Week 3: Rethinking Money and Debt > Overview > Introduction
- Welcome to week three: Rethinking Money and Debt.
- Last week we explored how banks operate when we asked the question, where does your money sleep at night? This week, we look at ways in which you can direct your money to help create the kind of future that you want to see in the world.
- So we’ll be asking questions of what actually is money? And what is debt? And how do they relate to each other? What makes some debt good and some debt bad? And there is a variety of answers to these questions.
- Really at the end of the day, we find that it’s a story of asking ourselves about what we value, what our assets are, and really looking into how we relate to each other.
- In this week we’ll see that banks are actually uniquely positioned to help invest and shape our collective future.
Week 3: Rethinking Money and Debt > Voices From the Street > Voices From the Street
- Money is currency, you know? In China, we call it RMB. In US, we call it dollar.
- What is money? Money is the- well, it’s a representation of wealth or of resources and how they’re dispersed, and something that we use in exchange for goods or for services instead of having to say, I’ll give you my pair of shoes if you wash my car.
- Money is anything that you- well, currency- whatever you choose, whatever currency is.
Week 3: Rethinking Money and Debt > Money > A History of Money
- So we’re going to, in this clip, talk about what is money and sort of where money comes from.
- So Phil has to have something that I want, and I have to have something that Phil wants and in the right numbers.
- The story goes that, essentially, money came in as a more efficient way to do these types of exchanges.
- So within this school of thought, the history of money is usually a history of coinage.
- So that really changes the story about banking and credit and money.
- So rather than money coming first and then banking and credit, actually credit came first and then money was introduced.
- So if these elaborate systems of credit predate the invention of money and coinage, can we really think of money as just a commodity? And the credit theorists and the credit theory of money say no.
- Money isn’t necessarily a commodity, but it’s really an accounting tool for measuring debts, the debt we owe to other people.
- So money is essentially a symbol that’s passed around that’s a promise to pay back a debt.
- The value of this symbol comes from our trust in other people, our trust in our society, and the people that we’re living and working with, that this money will be paid back.
- We see that money has, in the past, been a commodity, but this credit theory of money also is true.
- So is it a commodity, is money credit? And the answer is really that it’s both.
- It sits on this really fine line between being a thing with a precise and measurable value, with a value in and of itself, and being something that’s built around our relationships with other people and our relationships to the state.
- So the important thing I think this leads to is actually a bigger conversation about not only our money, but what that means for our economy.
- So both money and our economy are not things that are sort of separate and independent, but they are deeply embedded in our social and our political relationships and shouldn’t necessarily be distinguished from those.
Week 3: Rethinking Money and Debt > Money > What is Money?
- In this clip, we look at the question of what is money, and this is a very important question because the fact that banks deal with money distinguishes banks from any other corporation or business in the economic system.
- The fact that banks deal with money makes banks different and really relevant.
- Let’s start with looking at the standard definition of money.
- So these three elements, storing value, exchanging services and goods, and measuring values are a good starting point to understand what money is.
- Then the question is, what is the value? Where does the value come from? And money today is fiat money.
- So money is not backed by physical values like gold.
- Money is backed by the government and issued by the Central Bank.
- So the value of money has to do with our trust in the government, our trust in the economic system.
- The core tool of our economic system, money, is basically a legal construct.
- So money sits at the edge between our economic system and our political system.
- In order to understand what money is, we think we need to get further into detail here.
- So what actually happens when you give money or handle money from one person to another.
- So if you have euro or dollar in your hands, and you give money- just imagine you give the money to a person next to you.
- What happens? In that moment, the person looks at you and says, why? So what’s the reason? Why do you transfer money to me? And that simple gesture alone explains what money does.
- The moment money transfers from one person to another person, you create a relationship between these two people.
- The moment I give you money as loan money, I want to know what do you want to do with this? Why do you need it? When do I get it back? So the quality of my relationship to you differs.
- There’s a third form of relationship that can exist when I transfer money.
- Do you have a suggestion here? So it’s did I just give you the money? So I give it away.
- For example, look here at MIT, you see that gift money is really relevant.
- So gift money is money that’s given to enable someone to do something without a clear contract of what the result will be.
- So gift money enables, and gift money is important in our economic system, because it creates innovation and new ideas.
- So in summary, what we think is really important to understand about money is, first, money is a legal construct.
- So money sits between the government- political system- and the economic system.
- Then there’s the definition of money, what money does.
