Secretary of the Usury

One of my first jobs ("between engagements" as a budding New York actor, back in the early 70s) was working as a "pit clerk" in the NY Mercantile Exchange. These were the primitive days of slips of paper and chalkboards, with one lonely video monitor in the corner. As pit clerk, I would stand in the hole in the center of the table, and when a sale in a futures item (Argentinian Beef and April Potatoes were big, I recall) the broker would scrawl it on a slip of paper, and I would grab it and time-punch it, and hand it to another clerk outside the table to post on the blackboards. The point, as I soon learned, was that no one really wanted to end up with the Argentinian Beef or the April Potatoes. They were dealing in futures, not the actual cattle or spuds; they wanted to make a profit on the potential commodities, and had no interest in getting stuck as butchers or greengrocers, to say nothing of making a stew of things. Of course, someone always did end up holding the actual product. But this was a market driven entirely by expectations, not realities. This is where I formed most of what I believe about economic theory. I say all of this just to lay my cards on the table, as having no other expertise in the matter.

O.K. So we're in a big economic meltdown. I, for one, am not surprised. And although I remain optimistic for the long haul, I am skeptical that any of the proposed Bail Out Plans or other efforts at manipulation will be of any help in settling the churning waters of the world economy. I say this for several reasons.

First of all there is the general idea that lending money at interest is bad. It used to be called usury, and was considered a very serious crime, and what's more, sin. Eventually, through the work of folks such as Adam Smith, it came to be seen that lending money to people to produce goods and services actually contributed to the "wealth of nations." So far, so good. The problems really started to arise, in the present instance, with mortgages: the idea that people should borrow money to buy a house. Unlike a factory or farm that actually produces goods or services -- and so contributes to the actual net real value of things -- a house is a house, and it will only increase in value due to extraneous factors, such as the neighborhood "improving" or the resident actually adding a dormer or a deck. In fact, left to itself, the average house actually begins to lose its value due to accumulating damage. The purported value increase is due to inflation, not a real increase in value. Even Baileys' Savings and Loan bought into this "increasing value" myth, and I suppose as long as it was small scale and operating as a cooperative venture for mutual small-scale benefit in a limited population, it could work.

But human nature being what it is -- which is to say, fallen -- greed steps in, and some are not happy enough to say "my money is in Joe's house" but want to make money out of money. You may remember Mr. Potter. They are not in it for the cooperation, but the profit. But there can be no real profit when there is no real increase in value. So this is where the Ponzi Scheme that is our modern economic world begins. We move from a goods market to a credit market: it isn't even about what money represents anymore (goods and services), it isn't even really about money simplex, but about the virtual money called "credit." And so we develop more and more virtual — and less and less real — vehicles for investment: futures, options, indexes; and then futures on indexes and options, and all sorts of other self-referential mechanisms further and further removed from any real value based on either labor or product. The juggler keeps adding to the number of things in the air all at once.

As the chaos scientists assure us, self-referential systems are prone to chaotic fluctuation, and small inputs can produce paradoxically large outcomes -- and vice versa. Such systems become literally uncontrollable: so all of the efforts to pump money into the most chaotic part of the system (mortgages and credit) may have little or no effect on our present or future situation — or too much, or contradictory.

I am no economist, but even I can see when things have gotten far out of hand. We need a major attitude adjustment. As with the whole insurance business (another area where the machinery is now geared to profit and the maintenance of a top-heavy institutional structure rather than the mutual sharing of burdens) we need a radical overhaul, to get away from the notion of making money by lending money, unless that money is used actually to produce some goods or services. We need to shut down trading in ephemera, and get back to reality.

I realize this radical proposal has all the chances of the proverbial snowball in Sheol; but I offer it nonetheless. I have stood in the Pit, and seen how and when it went wrong.

Tobias Haller BSG