterson had a plan to create a colony in what is today Panama, but lacked the money to pursue his hare-brained scheme. So Paterson proposed a deal to the King.

The King was to give his royal support to the newly formed Bank of England, and decree that taxes could be paid with the notes of the Bank. This made the new bank a hot investment prospect because traders seeking loans would be more likely to pay a premium to borrow from a bank whose notes could be used to pay taxes. The original shareholders put in ?1.2 million in gold and silver which the Bank loaned at interest, a quite reasonable 3%, to the King to allow him to continue his war. In return for funding the country's war effort, the King allowed the Bank of England to print an equivalent amount of royally-backed paper notes which could be loaned out to private business people (also at interest, of course!).

The Bank's directors quickly realised what a stroke of genius this was. In return for doing essentially nothing, the Bank of England was collecting interest on both the loan of the original investment capital (silver and gold coins) to the King and the paper notes to the business community! (Incidentally, the Bank's Directors never let Paterson have a cent for his crazy scheme to colonise Panama, and, eventually, forced him off the Board). Two conditions were required to keep up this little charade: first, original investors and new depositors must not demand en masse to withdraw their deposits in gold coins (because they wouldn’t be there!); and, secondly, the mountain of paper must be continually expanded so that interest on each round of new loans can be repaid.

This is the model after which nearly all central banks are patterned. (In fact, the Bank of England was the model for the creation of the Bank of Thailand in 1942.) The financial system creates nearly all money as debt. When a bank makes a loan, the principal amount of the loan is added to the borrower's bank balance. The borrower, however, has promised to repay the loan plus interest even though the loan has created only the amount of money required to repay the principal. Therefore, unless indebtedness continually grows, it is impossible for all loans to be repaid as they come due. If there is a credit crunch, that is, due to failing confidence in the economy creditors refuse to extend further loans, the system ensures that debtors will default on their payments. This begins a vicious cycle whereby banks are forced to write off bad (or, in financial jargon, 'non-performing') loans and are, therefore, less willing to extend new ones.

Furthermore, during the life of a loan some of the money will be saved and re-lent by individual bond purchasers, by savings banks, insurance companies etc.. These loans do not create new money, but they do create new debt. While we use only one mechanism--bank loans--to create money, we use several mechanisms to create debt, thus making it inevitable that debt will grow faster than the money with which to pay it. Recurring cycles of inflation, recession, and depression are a nearly inevitable consequence.


Money Through Revolution and War

It has been argued that the American, French, Russian and Chinese revolutions were fought on the back of paper money printed by their respective governments. The economic base and political will simply did not exist to raise the necessary funds from taxation. Moreover, no banker in their right mind would lend such enormous amounts when there was little or no intention to repay. In fact, the inflation which resulted from increases in government-issued money was far less damaging for the domestic political agenda than enormous interest payments to foreign creditors would have been. However, there is one very powerful group whose interests are negatively affected by such inflation--banks.

By the beginning of the nineteenth century, the world's leaders had devised a system which, they believed, would stabilise currencies. Known as the 'gold standard', it meant that each country's currency could be exchanged into gold, and then from gold into another currency at a fixed exchange rate. (Siam first passed the Gold Standard Act in 1908). This system facilitated international trade, but, more importantly for bankers, it assured that their loans would not be repaid in money of inferior purchasing power.

The experiment with the gold standard ended abruptly with the outbreak of World War One. Gold flowed out of Europe and into the United States for the purchase of American goods, eventually forcing European countries to suspend gold payments for fear that their gold reserves would be completely exhausted. US gold reserves rose from $203 million in 1914 to $2.9 billion in 1917. This fact, and the effects of the war, started two economic processes in motion:

On the one hand, the outflow of gold was symbolic of a more general lack of confidence in European economies. As governments printed more and more notes to try to repair the damage of five years of war, runaway inflation gripped many parts of Europe. In Germany, by the end of 1923, prices had reached 1 422 900 000 000 times their pre-war levels! A single US dollar could buy room and board for a week. This attracted an international army of bargain hunters; rumours were spread in Germany that they were Jews. The importance of money management is highlighted by the fact that all of the countries of Central Europe which suffered a collapse of their currencies following World War One were eventually to experience fascism, communism or both.

