24. Is changing how we spend money the answer to our problems?
A reader comments on a previous blog on money as an instrument of power saying it “supports my view — that money is vital and that to have it stolen, plundered, misused, squandered is the problem”.
This goes to the heart of it. So let’s dig deeper. At one level it’s absolutely, painfully, unavoidably true that how well money is spent is vital. That’s because we live in a moneyocratic society where anything of any importance passes through the money nexus. This includes decisions about what to do (will it make or lose money?), about if to do it (can we afford it?), and actually doing it (finding the funds and forking out the cash to do it). It’s especially the case for individuals and households that have to work within a system whose rules are effectively imposed upon them.
So yes, at one level, how money is spent is indeed ‘vital’. But what conclusion should we draw from this? If we ask the wrong question we’re likely to get the wrong answer. By framing the problem in terms of how ‘well money is spent’ we inevitably look for answers in terms of ‘better ways to spend the money we’ve got’. I don’t think this is helpful. It keep us stuck, going round and round the same circle.
Steamrollers and ploughs
I’m suggesting we need to think and work at a different level. Framing ‘the problem’ in terms of ‘how money is spent’ hides the fact that money is a facade obscuring the exercise of power. It also diverts attention away from deeper questions about what we as a society are capable of doing — our actual on-the-ground abilities to create (and distribute) real wealth.
The money-spending framing makes us overdependent on a single tool — a sort of steamroller — which we automatically use to answer every question we come across, no matter what. If you want to plough a field, a steamroller will never get you the result you want. It’s not about ‘better ways to use steamrollers’. It’s about finding the right tools for the job.
So here are three important reasons why I think it is a mistake to frame the problem in terms of ‘how money is spent’:
- It misses what money can’t buy
- It misses fundamental issues that should not be missed, such as our society’s ability and capabilities to achieve what it wants to achieve practically, operationally and technically
- It obscures the issue of institutional design: power structures and how power is exercised in our society
Let’s examine them in a little more detail.
1. What money can’t buy
In previous blogs I’ve explained why money is not wealth — indeed, why ‘what money can buy’ represents only a small part of real wealth. I’ve shown how money measures like GNP are disastrously misleading, and why real wealth consists of a wide range of other things such as peace, law and order, trust, knowledge and infrastructure that are not and usually cannot be traded in money terms.
Ian Mortimer finishes his excellent book ‘Centuries of Change: Which Century Saw the Most Change?’ by asking what has not changed over the last thousand years? I find his answer quite inspiring. This is what he says.
“What doesn’t change is that we find so many things in life worthwhile — love, beauty, children, the comfort of friends, telling jokes, the joy of eating and drinking together, storytelling, wit, laughter, music, the sound of the sea, the warmth of the sun, looking at the Moon and the stars, singing dancing …
What won’t change? Everything that allows us to lose ourselves in the moment.
Everything that is worth dreaming about.
Everything that is without price.”
Later on in this series I’ll return to the question ‘what is wealth?’ in more detail. I’ll define wealth as the sustained enrichment of human lives — enrichment that includes the practical, material, physical, physiological alleviation of pain and suffering and the provision of creature comforts plus all those things that cannot be measured or bought with money; everything that cannot be priced. I’ll argue that it is the connections between these two aspects of wealth — the physical/physiological and the intangible/emotional — that really matter.
But all that’s to come. All I’m saying right now is that defining problems and solutions solely in terms of what money can buy is a sure fire road to disaster because it sucks us into ignoring what turns out to be the most important half of the equation: the things money can’t buy.
2. What ‘spending’ money doesn’t address
Many people work on the assumption that ‘if only I/we had enough money all our problems would be solved’. Behind this lies the assumption that if you have the money, spending this money on the right things will automatically get you the results you want.
This gives money magical powers it doesn’t have, because money doesn’t actually do anything at all. It’s not money that grows us the food we eat, provides us with the energy that gives us light and warmth, or the medicines that cure our illnesses. Its people doing real work in the real world using things like knowledge and technical knowhow, organisational and institutional capabilities that do these things. It’s about what we can actually do.
