Who invented the concept of money
Strategies for the future
Dollar bill. Image from >> wikipedia (accessed August 29, 2011), public domain
(For the conditions for the depiction of American banknotes see >> here
money is one of the - if not the - >> central invention (s) on which our cultures are based. As the population grew as a result of the transition to agriculture and trade increased in importance, the restrictions on bartering became increasingly clear - in bartering you have to find a partner who wants to have the goods or services offered by you at the same time Offers goods or services that you would like to have yourself. Money cancels this simultaneity - one can first exchange goods or services for money, and later this money with other partners for their goods and services. In addition, with money one does not have to have the exchange rates of all possible objects of exchange in mind, but only their monetary value - money also serves as Unit of account, since the value of all other goods can be stated in monetary units. Money therefore makes trading a lot easier. Money was often invented independently of one another - anything that is valued in such a way that it can be used as "Intermediate medium of exchange" suitable is. This technical term for money actually only says that money is what you pay with. Money should also be easy to transport and not perishable, then it also serves as a "Store of value”(You can leave it and swap it later).
In history, many things have taken on the function of money - from Africa to South and East Asia to the South Seas, for example, the bowls were popular because of their shine and beautiful patterns and colors Cowrie shells A popular means of payment for thousands of years. The >> Sumerians used barley money 5,000 years ago (note) - the value of goods was given in standardized amounts of barley (the "Sila", for example, corresponded to about one liter). However, barley could only be stored for a limited time and was not easy to transport - in contrast to precious metals. Ever since humans have been able to mine and process them (>> more), precious metals have been like gold and silver used as money - in Mesopotamia about the Silver shekel, weighing 8.33 grams of silver. Unlike barley, silver and gold have no real value (they can neither be eaten nor made into tools); their value is an "invented reality" (or in other words: of a cultural nature). The first coins emerged from the weights around 2,600 years ago in the Greek trading cities. The weight of the precious metal was stamped into these; Coins therefore had the advantage that they could be counted and no longer had to be weighed - provided that one trusted the person who minted the coin. With the minting, the issuer was practically guaranteeing the value of the coin; and only the rulers could make that credible (who therefore also severely punished counterfeiting). In the Greek and Roman >> antiquity, gold and silver coins made trade in the Mediterranean region much easier. The trust in the Roman coins reached so far that they were accepted even in Indian markets before the turn of the century (the trust in the "denarius" is still remembered today by the "dinars", which are used as the national currency in Tunisia, Jordan and other countries, for example ). The Chinese used bronze coins and silver and gold bars; and here, too, the common basis (precious metals) enabled a lively trade exchange.
With the end of the Roman Empire and the spread of Islam in the south and west of the Mediterranean (>> more), however, this trade almost came to a standstill in the early Middle Ages, and money hardly played a role. That only changed again when the >> Christian crusades began: the war against Islam had to be financed; and the recapture of previously Muslim Mediterranean cities made the northern Italian cities of Florence, Venice and Genoa, with their privileged location between the Hanseatic cities in northern Europe and the Middle East, into economic centers. Maritime trade was also facilitated at this time by the adoption of the compass introduced by the Arabs in the Mediterranean; Sea voyages became faster and less dangerous. But there were still Arab pirates in the Mediterranean and there was no shortage of bands of robbers on the mainland - so it was not only annoying but also dangerous to carry large amounts of gold and silver coins with you. The Italian dealers were the first to use the "Bill of exchange“, Which guaranteed to receive the agreed purchase price at a certain place. The bill-taker sent this letter to a partner based at this location, with whom he in turn had to pay for goods and who paid the bill. So no coins had to be transported. The Italian traders conducted their business in the open air, sitting on benches - this is the origin of the word Bank also for institutions that process payment transactions. Due to the large number of city-states in Italy at that time, there was also a large number of different coins that had to be exchanged - this was made easier by the Indo-Arabic decimal system, which the Italian mathematician Leonardo Fibonacci learned from the Arabs in Algeria and used his “Book of Arithmetic “Brought to Europe in 1202 - in the book he also immediately explained how the new system for bookkeeping, currency conversion and interest calculation worked. The merchants increasingly financed long-distance trade and states that needed money for wars - in Florence, for example, the famous banking houses of the Peruzzi, Bardi and later the Medici families emerged from these transactions.
