How Electric Cars Are Saving Capitalism
For many of us baby boomers, who were out to change the world in our idealistic youth, the electrification of transportation is one of our last chances to make a difference. This is an opportunity to contribute, with other generations, to make this thing happen.
This is the first time, since the space race to the Moon, the world has been intensely involved in something other than war. We are able to experience a vision which embodies the invigorating power of truth. Interestingly, like the space race of the 50’s and 60’s, governments around the globe are stepping forward with financial assistance and incentives. This leads us to the social invention of money.
First, a little background. The processes that create, distribute and extinguish what we use as money, upon deeper examination, defy all logic. Celebrity economist John Kenneth Galbraith (1908-2006) had this to say about the subject: “The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple that the mind is repelled.”
Galbraith served in the administrations of Franklin D. Roosevelt, Harry S. Truman, John F. Kennedy and Lyndon B. Johnson.
Yale graduate and America’s first celebrity economist, Irving Fisher (1867-1947), after his research made the declaration that: “Our circulating medium is at the mercy of loan transactions of banks, which lend, not money, but promises to supply money they do not possess.”
It is doubtful that one in a million people understands the “socially managed” accounting constructions that create, distribute, hold hostage and extinguish what banks owe that serve the money function. Even less understood is how a scarcity of what banks owe is socially managed to pit us against each other in fierce competition. Competition is not a “stand alone” principal of economics as it makes little economic sense. Competition is an artificially contrived activity designed to give money its relative value and a place in society that rules over human and all other life.
An important piece of the electrification of transportation is the financial support received from government. Investigation into this topic helps pull back the veils of complexity that Galbraith so aptly explained is hiding truth. As counter-intuitive as it sounds, the flow of public money into the economy, particularly for worthwhile projects such as the electrification of transportation, brings stability to Capitalism.
The electrification of transportation has something most “for profit” movements do not have. It has a vision that transcends profit-making. It is not just about the money. It is about eliminating the fear of peak oil. It is about a rebirth of progress. It is about getting in harmony with the planet. It is these things that support politicians, in spite of the intense pressure to stop spending, to get the checkbook out.
Let’s now take a closer look at government spending versus private-sector spending. In a two-mile commercial strip close to my office, there are over 20 Payday Loan businesses. The Center for Responsible Lending reports that on average, a payday loan costs 400 percent per year. And, there are almost 20 million payday-loan borrowers, which equates to roughly 13 percent of the workforce. For the millions of Americans running short between paychecks, many pay $4,000 for the use of $1,000 for a year. This compromises the ability of these people to translate a need and want for an electric car into an actual purchase. As impacting, is the inability of tens of millions of families, depending upon less than living wages, to qualify for credit in an amount enabling the purchase of an electric car. Clearly, the processes by which money comes to be and gets into the hands of consumers are limiting factors in the speed at which the electrification of transportation is allowed to unfold. While private-sector finance for the upscale and larger commercial transactions delivers better terms, no private financial arrangement can deliver the economic efficiency and low cost than that federal government debt activities.
In order to get the full perspective, we must keep in mind that technically, there is no money, only what banks owe. The only game the world has, as relates to its means of exchange, is the process of debt. Every dollar in checking and savings accounts and every dollar of paper money begins with a debt somewhere and is extinguished with the repayment of a debt somewhere.
Let’s look at a real-life example of the government pursuing a 28 day “payday” loan. With a May 26, 2011 issue date and a maturity of June 23, 2011, the government went to the market to borrow $30.4 billion dollars. With the auction notice out, those wanting to lend the government money lined up. For the $30.4 billion the government needed, there was $127.6 billion willing to lend. There was three times more money willing to lend to the government above and beyond what the government needed. Bidders, wanting to lend to the government bid in at an interest rate that they hoped the government would accept. The government then accepts bids, lowest rate first, until it has what it needs. For this particular May 26th auction the low rate was zero. The government got all it needed by the time it got to bids of .035 percent. Yes, that is less than 4/100 of a percent. So, for the same $4,000 that an American working family would get the use of $1,000 for a year, the U.S. government could put into circulation and commerce some $10 million dollars. Without the limitations of qualifying for credit, insufficient collateral and abusive loan prices, government spending is key to keeping Capitalism alive as well as launching the electrification of transportation.
The U.S. government, upon giving life-support to private-sector finance (essentially saving Capitalism), is coming under-fire for deficit spending. Yet, ironically, the private sector is more than twice as guilty in terms of deficit spending. In the 15 years leading up to the financial crisis, which we will establish as starting 1/1/2008, individual, business and municipal debt (debt that was non-federal) grew by 270 percent. For this same period, Federal Government debt grew only 121 percent. This means private sector deficit spending was 2.23 times greater than government deficit spending over the same period. We are not going to solve the problem of the national debt in this article. However, Capitalism, after the 2008 Financial Crisis, can ill afford to ignore the economic efficiency that comes from federal spending and the economic inefficiency that comes from a private sector business and industry seeking to limit labor costs and maximizing the burden of debt on labor.
