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Barataria: An Economic Fairy Tale


13 January 2024


 
Het Wondereiland Barataria
 

Money makes the world go round, they say. And that is correct. Money directs our actions. The financial sector harbours an unprecedented power, and we are its hostage. Many of us may live agreeable lives. In the past, nearly everyone was as miserable as the poorest people are today. But it comes at a price. Economic and financial interests, not our values, determine how we live and work, and we are using more than the planet can provide. And we haven't learned the lessons from history. Human civilisation as we know it is about to end, and the underlying causes are hidden.

There are alternatives to the current social-economic system, but they also come at a price. That price might be worth paying if that system leads us to destruction. To explore the different options, imagine a community that has tried other ideas. In the early 1990s, STRO published The Miracle Island Barataria, an economic parable by the Argentinian-German economist Silvio Gesell.1 I rewrote that story somewhat to make its message more clear. And I highlight the longer-term consequences we are about to face. And so the story goes.


Long ago, on a faraway island


In 1612, a few hundred Spanish families landed on Barataria after their ships had sunk. The Spanish government believed they had drowned, so no one searched for them, and they became an isolated community. At first, they worked together to build houses, shared their harvests, and had meetings in which they decided about the affairs that concerned everyone. It was democracy and communism. After ten years, the teacher, Diego Martinez, called them together. He noted that working together and sharing had helped them build their community, but the islanders were lazy. They spent their time at meetings discussing what to do, but many jobs remained undone.

'If someone has a good idea, he must propose it in a meeting to people who don't understand it. We will discuss it but usually we don't agree or we don't do what we agree upon. And so, nothing gets done and we remain poor. We could do better if we have the right to the fruits of our labour and take responsibility for our actions,' Martinez said, 'The strawberry beds had suffered damage because no one had covered them against night frost.' He mentioned several other examples. Martinez said, 'If the strawberries are yours, you will protect them. And if you have a good idea, you will do it yourself and hire people to help you.'

He suggested splitting the land into parcels and renting them to the highest bidder to finance public expenses. Fertile lands would fetch a higher price than barren ones. And that would give everyone an equal opportunity to make a living. He also proposed introducing property so everyone would feel responsible. But with property, you need a medium of exchange or money. The islanders decided to use potatoes as money. They had value because they were food. Everyone needed potatoes.

Potatoes are bulky, thus difficult to carry, and they rot. At the next meeting, Santiago Barabino argued that they could set up a storehouse for the potatoes and issue paper money, notes you could exchange for potatoes if you needed them. So, you had banknotes of 1, 2, 5 and 10 kilogrammes of potatoes. The Baratarians agreed to the proposal. To cover the storage cost and because potatoes rot, banknotes had a date of issue and gradually lost their value. If you returned the banknote to the potato storage after a year, you received 10% less. And because the issue date was on the banknote, buyers and sellers knew the actual value.

For a while, Barataria had banknotes covered by potatoes. Their value declined over time to pay for the storage and the rot. Borrowers didn't pay interest. People lent the money if the borrower agreed to return notes representing the same weight. That would not have happened if the notes had a constant value. The notes lost value, so everyone spent their money quickly and kept items and food in their storehouses. The general level of opulence rose, but there were no poor or rich people. There were no merchants buying things at a low price to sell them at a high price. Because businesses didn't pay interest and there were no merchants, things were cheap in Barataria. The chronicle notes that the islanders acted as good Christians and helped each other.

Then Carlos Marquez came up with a new idea. He addressed Baratarians, 'How many losses do housewives suffer from keeping food in their storehouses? We shouldn't put our savings in products, but money. We can back our money with something we don't need and doesn't deteriorate. The Pinus Moneta is a nut we can't eat, and doesn't rot,' he said, 'We don't have to back money with a commodity of value like potatoes. The things we buy and sell give the money its value. If we do that, we can buy things when we need them and don't have to store them ourselves.'

Diego Martinez argued against the proposal. He told his fellow islanders that a medium of exchange passes hands. It remains in circulation. But savings stay where they are unless borrowers pay interest. You end up paying interest to use the money you need to buy the things you need. His argument was to no avail. And that is the price of democracy. People often decide about questions they don't understand. And when things are going well, you can't imagine that seemingly insignificant errors can bring ruin.

Most islanders preferred to spend their time getting drunk in the pub instead of studying the issues of the state. And Marquez spoke passionately, while Martinez warned cautiously, saying things were fine and he couldn't foresee the consequences. That may have swayed opinions. The islanders switched to money backed by the Pinus Moneta. That money didn't lose its value. That made it attractive to save.