The greatest risk for the banks was that the borrowers could not repay their debts - the pre-financed goods of the traders were stolen by pirates or states lost their wars. So in 1343 the Peruzzi and in 1346 the Bardi went bankrupt because England's King Edward III. was unable to repay its debts - those were the first spectacular bank failures in history. Their successors, the Medici, were soon to show in Florence what splendor and what power a well-run trading and banking house could develop. In the 14th century Florence was also the Government bond invented the "prestance“Meant: In order to be able to pay mercenary armies who went to war for the city, a compulsory levy was introduced, which was later to be refunded with profit. Proof of payment were promissory notes that prestance, which were worth money and were therefore soon traded: the more the citizens believed in repayment, the more expensive they were.
The Medici, whose rise began soon after the bankruptcy of Peruzzi and Bardi, ultimately not only had branches in numerous important cities at home and abroad, but also ruled Florence from Cosimo de ’Medici's election as"gran maestro“In 1434 for over 100 years also politically. As the Pope's bankers, they also had great political influence beyond the city-state - Niccolò Machiavelli dedicated his book “The Prince” to Lorenzo II de ’Medici with good reason. The Medici era was also an era in which magnificent palaces were built and artists such as Donatello, Leonardo da Vinci and Michelangelo worked in the city; Even today, the works that were created back then attract countless tourists to the city. The most successful bankers in the Holy Roman Empire of the German Nation were Fugger from Augsburg; They too had immigrated like the Medici and made money through trade. Ulrich Fugger already financed the courtship of the Habsburg heir to the throne Maximilian for Maria, daughter of the Duke of Burgundy; they also financed his ascent to emperor afterwards. In return they received silver and copper, and later also lands, the Fugger's trade relations extended to Hungary, Scandinavia and Spain; they also earned by collecting indulgences for the Pope, with which Catholics could buy themselves out of hell. In the meantime, precious metal for the production of coins was even scarce in Europe.
Meanwhile, while searching for new trade routes, Columbus discovered America in 1492 and Vasco da Gama discovered the sea route to India in 1498 (>> more) - this opened up new sources of gold and silver and triggered a further boom in long-distance trade. At first, the countries of discovery seemed to benefit: Spain, for example, fetched an average of 1,000 to 1,500 kilos of gold from the New World every year from 1500 to 1540. In 1515, huge silver deposits were discovered in Joachimstal in the Ore Mountains; the coins struck there were popularly known as "Valleys“Called - a term that would later become the patron saint of the dollar. In 1545 the silver mines were discovered at Cerro Rico in what is now Bolivia; the Spaniards also seized this source of wealth and from 1572 silver coins were pressed in the town of Potosí, founded at the foot of Cerro Rico, and shipped to Spain. Hundreds of thousands of indigenous people who were forced to do slave labor died in the mines for this; and Spain, whose gold and silver went into the construction of cathedrals and sumptuous courts and which waged wars with France for supremacy in northern Italy, went bankrupt twice in 1557 and 1575, despite all the gold and silver flows. This put the lending banks, including the Fuggers, in serious trouble, but ultimately the Italian and Northern European trading cities benefit from it. The small Netherlands even managed to win a war for independence against the world power Spain in 1568: the victory was financed by loans signed by merchants from the trading centers of Amsterdam and Rotterdam. In 1602, the East India Company was founded in Amsterdam for the spice trade in the Indian Ocean (>> more), in which investors gave the “fellow shipowners” (who owned ship shares) money in return for a share in the profits - the first Corporation (in which the shareholders only give the money, but do not represent the company - this is what "salaried managers" do in today's parlance). This was so successful that in 1621 the West India Company was founded to trade in slaves and gold in the Caribbean and the New World.