One of the most hidden aspects of the social invention of money is that it is engineered, from the ground up, to be an instrument of wealth extraction. Money serves as a means of exchange as a matter of default. Money is allowed to serve as a means of exchange only to the extent it does not interfere with the formation and repayment of debt. To make a point, money is an inefficient means of exchange, whose circulation, which saves Capitalism, is dramatically improved by government spending.
The nation and world are in a “means of exchange” crisis. The efficiency of the social invention of money as a means of exchange is compromised by its debt origins and the debt needed to distribute it through the capital markets. To illustrate, in 1951, the nation had 75.5 cents of economic activity for every dollar of debt that was being juggled (public and private). In 2010 (59 years later), the nation had only 27.9 cents of economic activity for every dollar of debt it was juggling. Since the inception of the nation, and its organization around money, debt always grows faster than the economic activity debt facilitates. This means as the nation moves forward in time, it is always compromised as debt overtakes the situation. Since 1797, there have been 47 financial panics, recessions, depressions and crises. Without public intervention in various forms, the social invention of money, left alone, may well have choked out Capitalism long ago.
The electrification of transportation has started to cut transportation’s umbilical cord to oil. This means future sources of energy for transportation are up for grabs. We want to avoid the fossil-fuel mistake (by making it all and only about the money). We want to avoid aligning with some source of energy that, while profitable, stifles environmental stewardship and stifles other new energy discoveries from surfacing. The ongoing development of new forms of energy, regardless of how exotic, suggests the participation of government money. Hopefully this will go on indefinitely. It is not a given the electrified transportation of the future will be drawing off the electrical grid heavily predicated upon coal. The world must re-invent energy from the top to bottom and government spending in this venue can make or break a technology. The longer government spending is involved, in this ongoing energy Renaissance, the faster the world will evolve and the better the economy will be.
The vision for the electrification of transportation could not have come at a better time for the planet and for the economy. The world has never had more capital sitting idle and not circulating. Government spending increases the likelihood that investors will come forth with their investments in the electrification of transportation movement, thus increasing money that circulates. Consider for a moment that of the $8 trillion that the nation’s banks owe depositors, 90 percent is in some form of savings account with an incentive not to circulate. There is essentially only one thing that keeps a Capitalistic economy going and that is spending or, in banking terms, cash flowing. If money is not moving, there is nothing to talk about. Government and the free-enterprise sector would be well advised to recognize that the financial problem with the world is that money is not flowing sufficiently through the hands of people who work or want to work. This is because the principles of financial efficiency (minimizing labor costs) and the principles of scarcity that money embraces will not allow it.
Monetary experts have been telling us for generations that money, like everything else, derives its value from its scarcity in relation to its usefulness. Unfortunately, we have not been listening. A scarcity of money simply means we have been institutionalizing exclusions in volumes that the assuaging forces of charity can barely scratch the surface of.
This then brings us to back to the convergence of the electrification of transportation and government spending to support it. In a subtle kind of way, this convergence is getting energy from a deeper human desire to cooperate together in order to save our collective civilization. We feel this way because we know inside that we are interdependent and our physical survival is dependent upon maintaining the artificial life support systems we have invented.
Competition for the social invention of money, on the other hand, teaches us untruths. It tries to tell us we are independent and we do not need to depend upon others if we are fierce enough in our competition. Yet here we are, trying to express our interdependence, through our governments, for a movement that we are dependent upon to save us in a larger kind of way.
While this article has touched on a few of the “hidden” aspects of the social invention of money and its downstream ideology of Capitalism, we have barely scratched the surface. I will leave by identifying two contradictions that we must in time come to grips with. 1) Nothing is more socialistic than private Capitalism. It manages the social invention of money from the top down in ways that saddle the world with unpayable debts and socially engineered exclusions. 2) Nothing is more Capitalistic than government spending that takes money (capital) and makes it circulate and work to keep the world afloat.
Like others, I love the electrification of transportation movement as it contains elements of cooperation so sorely needed to bring balance to a world imbalanced by competition.
Statistical sources for all figures come from the Federal Reserve Bank, the U.S. Treasury and the Federal Deposit Insurance Corporation. All opinions are those of the author and not of any government agency or private corporation.
Gisin is a former banker, consultant to business and agricultural enterprises facing credit challenges and a speaker on money, capital and the Federal Reserve Bank. Author of Farmers and Ranchers Guide to Credit and hundreds of published articles, Gisin is co-author of Peaceful Economics newsletter and the upcoming book on the social invention of money. Gisin can be reached via e-mail at email@example.com.
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