On the other hand, the massive inflow of investment in the US inflated stock prices and real estate values to unheard-of levels, fostering a nearly decade long economic boom. When it finally sank in that earnings expectations were far beyond actual performance, the bubble burst. In 1929, the Great Depression began. The newly created US Federal Reserve system (the American central bank) proved powerless to either slow the initial expansion or counteract the even more rapid contraction. In an expression used at the time, it was suggested that monetary policy, the manipulation of interest rates and the money supply to influence the economy, was like a string. You could pull it with incalculable results. But you couldn't push it at all. That is, you can increase interest rates and shrink the money supply to slow the economy down, but once the economy has hit rock bottom, the reverse action does little or nothing at all to start the engine back up again--depression era efforts to stimulate the economy using monetary tools failed miserably.

Money politics played a key role in the Siamese People's Committee Revolution of 1932, the event which marked Siam's political transition from an absolute to a constitutional monarchy. During the uncertainty of the depression, investors sought to change their money into gold. This resulted in an outflow of gold from government reserves, eventually forcing the United Kingdom to (once again) abandon its promise to exchange pound notes for gold. Siam, however, did not leave the gold standard, making Siamese exports more expensive relative to those of Britain and its colonies. There was a general feeling that the Siamese government would eventually be forced to devalue the baht. This lead speculators to withdraw baht from banks to buy foreign currency, in the hopes that they would be able to buy back the baht at the devalued rate. (This should sound familiar to contemporary Thai readers!) The Siamese economy continued to deteriorate, eventually forcing the government to abolish several government agencies, lower pay and lay off civil servants. These disgruntled cadres would play pivotal roles in supporting the People's Committee Revolution just a year later.

One beneficial outcome of the various experiences of inflation and depression during this period were the experiments with 'scrip money' in Europe. In the absence of a stable national currency, hundreds of communities printed their own, interest-free, currencies which could only be used within the boundaries of the issuing region. The most successful of such systems was in Worgl, Austria, where local authorities printed 5000 Worgl Shillings which, within a year, had circulated 463 times--14 times as much as the Austrian Shilling. This meant that the same amount of money created 14 times as many jobs. After two years, Worgl achieved full employment alongside impressive infrastructure development. When news of the success of the local currency scheme got out, over 200 other Austrian communities made plans to establish their own systems. Despite their success, such systems were perceived as a threat to state control over credit creation and were outlawed by the Austrian State Bank.

What the experiments with scrip money clearly illustrated on a micro-economic scale was that re-starting the economic engine after the Great Depression required that money not just be made available, but be spent. After much, painful delay, this idea, in an altered form, finally reached the mainstream. Not surprisingly, officials decided that the government should do the spending. The man who was credited with popularising this idea, which came to be known as 'fiscal policy', was the British economist, John Maynard Keynes. The Second World War is often offered as proof of what Keynes said--with the outbreak of conflict, gold flowed into the US once again and the economy boomed, pulling the rest of the world's economies along with it.



Post World War Two: The Bretton Woods Agreements

At the end of the Second World War, 730 policy makers from 44 countries attended the Bretton Woods conference in a small resort town of the same name in New Hampshire. While Thailand was not an original signatory to the Bretton Woods treaties, she did agree to join the gold standard in January, 1946, and eventually joined the IMF and World Bank in May, 1949. The primary objective of the Bretton Woods agreement was to attempt to reinstate the gold standard--once again--in order to facilitate international trade and protect creditors from any potential currency devaluations.

However, in 1944, the world's supplies of gold were even more unevenly distributed than they had been when the gold standard was abandoned thirty years earlier. The United States held nearly two-thirds of the world's gold supply in its vaults. Many countries which had been buying too much and selling too little were left with no gold reserves at all. The only way to overcome such a deficiency, according to economists, was to make a country a more attractive place for others to buy and make imports less attractive for its own citizens. Unfortunately, this involved keeping government expenditures low, freezing wage rates and keeping interest rates high--in other words, sacrificing the domestic social agenda to the needs of international trade. In the meantime, the International Monetary Fund (or, 'IMF') would provide the funds needed to keep the trade flowing.