Suddenly, everyone wanted to exchange their supplies for the Pinus Moneta, mayhem in the marketplace. Everyone brought in all their supplies, but no one could sell their goods because everyone wanted money. That was until the company Barabino & Co came up with a plan. Barabino & Co. set up a bank with accounts you could use to save and make payments. Everyone could bring their money to the bank and receive an extra 10% after a year. The naive Baratarians agreed. They could have known there weren't enough nuts of the Pinus Moneta to pay the interest. And they didn't ask themselves how Barabino & Co. would generate the profits to pay that interest. With this borrowed money, Barabino & Co. bought goods from the islanders and gave them money in their accounts, but Barabino & Co. mainly bought seeds.

The following spring, Barabino & Co. hiked seed prices. Most islanders paid more for the seeds than they received in interest. They went into debt with Barabino & Co. Then Barabino & Co. bought the harvest and cranked up food prices. Soon, Barabino & Co. owned everything. Most islanders were in debt and worked hard, but a few wealthy people lived off interest income. They didn't work and lived a life of luxury of the interest in their accounts. The Baratarians needed money to pay for the items they bought from Barabino & Co. They paid interest to use that money.

There weren't enough nuts to pay the interest from, so the islanders went further into debt every year. Consequently, they worked harder and grew more creative in earning money. They invented, produced and sold more things, most notably, wooden items made from the trees on the island. Not everyone could keep up, so there were homeless people. The economy grew so the islanders could pay the interest, and they grew accustomed to luxuries they hadn't before.

The chronicle tells us that this change came with other unfavourable consequences. It had undermined society. The Baratarians had become agitated, deceitful, and immoral. Of their Christian faith, nothing remained except an empty shell. They were only interested in making money. And then came the day the Baratarians had cut down all the trees on the island. The islanders didn't have the wood to make the tools for harvesting their crops and starved. The Pinus Moneta was worth nothing. After all, you can't eat money.


Adam Smith and The Wealth of Nations


The tale tells the dark side of capitalism or how devious and nefarious acts contributed to a result most of us now see as desirable. Humans cooperate and compete. Capitalists also produce things we need. With the help of saving and investing, they build their capital. And that is often beneficial. An essential element of capitalism is making sacrifices in the present for a better future. But the outcome could be a worse future. And let's not forget that the development of capitalism came with colonialism, slave trade, and miserable working conditions. Morally reprehensible acts can have favourable outcomes, but founding our society on evil ultimately makes us evil.

Competition leads to a process economists call the creative destruction of obsolete businesses. As factories produced at lower cost, artisans lost their business, but fabrics became cheaper, and more people could afford them. As production becomes mechanised, few people do the work we need, and most people waste energy and resources on jobs we don't need. You may think you need an espresso machine and social media, but you can survive without them. It is a tale with two sides, like the Agricultural Revolution. Now, our chickens are coming home to roost. Our civilisation is about to collapse, even though it might continue to work for a few privileged people.

Communism is about cooperation, while capitalism is more about competition. If we compete, we produce more, so there is more to share. But capitalists don't like to share. Research demonstrated business students are least likely to share the proceeds of a group effort.2 For some reason, they feel entitled to everything. Communist governments didn't equally share their society's production either. Party members, government bureaucrats and intellectuals lived handsomely off the work of peasants and labourers as a reward for telling them what they should do.

Adam Smith, the father of capitalist thought, noted that if everyone pursues their interests, they can achieve the greater good. A baker doesn't bake bread to serve the community but to make a living. That is why we have something to eat. Smith believed that would work out well as we are moral creatures. Individuals would temper their behaviour by how they thought it would affect others. That is not how markets operate. Even though individuals may have moral values, markets never have them.

Factory owners didn't consider the plight of the artisans they put out of business or the miserable working conditions of their employees. Even if most people have a moral conscience, some do not, and they provide harmful products like cigarettes, semi-automatic rifles and cocaine and even try to expand their market by advertising their products. A merchant will say, 'If I don't supply the market, someone else will, so why not take in that profit myself?' Gang warfare is just business and a fight about market share between entrepreneurs. And as long as merchants profit from it, death and destruction continue.

Poverty was Smith's primary concern. Increasing production was the way out. Self-interest appeared to be an effective way to achieve that. Since then, production increases lifted billions of people out of poverty. Smith wrote:

  • The division of labour drives production increases. If you specialise in a trade, you can do a better job or produce more at a lower cost.
  • The size of the market limits the division of labour. High transport costs limit market sizes. Cheap energy later drove globalisation.
  • People preferred precious metals as money as they could save them. It facilitated trade and finance as merchants could store their gains and make profits in finance.

