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Economics 101

Currency exchangeMoney, Banking & Debt
Related section >> Alternative Money Systems

Money is a fairly large part of life everywhere. Whether or not we want to, many of us spend quite a lot of time thinking about money: how to stretch it, how to increase it, what to do with it, how to take care of it. Most of us don't have to think very hard about what we'd do if more money suddenly came our way. Money determines many aspects of our lives from where we live, to what kinds of clothes we wear, to what kind of car we drive (if we drive one at all), to where we vacation, to what people think of us and what we think of ourselves. Despite its prevalence in our lives, many people have a hard time talking about money even with their close friends and family.

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The power of money
Our society finds many ways to exclude people without much money, many of whom are women. Those of us with little money may also feel guilty and ashamed, believing that if we had made better choices in life we would have more. Much of this is a remnant of the early Protestant belief that rich people were rewarded for their virtue, while poverty was a punishment for sinfulness. Many poor people today are made to believe they are poor because there is something wrong with them or their behaviour. On the other hand, sometimes rich people have a hard time dealing with their feelings about money too. Sometimes people who have lots of money feel guilty and don't necessarily know what to do with their money.

One dollar coinsMoney has become such an all-consuming and all-important part of our lives that it is easy to forget that not all life decisions can be made on the basis of money. As well, much of human activity, such as women's work as providers and sustainers of life, is not done for money. Money is simply a tool that we use in our society to facilitate the trading of goods and services. As 10-year-old Raya says (see Raya's story), "Money is just some pieces of paper and chunks of metal that you trade for food and clothes. It doesn't really mean anything except that if you have a lot of it you supposedly have a lot of power." So how have a few pieces of paper with certain squiggles and lines on it, come to be so powerful?

History of money
Throughout history human beings have desired things they could not produce themselves. Similarly, sometimes people produced more of one product than they themselves were able to use. And so they traded or bartered. Fisherpeople and farmers traded fish for grain and grain for fish. Blacksmiths traded with cobblers and cobblers with seamstresses. Some of us still trade things: a pair of pants for a shirt, a book for a CD, a meal for a concert ticket. Robin (see Robin's Story) talks about trading a cauliflower for a loaf of bread when she was a teenager. Today Robin owns her own massage therapy business and often trades her services for furniture, building repairs, and other products or services.

Eventually people started to use natural resources to measure value. Cattle were the earliest form of "money" and they are still used to set values in some parts of the world today. Cowrie shells were another early form of money used in several parts of the world including West Africa. These shells too were used until quite recently. In early Canadian history the beaver pelt was the most common value marker and was traded widely. Perhaps the most common object used to represent value throughout history is gold.

Eventually people started to use coins and later bills (money) to represent value and to facilitate economic transactions. Because coins and bills do not have value but only represent value, their value changes frequently according to the amount of money in circulation. For example, a ten dollar bill is always worth ten dollars, but the buying power of ten dollars can vary considerably.

Bank of MontrealHow is the value of money set?
Traditionally the value of money has been set according to the product that it represents, which is why value is so dependent upon environment. A cow is worth much more in times of famine than of plenty. Silver is worth more before the discovery of a silver mine than after. Value is linked to how rare something is, or how great the demand for the item is. In the Sahara Desert, salt was once so rare and precious that it was traded weight for weight with gold.

In 1816, the Bank of England decided to set the standard of money in gold. This measure became known as the Gold Standard. Each coin and bill was worth a certain weight of gold; until the 1950s, a notice was written on each Canadian dollar saying that the bearer could trade the bill in for a certain amount of gold. In this way money was tied to the availability and thus the price of gold and it had its base in a concrete substance of real value.

After the end of the Second World War, Canada and the rest of the world went off the Gold Standard and introduced a new system of 'legal tender.' According to legal tender, money is no longer tied to any real product. Its value is based simply on the strength of the economy itself. Today's loonie is linked to nothing more than the rest of the money in circulation in Canada. For more on how this strange system works see Who Makes Money?