Under the Bretton Woods arrangement, countries agreed to keep the value of their currencies stable in relation to other currencies (called the 'par value system'). If a country was buying more than it was selling and the value of its currency started to fall, the central bank was expected to step in and buy the currency to maintain its value. If the central bank did not have sufficient reserves to maintain the value of the currency, it could borrow funds from the IMF on a temporary basis. It would then be up to the government to correct the situation which had created the trade imbalance in the first place by raising taxes and interest rates and lowering government expenditure.

In contrast to the role of the IMF as banker to balance of payments troubles, the World Bank (initially called the International Bank for Reconstruction and Development, or ‘IBRD’) was to provide the funds necessary for the reconstruction and economic growth of post-war Europe. In fact, the World Bank played a relatively minor role in this respect; the great majority of such funds came from the US brokered Marshall plan, a transfer of nearly 13 billion $US to war-torn European countries in the ten year period following the end of the war. Towards the end of the 1950s, as the economies of Europe recovered, the IMF began to play its role bridging the gap between exports and imports. It was only in the 1970s that the World Bank began moving towards its current focus on rural poverty alleviation through the provision of (small credit schemes).

As part of its agreements with the IMF, Thailand was under obligation to move towards the par value system, whereby the value of the baht would be determined in gold (the 'par' value) and the government would agree to maintain the value of the currency within 1% above or below the par value. This was accomplished in stages.

At the end of the war, Thailand's reserves, made up mostly of Japanese yen, were greatly depreciated. Foreign currencies were needed for post-war reconstruction, so the government required that holders of dollars and pounds sell them to the Bank of Thailand at an official exchange rate. Not surprisingly, this resulted in the establishment of a black market where exchange rates were nearly double the official rate. The government established a multiple exchange rate system which required exporters of primary commodities such as rice, rubber, tin and teak to sell all foreign currency receipts to the Bank of Thailand at official rates. Furthermore, foreign currency needed to finance government expenditure and pay for the consumption of essential goods was to be supplied through the official market. This allowed the government to rebuild its foreign currency reserves while subsidising the price of basic necessities for urban consumers--at the expense of rural producers. All other trades could change hands at market rates.

By 1955, foreign reserves had adequately recovered to allow a return to a free market exchange rate system. The Exchange Equalisation Fund (EEF) was established to act as a buyer and seller of foreign exchange for short-term stabilisation purposes. The EEF performed its task quite effectively, eventually stabilising the value of the baht relative to the world's major currencies. Preparations were made for Thailand's entry to the par value system in 1963, when the baht value was fixed at 0.0427245 grams of gold or 20.8 baht per US dollar. This par value was successfully maintained until mid 1972.


The Last Thirty Years

Like the three previous attempts at establishing a universal currency standard, the Bretton Woods agreements soon collapsed. While other nations, particularly Germany and Japan, had reinvested in more efficient industrial production after the Second World War, the US continued with obsolete manufacturing methods; this, combined with the drain of the Vietnam War meant that, as long as the US adhered to fixed exchange rates, international investors would buy in cheap markets overseas and sell in the relatively over-priced American market. By the late sixties, rumours abound that the US dollar was over-valued. Piles of US dollars sitting in European banks, accumulated from the sales of European corporations in the US, were turned into gold. For over twenty years, US dollars had been a safe bet--now it was better to put your money in gold, Deutschemarks or Swiss Francs.

By 1971, the once massive inflow of gold to the US had become an equally alarming outflow, causing President Richard Nixon to rescind his promise to pay the international holders of US dollars in gold. In an attempt to put a brave face on the unilateral violation of an international agreement, the US came up with the term 'floating exchange rate' to describe the ensuing devaluation of the US dollar under the Smithsonian Agreements. A similar play on words was given by Thai Prime Minister, Chavalit Yongchaiyudh, to explain his backpedalling on a promise not to devalue the baht in 1997.

