New Internationalist

Introduction

Issue 306

Money, markets
and madness

Is the world's money system pushing us to the brink?
Vanessa Baird begins a journey into its vortex.

BEEP! go the electronic doors and jolt me out of my daydreams. The underground train has halted at a stop named 'Bank'. It's time to leave the bowels of the metropolis and climb up into the throbbing financial heart of the City of London. Towering over it, at its centre, and looking strangely congruent, is the dome of St Paul's Cathedral.

'There's nothing in money but faith,' is the phrase that keeps whirring round my brain. The coins in my pocket, the notes and cards in my wallet, only have power and meaning because I and others believe in them. If we lost faith in them they would be worthless pieces of paper, metal and plastic.

I walk down Threadneedle Street past the Bank of England with its pink waist-coated guards and their tricorn-hats looking like emissaries from an arcane age. Round the corner is the glass-and-metal Stock Exchange, today a computerized ghost of its former hectic self, but still the world's third most important in terms of the amount of business it handles.

A few streets further away, built on Cannonbridge overlooking the River Thames, is the London International Financial Futures and Options Exchange (LIFFE), opened in 1982. This is where the real action happens in the world of money today. The trading here is not in what is, but what might be in the future - future prices, exchange rates and the like. In the pit at the LIFFE the open-outcry traders, wearing brightly-coloured blazers indicating which firm they belong to, shout and gesticulate in a frenzy of buying and selling.

These are the rambunctious altar boys of globalized capitalism. Overwhelmingly young and male, they can earn $250,000 a year - and that's before bonuses. 'They don't know anything about markets,' say the snootier high priests, older finance people with degrees and the like. 'They just have fast reactions and the right competitive instinct.' To be really good they need, in the vernacular of the pit, to be able to 'take shit' and possess 'balls of steel'.

However, these traders may soon be a thing of the past. The LIFFE is rapidly losing business to its computerized German equivalent, the Eurex, and will have to go electronic if it is to survive. The pit, the bustle, the traders' gestures will be replaced by quietly humming computers zipping (mainly) zeros around the world and calling it money.

Ours is dubbed the 'Age of Money' - with good reason. In the past decade international finance has been revolutionized. Due to the globalization of the world economy, unregulated capital is careering footloose around the globe. Formerly closed economies, be they in Vietnam, Russia or Brazil, have cast off controls and embraced foreign funds.

New technologies and financial innovations have made it easy to move money instantaneously. Fortunes can be made with the push of a button, by people divining meanings from red and blue letters and figures on a computer screen. Every day, money to the value of a trillion dollars - that's a thousand billion or one followed by 12 zeros - is moved around the world in the shape of such blips on computer screens. And speculation on those blips can cause the downfall of an economy, thrusting its people into poverty, with knock-on effects around the world. Arch-speculator George Soros himself has warned: 'The collapse of the global marketplace would be a traumatic event with unimaginable consequences, yet I find it easier to imagine than the continuation of the present regime.'

Money is becoming increasingly imagined, detached from reality for these traders. For example, in 1994 crude-oil futures and options on the New York Mercantile Exchange traded four times the amount of crude actually produced in the world.

All of which makes me think: What exactly is money?

The textbook definition goes thus: 'A medium of exchange and store of value.' It then lists different kinds of money, ranging from the narrowest definition as notes and coins in circulation, to the broadest, which includes treasury bills, savings certificates, bank deposits and assorted other funds.

None of this, however, begins to address what money means to us as human beings: the extraordinarily dominant role it plays in our societies, in our psyches, and in determining our very survival.

'An extreme and specialized type of ritual' is how anthropologist Mary Douglas sees it. 'Human happiness in the abstract,' opined philosopher Arnold Schopenhauer. Economist Adam Smith saw money more prosaically as 'labour', while Georg Simmel, money's great philosopher, saw it as 'liberty'. In a non-money society you would have to pay your way in wheat or honey or sex. In a money society you could, at least in theory, choose your economic activity.

But money also arouses profound feelings of disgust. Novelist Leo Tolstoy called it 'a new and terrible form of slavery'. Saint Paul famously identified the love of money as 'the root of all evil'. And even economist John Maynard Keynes found the accumulation of money for its own sake to be morbid, even pathological. Sigmund Freud, true to form, pointed out how a small child who wanted to retain his or her precious faeces might in later life want to hold on to money.

Karl Marx was, predictably, complex in his views. Money for him has the capacity to be 'a radical leveller', but it is also a dominating 'alien entity' to which humans subject themselves and their activities. The money system makes us needy. And because the quantity of money is its only important attribute, it is also horribly reductive.

When all is said and done, money remains a slippery concept, hellishly awkward to pin down with definitions. That hasn't stopped people devising whole doctrines around their own idea of it. Monetarists for example believe that money, rather than labour or goods, is the lifeblood of the economy. The best way to take charge of the economy, they say, is to control the money supply. This was all the rage in the 1980s among the Right-wing Libertarian followers of Chicago economist Milton Friedman, including Margaret Thatcher. It went hand-in-hand with another libertarian doctrine, the 'efficient markets' theory. Markets had their own logic. Just let them be and they would sort themselves out.

In the wake of the East Asian and Russian crises there's not much of that sort of talk today. If any theory is likened to markets it tends to be 'chaos theory'.

But still we cast around for some old solidity, for a terra firma of 'real economics' with a reliable money system running like a river through it. When the state of the Russian economy recently sparked off speculation that the rouble would be devalued, the then Prime Minister Sergei Kirienko responded by saying that this belonged to 'the sphere of psychology and not real economics'. Two days later, the rouble plunged. Sounds like Psychology 1 - Real Economics 0, to me.

So is the world's money system - this unstable beast of our own creation - really dragging us to the brink? What is going on? And what, if anything, can we do about it? Maybe this is the moment to turn the metaphorical piggy bank upside down and try and find out what's inside. The articles that follow, ranging from Dorothy Rowe's psychological explorations to James Robertson's inspired ideas for the future, aim to do precisely that.

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Globalization

...this little pig went to the market.

Derivatives... Options... Futures.... Hedge funds... Junk bonds... Swaps... Money markets... Units... Equities... What a fog of words! The jargon for the 'financial services industry' is prodigious, and I can't help but feel that its primary aim is to befuddle.

I've never been a great fan of the finance pages. Those tables of stocks and shares could have been in Chinese for all I cared. And as for the stock market indices - the FTSE, the Dow Jones, the Nikkei - their daily ups and downs were familiar background listening, like the shipping forecast. But I can't admit to having nursed an ardent interest.

When I read, however, that the huge swathes of money swirling around the world at breakneck pace are not real, that it is all to do with expectations of what the price of something might be at some future date, I begin to wonder what it all means. If it isn't real, how come lack of it can do so much damage? When I hear rumours that George Soros might bring down such and such an economy by unleashing his $11 billion hedge fund to speculate on its currency, I begin to think I ought at least to know that this hedge is more than a garden accessory.

And when I learn that the antics of traders in London or Moscow affect the very livelihood of peasant farmers in Thailand or factory workers in Brazil, I start wondering what, if any, is my own involvement in this seemingly extravagant and frivolous, but actually deadly serious game?

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