  • Precious metals aren't money today for the reason Gesell mentioned in Barataria. Money plays two roles. As a means of exchange, it needs to lose value. But as a means of savings, it should retain its value. At present, central banks try to generate some inflation but not too much. In this way, money can simultaneously be a means of exchange and a store of value. There is also another reason. In this way, governments finance deficits by borrowing and promising to pay interest.

    Producers produce things at different times, locations, and quantities than consumers need. Traders bridge those gaps by storing, transporting, and dividing goods. That promotes large-scale production and labour efficiency, so we need fewer people to provide for our necessities. In advanced economies, most people's jobs are pointless, bullshit jobs that waste energy and resources. Why bother sweeping or leaving leaves behind when you can waste fossil fuels with a leaf blower? On the market, labour has a price driven by competition, but in communities, we are free to reward contributions as we please. Labour efficiency only appears rational when there are abundant energy and natural resources. If that is not the case, energy and resource efficiency become paramount. And we would be better off if more people do things we need.


    The 'evil empire' of trade and usury


    Economic power and financial power translate into military power. The Europeans didn't finance their colonial wars with taxes like previous empires but with the profits from their colonies. No one likes taxes, but everyone wants a profit. After the bourgeoisie took control of the British government in the Glorious Revolution, the British state became a venture of the propertied class like the Netherlands and Venice had been before. The bourgeoisie believed it could benefit from a functioning state and was willing to pay for it. Taxation thus became seen as legitimate as it came with the consent of the taxed. With its secured and enlarged tax base and a newly established central bank, Great Britain could borrow more in financial markets at lower interest rates.

    The bourgeoisie didn't like to pay for corruption or ineptitude, so the quality of the state improved. It allowed Great Britain to defeat France, a country with more wealth and a larger population. In France, wealthy people didn't pay taxes, and the government was short of funds. France defaulted on its debts several times, and its government was inept and corrupt, so lenders were unwilling to lend to the French government. With its control over the seas, Great Britain controlled the largest market, which enabled the Industrial Revolution because large-scale mechanised production required sizeable markets.

    Larger markets and more products mean more opportunities for traders, salespeople, marketers and advertisers. They may not all be rich, but the markets allow them to make a living. Imagine these people, including influencers, artists and bloggers, produce something we need. And the same applies to government officials who have to manage everything that goes wrong because of this. Why do something stupid and let the government tell you that you shouldn't? That can free up labour so we don't have to work long hours to make a living. And you can write a blog in your leisure time, of which you will have plenty. Before the Industrial Revolution, most people worked only a few hours daily. And yes, that can be boring. Before the Industrial Revolution, many people were bored.

    The United States is a venture of the propertied classes like Great Britain once was. And because the wealthy don't pay taxes, a corrupt and inept government is a boon to them. They bribe politicians to pass any legislation they desire, and if things go wrong, they blame the government, saying, 'There is too much government or too many regulations.' The elites only need a top-quality military and secret services that prop up their world order. The US finances its wars not by taxes but by the global usury financial system, of which the US dollar is the central pillar.

    The US promises to pay interest on its debt with money that doesn't exist to finance its military and the extravagant lifestyle of its people. As a result, the US is the world's greatest debtor, and its debt is the world's savings. Soon, resources will be in short supply, like trees on Barataria, and the world's savings will be worth nothing. The sad truth is that the demise of this corrupt empire will not automatically bring world peace. The despots ruling China and Russia have schemes of their own, as do those in Iran and North Korea. Likely, it gets worse unless a new dominant power emerges. The logic of power, competition, and warfare remains the same. There are always 'just causes' leaders and merchants can benefit from.


    Losing our human values


    In the past, most people regarded trade and finance with suspicion. It was a domain where people with questionable ethics thrived. Hermes, the Greek god for the traders, was the god of the thieves. And bankers are the worst. Did Jesus not chase the money changers from the temple? They turned it into a den of thieves. And the Bible says, 'For the love of money is a root of all kinds of evil. Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.' (1 Timothy 6:10) And the Wisdom of Jesus Sirach notes, 'A merchant can hardly avoid doing wrong; every salesman is guilty of sin.' It is in the Catholic Bible. The Jews and the Protestants didn't include it in theirs.

    Most people today are less poor than those who lived three centuries ago because of capitalism. But now we take more than Earth can give us. We can't ignore that for much longer. If we make the ethics of trade and usury the norm, we lose our values, whether they are Christian, Buddhist, Confucianist, Islamic, Hindu or traditionalist. We will value money more than people or the planet. In doing so, we lose our humanity, as behind those traditions are human values. They define who we are. And eventually, we kill ourselves, as without values, money determines our choices.