The devaluation of the dollar forced Thailand to change the value of the baht in terms of gold in order to maintain the previous dollar exchange rate. During the 25 year period after the Second World War, Thailand held reserves predominantly in US dollars. This was done for a number of reasons: The sheer size of the US economy and the backing of nearly two-thirds of the world's gold supply meant that the greenback was easily the most accepted currency in international trade; moreover, the US dollar and American prices had proven relatively stable since the War. But now, with the value of the US dollar plunging, Thailand was handcuffed--if she did not devalue in line with the US, the value of US dollar reserves in baht terms would have plummeted.

Despite the fact that the essential reason for the existence of the IMF and the World Bank had been lost with the US abandonment of the gold standard, these two bodies forged for themselves a new role on the global stage. Under the leadership of former US Secretary of State, Robert MacNamara, the World Bank undertook an ambitious program of loans to so-called 'third world' countries to encourage them to industrialise. In order to meet the interest payments on these loans the IMF was brought in to enforce what were called 'structural adjustment programmes', or 'SAPs'; essentially, the SAPs involved cutting government expenditure on social programmes and organising industry for export promotion in order to earn the international currency required to repay the interest on the World Bank loans.

This plan might have worked if there had only been one or two 'under-developed' nations trying it out. Unfortunately, the experts at both the World Bank and the IMF failed to predict that when scores of nations all began to compete for limited markets, the price of commodities fell. This left the countries of Asia, Africa and Latin America in a no-win situation; the price of foreign inputs, necessitated by the switch to export-oriented growth, rose, while the world price of commodities plummeted, all the while interest on debts continued to mount. This resulted in a situation where, by 1990, there was an annual transfer of wealth from the world's poorest countries to its wealthiest of approximately 200 billion US$ per year.

How did Thailand manage, for the large part, to avoid undergoing painful structural adjustment programmes? As might be expected, political manoeuvring played an influential role. In the USA, in the wake of severe unemployment coupled with high inflation under the Carter administration, the path was laid for President Reagan to slash wages. Such cuts in wages were accompanied by tax cuts to the wealthy and massive spending on defence. This Keynesian boost lead to economic growth, foreign investment and a strong dollar. The downside was that the enormous budget deficit, caused by profligate spending on the nuclear arms race, was combined with a rapidly increasing trade deficit--within a few years, the United States was transformed from the world's greatest creditor to its greatest debtor.

In an attempt to resolve its trade deficit problem, the United States used its political might to force Japan to revalue the yen under the Plaza Accords of 1985. It was hoped that by making Japanese imports more expensive for American consumers, and, conversely, US exports less expensive for Japanese consumers that the ballooning trade deficit could be brought under control. However, the Japanese would not be so easily out-manoeuvred. Japanese production was shifted to Southeast Asia in an attempt to take advantage of cheaper labour costs and lower trade tariffs with the US. An enormous amount of Japanese direct investment rushed into Thailand. In the single year of 1987, there was more Japanese investment in Thailand than there had been in the previous twenty! Up until the current crisis, economic ‘experts’ hailed Thailand as the model of free market development; what they often fail to mention is that the rapid economic growth was due largely to mutually beneficial political manipulation.

The late 80s and early 90s marked the beginning of massive deregulation of the Thai economy. The Bank of Thailand liberalised the deposit and lending rates of commercial banks, broadened the scope of operations of financial institutions, and allowed for the creation of Bangkok International Banking Facilities (BIBF). The BIBFs were nothing more than licenses for major commercial banks to accept deposits and make loans in foreign currencies to the elite of the Thai business sector. The banks enjoyed the easy, seemingly risk-free, profits to be made from borrowing low-interest foreign funds and then loaning them out at a premium (while remaining competitive with much higher rates on Thai money); Thai businesses enjoyed lower interest rates while foreign creditors stumbled over one another to get rates of return higher than that which they could receive at home.

From 1994 to 1996, more than 50 billion US$ had been issued by the BIBFs. Foreign debt had risen 60% to $US 89 billion during this same period. No one seemed to notice, or care, that most of the money was going into unproductive investment--uneeded condominiums, golf courses and financial speculation. Real estate values and stock prices were artificially inflated. The trade deficit soared as a result of the use of loans for the purchase of foreign luxury goods rather than domestic production.