- Thirdly, the transaction of money, giving money from one person to another, creates a relationship.
Week 3: Rethinking Money and Debt > Debt > The Morality of Debt
- Debt allows businesses to offer goods and services and to grow.
- There are all types of debts and obligations and ways we cooperate with each other in day-to-day life that build our social fabric.
- So I owe debts to my parents, I owe debts to my teachers for teaching me, for friends and family for helping me out, and this creates all kinds of very complex relationships that can be very difficult to tease out.
- That’s also very cultural and contextual depending on where you are and who you are, but if you have a financial debt, it seems that that always must be paid.
- When we think about debt, there’s- the words like freedom, and guilt, and redemption all have ancient roots in the language of finance and debt, and so this is deeply embedded in our sense of morality and in our sense of right and wrong.
- Other nations were setting embargoes on Haiti until they paid off the debt, and so this ultimately crushed the Haitian economy and crushed a lot of the potential in that country.
- So the question is, if banks can destroy a life by giving a loan and destroy a life by not giving a loan, where is their responsibility? How do they determine what makes a debt good and what makes a debt bad? And so when we bring this back into Just Banking, we realize that there’s always a financial element of debt, but there’s also the social element of debt, and Just Banks really try to look at both of these elements in order to make decisions.
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Week 3: Rethinking Money and Debt > Debt > Good Debt vs Bad Debt
- So one of his mentors said giving a loan can destroy a life, and giving a loan can rescue a life.
- Giving a loan enables and, especially for businesses, having access to capital and having access to financial capital is essential to grow, to change, to bring an idea into practice.
- We want to shine light on this area in between, and in order to do this, I think an important question to look at is what does a loan do? A loan basically gives you money today and you have to pay back in the future, which means if the loan doesn’t enable you to continue or increase your income, your ability to consume your income in the future will be reduced.
- So to sum this up for value-based banking and for just banking, where the well-being of the individual and the well-being of the projects, the well-being of the business is in the core of the business model to increases well-being, the evaluation of a loan does not just need to include the quantitative factors, but it also needs to include qualitative factors that help analyze whether the loan increases the well-being of the organization, the business, or the individual in the future.
- The loan always has something to do with the future of the recipient and to take a look into how this loan will affect the future of the individual is a core criteria for just banking.
Week 3: Rethinking Money and Debt > Capital > What is Capital, Really?
- In the Middle Age capital was only used as an accounting tool and only with industrialization capital became as relevant to our economic system as it is today.
- As we all know, Karl Marx used capital as one of his core analytical tools for the current economic system and also created the terminology that’s dominant today with capitalism.
- What’s important to emphasize here is that these other forms of capital are really important for economic development as well.
- So often when we go into communities or neighborhoods that we work with that are low on financial capital and working with the assets and the capital that are there that are non-financial is a very good start for development and moving this neighborhood into a positive direction.
- The Price of Inequality, Joseph Stiglitz emphasized the core characteristics of financial capital and compares this to non-financial capital.
- When we look at values-based banking, this is one of the core challenges that values-based and just banks deal with how do you reconnect the global quick financial capital to what’s actually happening on the ground, the real capitals, the real assets, the real economy? So the gap between these two is in the core of the issue of our current economic system, and it’s broadly discussed.
- What we would like to emphasize in this discussion on capital is that the disconnect between the financial capital and the real capital, the real economy, is one of the core challenges in banking.
Week 3: Rethinking Money and Debt > Economic Democracy > Rethinking Assets
- So if you have a new idea, if you want to start a business, having access to financial capital is very enabling and empowering.
- So money and power are very closely linked in our economic and political systems.
- So what does that mean for the billions of people around the world who have very little access to financial capital? So we’re going to take some time to look into that and look into how communities are able to build well-being and build a local economy without access to financial capital at the start.
- So here at the Community Innovators Lab at MIT, we see that actually communities that have been the most marginalized and excluded from mainstream political, social, and economic systems often see how those systems are broken.
- They’re able to with that really re-imagine their local assets and the types of capital that they can leverage to their advantage.
- Under the surface there’s a whole range of relationships and activities that are economic activities that build the fabric of our social and economic lives.
- So looking for and leveraging these hidden asked can be a really powerful tool.
Week 3: Rethinking Money and Debt > Economic Democracy > Instituto Banco Palmas
- Those two forces were able to organize people around their rights.
- Because of course, religion is very important for people in Latin America.
- This is a very politically conscious form of religion in a way that focuses on people’s rights over anything else.