The great tulip madness
The wealth that came with Dutch trade led to an event in 1637 that has since been cited as an example of the first speculative bubble: the "great tulip mania". The botanist Carolus Clusius, who worked at the University of Leiden, had done a lot to spread the Central Asian tulip in Holland, and it soon became a fashion flower and a status symbol for the rich. Above all, the flamed color samples (which, as we now know, were caused by a mosaic virus) achieved ever higher prices, and soon not only connoisseurs and enthusiasts, but also traders and investors tried to make a profit from the tulips. In 1633 a house was sold for three tulip bulbs and the prices continued to rise. There were soon futures deals and you could buy shares in tulip bulbs that were still in the ground (what is now called derivatives); some onions changed hands many times before they came out of the ground. At the beginning of 1937, you had to pay as much for particularly popular onions as you would for a town house in a prime location in Amsterdam. Then the bubble burst - when an auctioneer did not achieve the asking price in February, so many owners of tulip bulbs wanted to sell them that the price fell by 95 percent within weeks. Many shares were completely worthless. In order to prevent the crisis from spreading, the authorities intervened: Arbitration commissions stipulated that open contractual obligations were settled against payment of 3.5 percent of the originally agreed purchase price. The traces of the tulip craze can still be found in Amsterdam today: the suicides from this period were buried in the “Ellendigen Kerkhof”.
Meanwhile, in the rest of Europe, the Thirty Years' War (>> more) led to a “deterioration in coins”: In order to save valuable precious metals, the minters reduced the gold and silver content and instead added cheap copper. This works as long as the mint owner can guarantee the value of the coin; but when confidence in the minting authority wanes, the value of the coin wanes too: inflation occurs. This happened during the Thirty Years War. However, the minters' profits are only apparent, because they will soon get the “bad” money back in the form of taxes; and so the bad coins were soon withdrawn. But if the issuing state was trustworthy, the system worked: the exchange value of money did not necessarily have to be linked to its material value. Marco Polo had already seen imperial paper “banknotes” on his travels in China in 1276, which were used as a means of payment; and in 1694 the King of England allowed a Scottish merchant, in return for a loan, to establish the Bank of England and issue (initially handwritten) Banknotes.
The banknotes only became more important in France, which was heavily indebted after the death of Louis XIV in 1715. The Duke of Orléans, who for the minor Louis XV. administered the crown, granted to a Scottish monetary theorist John Law permission to set up a bank - three-quarters of the shares in this bank could be paid for in government bonds, which meant that France had to pay less interest. The grateful regent gave Law the trade monopoly in Louisiana and on the Mississippi, where he founded the city of La Nouvelle Orléans, now New Orleans, in honor of his patron. In the overseas territories he wanted to exploit the gold and silver deposits suspected there. To finance it, he again sold shares, and with the money also bought the tobacco monopoly and the state coin. As early as 1705 he had shown in a book that banknotes were better suited than coins, which were dependent on the availability of precious metals, to bring more money into circulation, which could increase production; the banknotes should be secured with land. Now, in 1718, he put his theory into practice and printed money with which he bought more trading rights.In 1719 he became the general controller of finances; However, he refrained from securing the banknotes with land, relying entirely on the natural resources assumed to be in America. After the first settlers came back from overseas territories and reported not gold and silver but marsh fever and Indian raids, Law's stock corporation collapsed. To support the price with share buybacks, he printed more and more money - and this led to inflation. When the State Council determined in 1720 what sums Law (and secretly also the Duke of Orléans) had printed, he was thrown from office; France returned to gold and silver coins.
But the soon-to-be-flourishing colonial economy and the slave trade could not change the fact that France was still burdened with an overwhelming debt burden. When Louis XVI. In 1774 he took over the office, huge sums of money were added for the courtly pomp of his wife, the Habsburg daughter Marie-Antoinette; and war expenditures like those for the Austrian War of Succession continued to teach the state coffers. The higher ranks were still exempt from paying taxes, and the mixture of social hardship and injustice contributed to the storming of the Bastille in 1789 and to the French Revolution (>> more). (In contrast, England, which was much more heavily indebted, was financed by government bonds from its own citizens and remained solvent; a path that was denied to Louis XVI, who was regarded by the people as a despot - he died under the guillotine.)