Take the Coronavirus. As I write, we’ve haven’t got a vaccine that removes the virus’s threat. We don’t (yet) have the technical know-how to beat the disease. Ah! you might argue, we are now spending lots of money to find these answers. Yes. But this money is just a mechanism to marshal and deploy available resources. What will really make the difference is not the money (which is just one of many possible mechanisms for marshalling and deploying resources) but the technical advance itself, the vaccine. What really matters is the underlying capability. If you can’t actually do something, you can’t ‘pay’ for it.
Take another example from Mortimer’s book. In the 15th century widespread starvation hit Europe. Why? Because after centuries of increasingly intensive farming the soil was exhausted and crop yields were declining. Wheat yields in 1200 were as high as 6:1 (six seeds harvested for every seed planted). By 1300 they had fallen to 2:1. Barley and rye yields had fallen from 4:1 to 2:1. What was needed was not ‘more money’ but more capability: the know-how to extend the 3As of achievability, affordability and availability.
Right now, after 40 years of financial cancer, former industrial nations like the UK and US are witnessing the erosion of their real world productive capabilities (because it’s easier for moneyocrats to ‘make money’ by doing other things such as financial conjuring). This is the second danger of focusing on ‘how money is spent’ . The more we focus on the money facade, the more we take for granted what really matters: the wealth creating capabilities of knowledge, infrastructure, organisation that expand and improve what we can actually do. Like vaccines.
3. Money vs power
Finally, by framing ‘the problem’ in terms of whether money is well spent, it diverts attention from the fact that in our society money is just a proxy for the exercise of power.
As soon as we say ‘how we spend money’ is the problem, like lightening hitting a lightening rod, we are catapulted instantly back to those familiar questions of “have we got enough money?”, “can we afford it?”.
This is the flaw undermining many current left-wing solutions to the problems of our society. They are framed in terms of ‘how money is spent’ and accept rather than challenge the power structures that lie behind the use of money in our society. Left-wing social democratic parties base their policies on the redistribution of wealth (by which they mean the redistribution of money). In doing so, they ignore the challenge of real wealth creation and are constantly on the defensive about ‘how to pay for it all’.
Campaigners campaign for a universal basic income but ignore the question of universal access to basic services. The latest fashion item amongst left-wing economics — ‘Modern Monetary Theory’ — keeps the solution entirely in the parallel universe of government finance. (MMT isn’t ‘wrong’. It is based on the correct observation that Governments don’t need tax revenues to spend money, they can just print it. But it pretends that printing money is the answer, which it isn’t.)
The mega question lurking behind all these faux solutions is the exercise of power. How should available resources be deployed, to do what, for what purposes? This is about institutional design. Free markets are one design, where power over available resources gets handed to those who happen to have the most money. Democracy is another design, where administrative and decision-making powers are handed to ‘the people’.
I think the answers to our problems lie only superficially in ‘how well money is spent’. Deeper down, I think these problems relate to institutional design (who wields power, to do what, how) and how to sustainably and continuously improve our abilities to create (and yes, distribute) real world wealth, including all the forms of real wealth that money can’t buy.
Have we got good answers to these questions of institutional design and wealth creating capability? No. I don’t think we have. We might have some, partial answers, but nowhere near what we now need.
If we aren’t even asking the right questions — if we continue being steamrollered by the Money Mirage — we can’t even start developing the right answers. And that really worries me.
Next in this series: The Cinderella of wealth creation
Previous: 23. Why Money Doesn’t Measure Wealth
The full contents of this blog series can be found here.
Books and articles I found particularly useful researching this blog include:
- Ian Mortimer, Centuries of Change: Which Century Saw the Most Change?, Bodley Head, 2014
- Karl Polyani, The Livelihood of Man, Academic Press, 1977
- Adair Turner, Between Debt and the Devil: Money, Credit and Fixing Global Finance, Princeton University Press, 2017
- Mervyn King, The End of Alchemy: Money, Banking and the Future of the Global Economy, Abacus, 2017