- So we’re in the middle of a mobilization where these people were gathering, like crowds of 100 of people, in the main square of the community, in the middle of the day with 9,500 degree weather.
- They were always very creative in the way they communicated.
- This comes not just because they were mobilized, but they had a very particular set of community leaders.
- They always are very aware of their own misery in a sense, but also of how powerful they were when they were working together collectively.
- One example used to be is- the politicians of the time and today always test this thing with divide and conquer.
- So when there were big famines or stressful situations, they would offer very limited stuff to certain communities.
- Most communities would accept it because the situation was so dire.
- Banco Palmas was very well known for not accepting it.
- They managed to get different things that were very important, like electricity, water, the sewage system, just an age-old story that continues to be relevant.
- You’ve got a health post, schools, all these things.
- As it happens in many places, like slums, or downtown neighborhoods that improve, after a certain point the region does not have a local economic fabric, let’s say, that gives opportunities to people.
- The people that fought for and conquered those rights are forced to live in other communities where the situation is similar to where they were 10 or 20 years ago.
- So the community got organized again to defend themselves against that and to- not just they complain or denounce a horrible situation, but to do something about it.
- They did something that now is done all of Brazil that is called consumption mapping, where they went to- they gathered people in assemblies as well.
- What sort of things do you buy? What’s really important for you? And with that map of information, they realized that- and with a guiding question.
- Then when you go into these little questions about how people spend their money, they realized that the answer changes dramatically.
- There’s no question and poverty is related to that in some ways.
- They also knew that they had a bigger problem on their hands, which is that people were not spending money in the community.
- Why was that? Well, because there were no local businesses, or because sometimes their product was made more expensive, or because people, like almost everyone that had a job didn’t have it in the community.
- They had to go downtown really far away, and so eventually will buy things wherever they spend their day in.
- So they had to figure out a way to produce and consume at the local level.
- Since they’ve always been very audacious, and they were not really- didn’t care much for what other people think, they said, well, we’re going to have our own bank, not just because banks don’t come here, because then they will try to have a commercial bank to come.
- So they said we need to have our own bank, like we have our own association, or we have our own health post, schools, everything.
- I always say that this led to one of perhaps one of the most innovative models of economic, and political, and banking, local banking that you can see around the world.
- I think if they wanted to create one of the most innovative schools, they could have, the same for health, or for transportation, or for infrastructure, whatever you think.
- You need people to have a good understanding of their own possibilities and the power they have to change things, to change their own reality.
- The level of responsibility that comes when you take ownership of that fact, and if you’re able to keep that over time, you can make huge changes.
Week 3: Rethinking Money and Debt > Economic Democracy > Economic Democracy
- From the inception of modern democracy, how much to regulate and how to control banks and other large corporations has been at the center of democratic debate and struggle.
- When that happens, banks and large corporations have often used their unique positions in society to enrich themselves at the expense of others, and also to suppress democracy itself.
- When this happens, political elites use their political power to enrich themselves and their allies, to stifle innovative businesses and creative innovations in the economy, and also to suppress democracy.
- In the 21st century, a crucial challenge for democracy is how to ensure effective citizen governance over the economy, particularly banks and other large corporations.
- There are many other things that we don’t know, such as what is the appropriate structure of ownership and governance of banks and other large corporations? How can we democratize governance of these institutions? And on these questions, we’ll have to learn as we go.
Week 3: Rethinking Money and Debt > Economic Democracy > Voices From the Field: Jorman Nunez and Nick Iuviene
- I spend a lot of time managing stakeholder and education activities for a wonderful initiative in the Bronx called the Bronx Cooperative Development Initiative.
- My work is largely based in the Bronx with the Bronx Cooperative Development Initiative, but also working on the Economic Democracy Project with leaders from across the country looking at questions about economic democracy and low income communities.
- The Bronx, especially for folks that don’t live here, work here, aren’t from here, chances are you’ve probably heard a lot of negative statistics, negative things.
- I think that’s one of the clearest examples of how we could be building all this really significant economic development infrastructure, a food distribution point, in the poorest urban county United States with the highest rate of diabetes and asthma and all these other issues.
- The Bronx Cooperative Development Initiative is an initiative that really started with grassroots leaders that were tired with the way land use decisions and economic development decisions get made in the Bronx.
- A process that for the most part cuts community out ensues and we get a project that now community members have to be put in a defensive position to make sure that that project has significant benefit, or enough benefit, for whole folks that are mostly impacted by it.
