‘I remember coming into touch with that topic on a deeper level for the first time when I wrote my Bachelor thesis over 50 years ago,’ Great G continues. ‘It was about the disruptive effect interest-free credit could have. I wanted to add spice to a dry scientific paper and asked ChatGPT, a very smart search engine on the internet, for metaphors illustrating the function of money in the economic system. I loved ChatGPT as a student, it was the perfect tool to play around with, and it gave me complete nonsense as an answer.
Except for one. Key to Kingdom, Silent Worker, Master Puppeteer – the program might have used data from the latest Netflix series. But Lifeblood of Commerce: this one came quite close. Just as the blood in your body fills you with life and allows your body to function, money – capital – is the stuff that is essential for a functioning capital-istic economy. If you want to have access to goods and services to produce something – to Beaver Tails to eat something – you need money.
Banks can give it to you, mostly in the form of credits, which is money that you have to pay back later, at a higher price, as banks charge interest. The other thing is equity investment, coming from other financial institutions or private individuals. You don’t have to pay back an investment to the investor, but they get voting rights and shares in your project. And now I want you to guess something.’ She turns to Cheeky C who stops eating and looks at her.
‘What?’
‘How much money in the form of credits is currently in the global market compared to investments?’
‘Umm…’
Great G pulls out her phone. ‘Sometimes even the wisest person needs to look up the current numbers, but don’t tell anyone… Ah, got it.’
‘My answer is: as much credit as there is water in this lake compared to sand or sugar in this Beaver Tail compared to flour. A lot and impossible to capture in numbers completely.’ Cheeky C smiles – cheekily. ‘Correct?’
Damn, this girl thinks outside the box. She just gave me an answer that could not be proven as wrong, thinks Great G in amusement. ‘Correct. One point for Cheeky C, zero for Great G in terms of creativity and cheekiness. If you want to know the exact dry numbers, listen carefully: the volume of the global bond market is $133 trillion [1] while the global equity market only has a volume of $109 trillion.’[2]
She quickly types into her phone, then looks at her sugary bun with new respect. ‘With $133 trillion, you can buy 19 trillion Beaver Tails. That’s three Beaver Tails per day for two years – for every person on this earth.’
Just as the blood in your body fills you with life and allows your body to function, money – capital – is the stuff that is essential for a functioning capital-istic economy.
Great G takes a crispy bite. ‘Anyways, what I wanted to show you is that credits, in the form of bonds, make up the largest share of the money that is used for making things run in this world. And investments and credits are interrelated, as investors can borrow money from banks to make investments. Banks are also key players in the bond market: they both buy and sell large amounts of bonds. [3] So, it often comes back to banks in the end, if not always. And, following certain financial guidelines, they decide who gets money and who does not. That’s why they are so powerful.’
Cheeky C tilts her head to the right side, frowning thoughtfully. ‘Okay, got that. They even have a say in whether a Beaver Tail can be produced or not, that’s incredible! Has it always been like this, that banks have so much power?’
‘No, no,’ Great G shakes her head heavily. ‘Glad you ask that. Often, we think about the things around us as given, as natural. But nothing is natural. Everything is a social construct that evolved in the course of history. Money as the widespread and only means of barter and change was artificially imposed by the modern state during industrialization almost 200 years ago. According to Polanyi, one of my favorite and eye-opening historians, before the industrialization and the end of feudalism in Great Britain, the ‘old’ economic system served a particular end. That is, a social end, to meet the needs of a community and society. Economic processes were organized along the main principles of redistribution and mutual exchange.[4] The majority of the population exchanged goods by ‘give and take’ principles, with money playing a subordinate role.’
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Sources:
[1] World Economic Forum. 2023. “Ranked: The largest bond markets in the world.” Available online from: https://www.weforum.org/agenda/2023/04/ranked-the-largest-bond-markets-in-the-world/, accessed 26 February 2024.
[2] Sifma. 2024. “Quarterly Report: US Equity & Related, 4Q23.” Available online from: https://www.sifma.org/resources/research/research-quarterly-equities/, accessed 26 February 2024.
[3] See: p. 55 in Duffie, Darell. 2010. “The failure mechanics of dealer banks.” Journal of Economic Perspectives, 24(1), 51-72.
[4] Cf. pp. 47; 53 in Polanyi, Karl. 1957 [1944] The Great Transformation: The Political and Economic Origins of Our Time. Boston: Beacon.
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