Banks
Most of us store our money in banks. While the first banks were simply places to safely deposit money, today's banks function quite differently. Our banking system is dependant on lots of money moving around a whole lot. Banks reward people who move money through their accounts, allowing them to borrow even more money to buy ever more expensive cars, houses, and businesses. Because banking and so much of the rest of life in our society is so dependant on large stores of money moving around, those without money or those with little money are kept out of the economic system. People living on their own land, producing or trading for most of their daily needs, are considered economically unproductive for the most part, despite the material and social richness of their lives. In contrast, business people who may be millions of dollars in debt, are considered wealthy simply because they are moving a lot of money through the system.

The influence of private banks on money and global economics is not to be undervalued. Indeed it is the interests of private banks that have influenced major policy shifts and, as a result, changes is the lives of people all over the world. See global debt. The role and power of financial institutions like banks are coming into question since the 2007-2010 global financial crisis. In the US, banks provided easy credit in multiple forms – credit cards, mortgages, car loans – and all over the world other banks and investors bought into the US housing market that was being strengthened by these “financial innovations.” When housing prices dropped, mortgages became worth more than the houses themselves. Borrowers foreclosed on mortgages in huge numbers and became unable to pay back other loans. Banks filed for bankruptcy, houses prices fell, homelessness rose. It is estimated that governments have provided up to 1.2 trillion dollars in bailouts. In mid-2009, Iceland and Ireland used up to 266% of their GDP to support the financial sector, in Canada the figure was 24.8%.1

Paymax loans signPersonal debt
Because debt is necessary to create money in the first place (see Who Makes Money? for more on this), we are regularly assaulted by advertisements encouraging us to get in debt. Furniture and car stores advertise sales requiring no down-payments and even 'cash-back.' Credit card offers arrive in our mailboxes each week, especially to those of us who are in debt to other credit cards. After all, the credit card companies would soon go out of business if we all paid our bills on time. Banks and credit unions offer mortgages and other loans. And everywhere we are encouraged to 'Buy, buy, buy!' This cry was most jarring in the wake of the events of September 11, 2001. As one History and International Affairs professor in the US stated; “In the aftermath of the terrorist attacks of September 11, 2001, President George W. Bush advised Americans that they should not allow the trauma of the attacks to interfere with their ordinary shopping, and implied that buying had become a patriotic duty and virtue.”2This valuing of consumerism, coupled with the fact that people with low incomes often have to rely on credit cards to pay bills and buy groceries, means that the vast majority of Canadians are in debt. In fact, Statistics Canada recently reported that the average debt load of Canadians is over 98% of their annual income. In other words Canadians owe about as much as they make in a year. It's not surprising then that in 2009, Canadians charged $267 billion dollars on their credit cards, $78 billion dollars of which was still outstanding by September 2009.3 To hear one woman's story of debt visit Beatrice's story.

Global debt
It is not only individuals who are encouraged to contribute to the economy through indebtedness. During the 1970s Canadian banks were awash with the profits of the oil boom in the Middle East. Since the system grinds to a halt when money is just sitting in the bank, bankers actively sought borrowers for this money. Developing countries in Africa, Asia, and Central and South America seemed like good targets; billions of dollars were lent for health care, education, infrastructure, and social programs. At the time interest rates were low. However, in the 1980s interest rates soared. In 1982 Mexico stopped foreign debt payments, devalued the peso and nationalized the banks. Private international banks reacted, fearing that they would be ruined by other deeply indebted countries following the same pattern. As a result of pressure by the US government, the IMF and World Bank bailed out governments, thus saving the private banks. However, debts kept growing. By the 1990s, borrowing countries were so far in debt that their indebtedness started to have devastating effects on citizens. The Brady plan was established, shifting the economic policy making to IMF and World Bank. These policies, known as structural adjustment and later poverty reduction imposed free-market economics on the borrowing countries. Among many changes, these policies forced cuts to social programs and made money for health and education all but disappear. As a result many of these countries' citizens experience a much lower standard of living today than they did in the 1960s. And as interest payments started to exceed the amount of the actual loans, countries were caught in a devastating cycle. Between 1981 and 1997 indebted countries paid over US$2.9 trillion in interest and principal payments. While countries like Canada pride themselves in the charity and aid they provide to the third world, what most people do not know is that aid-receiving countries pay back more in repayments and interest to industrialized countries than they receive in foreign aid. For every $1 that Northern countries provide in aid, over $3 comes back in the form of debt servicing.4