    STRO works on alternatives to help us break free from the usury financial system. Communities are central to their vision. Modernisation was about the rise of markets and governments at the expense of communities. Capitalism needed large markets to enjoy the benefits of scale. Via capital income and usury, capital builds and concentrates into the hands of a few. Abundant natural resources and energy from fossil fuels made it possible. And the capitalists need the state to protect their interests and appease impoverished people with handouts.

    We likely have less energy and fewer resources in the future, so we must live simpler lives and depend more on families, communities and nature and less on markets, governments and technology. Many of us think life must be perfect, but it never is. New technologies and products will not change that. Depending more on family and communities may not make us happier, but perhaps closer to our human nature. The people of STRO tried to formulate the foundations of a future civilisation that is both sustainable and humane. They believed we should build our society on communities and values rather than money. That is easier said than done.


    Utopians and realists


    Utopias come with visions of how we should be rather than how we are in reality. Ideally, we are all rational and do the right thing, but that isn't always the case. Utopian societies often come with repression. Religious societies force people to adhere to their values. The Soviet Union succeeded in repressing nationalism. And even liberal societies have prisons to lock up those who pose a threat. But human nature allows us to have agreeable societies with minimal repression. It has to do with steering mechanisms. The fairy tale of Barataria highlights how money can steer societies. And there is scale. In large groups, we are anonymous and may lack a connection to each other.

    If we participate in this anonymous system, we contribute to things we disagree with, and wrongdoers can hide behind laws. When we buy new clothes, we promote child labour and pollution. It is legal, and the law protects the perpetrators. Evolution made us suitable for living in small communities of up to a few hundred individuals who know each other. That is our natural way of living if you can call it that. Our imagination allows us to imagine ourselves as part of larger groups, for instance, by sharing a religion or nationality. In strong societies, people feel connected with others they don't know and treat them well. That enables us to collaborate on any scale. In doing so, we may create environments that do not agree with our nature. It is possible to feel a connection to humankind while depending more on your community and family.

    In utopian visions, the worst people don't exist. That is unrealistic. Most of us are not so power-hungry or greedy that we make others suffer or die for our political goals or profits. Perhaps we seek excuses for our misconduct because others also do wrong, and we don't believe a better world is possible. Things can be indeed better if the steering mechanisms in society change. Utopians think people with questionable ethics either stop to exist or can't harm us once we live in a utopian society.

    Paedophiles don't magically disappear either, and naive people are easy prey. If we don't allow paedophiles near children, we shouldn't let merchants run society. Most merchants aren't evil, but trade attracts a specific type of person, and the outcome of trade can be harmful. Our preoccupation with money is why our civilisation is collapsing. Paedophiles, no matter how harmful they are, don't bring down civilisations, but merchants and bankers do. The fairy tale of Barataria explains how they do it.

    The technological consumerist society is like a greenhouse for plants that previously grew in the open field, with us being the plants. We grow weak in a civilisation that shields us from the disagreeable conditions in nature. Returning to a natural life is like removing the glass of the greenhouse. It is accepting that life can't be perfect. Civilisation can't solve all our problems. We may commit suicide if we depend on civilisation too much. If you remove the glass, some plants might die, but it is better for the other plants. The glass will break one day. And if it does not, we become like plants that can't live outside the greenhouse. Waiting means we are growing weaker.

    We could be better off poorer, provided that we have enough. If you buy in a local store when there is a better deal in the global marketplace, you do so because you believe it benefits your community. And that might be the best deal in the end. We can live without big tech, fast food, celebrities, financial blogs, marketers, big pharma, and fossil fuels. We don't need the too-big-to-fail banks if we have an alternative. And we don't need the new products and services innovation might generate. The alternative, a usury-free global financial system complemented with local currencies, comes at a price, but likely one we would be willing to pay if we knew the outcomes of both paths.

    There is no need to return to the Middle Ages, not even the nineteenth century. But we should live within the limits of this planet, and not in a few decades or so, but now. The competition between merchants and states shouldn't determine the technologies we develop and use. That requires a global agreement and cooperation. And we shouldn't become like plants who can't survive outside the greenhouse. We still can have a global economy and mass production if the economies of scale justify it. But if energy and resources come in short supply, local economies will lead our future. So, what could the economy and the financial system look like? Perhaps it is possible to have a global economy centred around communities with a usury-free global financial system complemented by community currencies.

    1. Het wondereiland Barataria. Silvio Gesell (1922).
    2. The Price of Fairness (film). Alex Gabbay (2017).