- So grassroots leaders in the Bronx that have a history of culture for the last 20, 30, 40 years doing community organizing and fighting for economic justice came together and said, how could we shift that dynamic? How could we shift it so that instead of always being in a defensive posture, or playing defense when it comes to economic development- meaning confronting developers, confronting elected officials, and making sure that we get benefits that we deserve as members of this community- how can we begin to be in a more offensive posture, play offense and develop the economic development tools proactively that help us build and design the economy, the community, that we aspire to live in.
- So BCDI is an effort that’s about how could we build the foundation for economic democracy in the Bronx and do that in a deeply democratic, deeply participatory way, that’s aligned with values of self determination? So the strategy for BCDI, and the model for BCDI, is based on a few different ideas.
- One is it’s essentially an import substitution model where we’re looking at the assets that exist locally, and then figuring out how to leverage those assets to build shared wealth and shared ownership locally in the Bronx amongst Bronx residents.
- So to begin to shift that purchasing power to Bronx-based businesses, and increasingly to community owned, worker owned, shared ownership forms of business is a starting point for shifting the patterns and growing the shared wealth in the Bronx.
- Then we can hold and capture those assets, capture that economic activity, localize that economic activity, and then move from there and build off of that.
- Understanding our role and relationship, but just how we begin to build a deeper capacity to leverage what we have, and then build off of the strength of the region, is the basic approach.
- Our hope is that we’ll be so successful at doing that that we’ll be able to help communities of color all over the country- folks that have a history of organizing like us, that have a history of fighting and standing up for their community- come together and figure out what are their pieces for economic democracy? How do they need to work together? And then how we build- how do we make that impact scale up to the national level so that those most impacted by really exploitative economic development tools and economic policies, and those that are most getting oppressed by it could develop the proactive tools to build the base of an economy that really shifts that and builds economic democracy and self-determination for all of us.
- In terms of, I think, the relationship that the Bronx has had, and has now, with banking, one thing for us to think about is that the past history- 30, 40 years ago- was redlining, and was the disinvestment in the Bronx, and many communities like it across the country.
- Now we feel like we’ve found ourselves in a situation where investment and banks are coming- have come back and are investing back into the community and precipitating gentrification and a displacement of existing residents.
- So how do we begin to think about what’s the role of a responsible bank in changing that pattern? How does the capital come back into the community? How do we make investments that are not just environmentally sustainable and appropriate, but are deeply socially responsible, and are explicitly opposed to exploiting existing folks and opposed to displacing existing residents? And that’s challenging and hard.
- That seems a critical core question for communities like the Bronx, and for a responsible bankers and banks.
- You know the banking institution, or banks as an institution, loan funds as institutions, all these financial tools, as institutions, I think are not evil in and of themselves or good in and of themselves.
- What I do envision is a Bronx where people have the tools to meaningfully and authentically address those challenges as they come up.
Week 3: Rethinking Money and Debt > Rethinking Money and Debt > Re-thinking Money and Debt
- We talked about capital, and we ended up with a discussion on the disconnect between the financial economy and the real economy, and how that connects to the character of capital.
- We will dive more into what is needed to reconnect the financial economy with the real economy in week five.
- We hope you enjoyed this week, and next week we’ll dive more into how to operate a bank that’s trying to have a positive impact in the world.
Week 3: Rethinking Money and Debt > Lending Dilemma: You Decide > Lending Dilemma: You Decide
- Within the Triodos Bank, we always focus first on the question: Is what the entrepreneur wants to achieve sustainable? Is it enhancing quality of life? And that’s our first question.
- Sometimes it’s a dilemma between an entrepreneur that wants to achieve something that is enhancing sustainability, but at the same time it’s not contributing in the same idea that they have for creating their business.
- They’re quite well known in making leather shoes.
- So why don’t they use also the fat that they have to scrape off anyway, and reuse it for lowering the carbon footprint? And besides that, they also had a program in which they felt that they could lower also their chemical and water usage for the tanning of the leather.
- One of the questions that my colleague asked me was, where is this leather coming from? How are the cows treated? And they were quite surprised by that question.
- Their blunt answer actually was, well, what do you think? Do you want to have a barbed wire mark on your leather shoes because the cows were standing outside and having a stroll outside? No, of course, they said.
- So hence the question, would we finance this? And this is also the question I would propose to everyone who is a part of this discussion of this dilemma.
Week 3: Rethinking Money and Debt