Forced exploitation
The place that money has in our current system is not only strange, it's also terribly unhealthy both for people and for our earth. Because poverty and richness are so intricately connected with money, many of us have become blind to all kinds of wealth, and ignorant of most poverty. The system we use has often led to exploitation. In Canada, the economic system has been particularly hard on Aboriginal peoples and their lands. The fully-functioning and wealthy economies of Aboriginal peoples who were the original inhabitants on this land, have been almost completely destroyed in exchange for the betterment of immigrants' economies. (See Aboriginal Women and the Economy for more information.) Billions of dollars of petroleum, forestry, mining, and hydroelectric benefits flow off of Aboriginal lands to the dominant system but the benefits by-pass those whose lands and livelihoods are destroyed in exploiting the land. Not only has the imposed arrangement ruined the economies of these First Peoples, it has excluded these same peoples from the new system.

Downtown WinnipegThis economic system also creates poverty by encouraging citizens to make decisions solely on the basis of economics. Anti-poverty activist Josephine Grey believes that there is a tremendous poverty within our culture, namely the poverty of time. Many of us rush through our days with little time to stop and consider what we would call the truly valuable things in life. We live with a poverty of relationships and community, as well as mental and emotional health.

And finally this economic system has created a world where unpaid work does not count. The work of nurturing earth and humanity that women have done for centuries, has little place in this economy.

Creating a more caring world
Many people are working hard to challenge our current money system and create economies that are truly beneficial to all peoples, communities, and the earth. To read about efforts like LETS (a local exchange and trading system), the Grameen Bank (a microfinance system founded in Bangladesh that benefits mostly women), Women's World Banking, and local currencies see Alternative Money Systems.

For an excellent synopsis of global financial crises since the 1970’s see the New Internationalist March 2010 “Crisis, Crash, Crunch – the lowlights.”


Acknowledgements
Many thanks to Ross Dobson for his insight and assistance.


1UN Conference on Trade and Development (UNCTAD), Trade and Development Report, 2009.
2 From The Crisis of Consumerism, written by Harold James, December 7, 2009. Downloaded from Project Syndicate Website on November 8, 2010.
3"Canadians Struggling to Dig Out of Debt” by Rita Trichur, Toronto Star. December 12, 2009. Accessed October 21, 2010
4 Canadian Ecumenical Jubilee Initiative. Debt crisis. Background Information. Downloaded March 1, 2002.



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  • Economics Glossary


    "What history tells us is that economics - commercial activity, production, trade - usually falls in importance about halfway down the list of human activities, far off the radar screen of our desire for society."

    John Ralston Saul


    "After he paid his room and board every month, he had a good third of the government check left but that she could see, he never spent it anyway. He didn't use tobacco or drink whiskey, there was nothing for him to do with all that money but lose it, since there was only himself... She had seen money drop out of his pocket and him not bother to reach down and feel for it.

    One day when she was cleaning his room she found four dollars and some change in his trash can. He came in about that time from one of his walks. "Mr. Motes," she said, "here's a dollar bill and some change in this waste basket. You know where your waste basket is. How did you make that mistake?"

    "It was left over," he said. "I didn't need it." She dropped onto his straight chair. "Do you throw it away every month?" she asked after a time. "Only when it's left over," he said... She realized now that he was a mad man and that he ought to be under the control of a sensible person."

    Flannery O'Connor, from the novel Wise Blood


    "Money - it's a hit."

    Pink Floyd

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