We are almost to the end of our story. In 1997, the bubble burst. Foreign currency speculators estimated that, after years of running trade deficits, the Bank of Thailand’s foreign reserves must be running dangerously low. They bet enormous amounts of money that the Thai government would be forced to devalue the baht--and won. Once the dam had broken, Thai investors rushed to withdraw their savings, sell their stockholdings and convert them to greenbacks. The value of the baht crashed to 55 baht to the US dollar by January, 1998.

With the long overdue realisation that the value of land and stocks had little or no connection to either actual or potential earnings, foreign investment raced out of the country as fast as it had come in. In 1996, net capital inflows to Indonesia, South Korea, Malaysia, the Philippines and Thailand totalled $US 95 billion; by 1998, net outflows may reach $US 40 billion. The financial system, which as we have discussed, is predicated on the assumption of an ever-increasing pyramid of debt, collapsed. As loans turn bad and banks curtail new lending activities, the money-creating mechanism with which outstanding loans can be repaid is destroyed. This, in turn, causes more debtors to default on their loans. As the value of the baht fell lower and lower, Thai companies with outstanding foreign debt (most of which had been chanelled through the BIBFs) were forced into bankruptcy. The social costs have, and will continue to be, heavy. Nearly one quarter of the population is expected to be plunged into poverty by the year 2000.

While corruption played an undeniable role in these events, it is crucial that we do not underestimate the key role played by a deeply flawed global money system which was responsible both for creating the bubble in the first place and for fanning the flames after it had burst. In 1995, an average daily currency volume of 1.3 trillion US$ was exchanged globally. This corresponds to 30 times the daily gross domestic product (GDP) of all of the developed countries (OECD) together. Twenty years ago, speculation made up only a few percent of total global trade volume--today it accounts for nearly 98%. These vast sums of money which do not reflect any real production have the ability to destroy decades of economic growth in order to meet investors’ insatiable needs for higher returns. In the end, they may destroy themselves.

“Perverse Behaviour”

All of this should not surprise the reader of our brief history of money. For several thousand years of human history--from the original silversmith to the first commercial banker to the present-day hedge fund dealer--money has been used systematically by those who control it to manipulate those who don't. As we enter the 21st century, the money missionaries assure us that if we only allow the money to flow faster, we will all be better off; that if we bring down the barriers that create inefficiencies that we can improve global living standards, defend human rights and improve the environment all at the same time; finally, they tell us that it is all very complicated, and that we should leave it up to the policymakers and the economists, because we have no choice. As we listen to the admonitions of these prophets, we might recall the words of the eminent economist, John Kenneth Galbraith, who said that the pursuit of money is

...capable of producing not only bizarre but ripely perverse behaviour....Men

possessed of money, like men earlier favoured by noble birth and great title,

have infallibly imagined that the awe and admiration that money inspires were

really owing to their own wisdom or personality. The contrast between

their view of themselves...and the frequently ridiculous, even depraved reality

has ever been a source of wonder and rich amusement"

What is needed is a rethinking of economic orthodoxy--reform or, in some cases, complete reinvention is required from the global down to the community level. This process is beginning to gain momentum. Multilateral discussions between nation states are needed to ensure greater regulation of speculative capital flows to prevent the re-creation of Thailands’s bubble economy. At a regional level, agreements between neighbouring countries should ensure development cooperation rather than a race to the bottom in an effort to attract the ever-elusive foreign capital. At a national level, citizens must recapture control of the money supply. This means wresting control of the money supply away from commercial banks motivated purely by profit and placing it in the hands of more democratic and accountable institutions. Moreover, it means building an economy which values environmental and social well-being over oil spills and car accidents. Finally, at a community level we must work together to strengthen locally based economies. Instead of encouraging reliance on far-flung transnational corporations, whose agendas are dictated purely by short term, high turnover profit seeking, we must construct, where possible, community based production and marketing; community controlled credit institutions; and community specific currencies which can not be siphoned off from where they were created.

We would do well to remember the allegory of the individual stranded on the deserted island. We must remember the difference between money and wealth. We must ask ourselves whether or not our money, banking and trade systems are increasing our wealth--for a great majority of the world’s population, clearly they are not.