The revolutionaries wanted to rehabilitate the finances of the state by selling confiscated church property - over a quarter of French property and property. Until then, these served as collateral for bonds - so-called Assignats. Given the value of the properties, they were initially a success, but the money raised was not enough to fill the budget gap. The state printed further assignats and declared them the official banknote of the revolution in 1790. This time, too, the increasing amount of money, without any corresponding countervalues, led to inflation and, to a large extent, to a return to trading in coins; In 1797 the assignats were declared invalid. When Napoleon came to power in 1799, France was actually still broke. But the French revolutionaries had at least managed to convert their currency to the Enlightenment decimal system with the franc introduced in 1795, while all sorts of crooked divisions were still common in Germany - the Reichstaler was worth around 24 or 28 groschen.
Meanwhile, the >> Industrial Revolution had taken hold in England and the goods produced by machines had to be brought to the markets. After the steam locomotive became economically viable in 1829 with Robert Stephenson's "Rocket", this was the fastest option, and between 1830 and 1850 almost 10,000 kilometers of railway lines were built. It was private companies that built these railways, and they raised the money for this through the issue of shares a - shares are securities with which a share in a company is securitized (guaranteed); So share buyers buy shares in the company. The model was successful: at the end of the 19th century, for example, between 40 and 50 percent of private capital in the United States was invested in railroads. Stocks and the place where they were traded that Stock exchange, got a meaning like never before in history. Again and again, around 1836/37 or 1847, there were spectacular price drops because it became clear that many more railway lines were being planned than were economically viable. But many investors also got rich with the railways, so the new class of "rentiers" was born, who had earned enough to be able to live without employment. Others also invested their money in America, where railways were also built, and so a price slump in America in 1857 could lead to the first "Great Depression“After the Ohio Life Insurance Company, which had speculated in railroad stocks, collapsed, the banks that had lent the Ohio called back their loans to other banks and corporations - many of which were insolvent. Banks in London, Liverpool and Glasgow were also affected, and a fall in prices in America also temporarily shook England.
Incidentally, in the United States of America, which today is often viewed as a primeval capitalist country, the role of the development of trade, industry and banks was initially quite controversial: Thomas Jefferson, who was elected president in 1800, feared that society would be like in Europe could be split into a rich elite and impoverished masses, and instead wanted to rely on rural development. But the industrial development that started in the cities on the east coast and the integration of agriculture into the market should prevail, and the names Vanderbilt (>> here) and Rockefeller (>> here) become synonyms for private wealth. In Europe, the sons of the Frankfurt banker Mayer Amschel should Rothschild form a multinational family company, each of the five sons run a branch: Amschel in Frankfurt, Salomon in Vienna, Nathan in London, Carl in Naples and James in Paris. They financed the construction of the rails and the Suez Canal, and helped numerous European countries to secure their financing with loans. They financed wars - or not, because the richer they got, the more they had to lose themselves (Mother Gutle Rothschild is said to have reassured her neighbors in the Jewish quarter in 1830 with the words: “There will be no war - my sons will not give up Money for it ”). The importance of private banks such as the Rothschilds declined after 1880, when joint stock banks increasingly took over the money market.
But before that it came to "Founders' crash“From 1873, which ended the founding period. The economic boom in what was then Germany and Austria-Hungary with industrialization was referred to as the founding period, during which company founders could apparently get rich overnight. When the license requirement for stock corporations was lifted in Germany in 1870, numerous new stock corporations and banks were founded, the value of the shares rose rapidly - and more and more people wanted to earn money from them. In Vienna, an upcoming world exhibition heated up prices and real estate prices; Shares could also be acquired there against payment of a partial sum, the remaining amount due was to be covered with price increases. But when in 1873 the Franko-Hungarian Bank demanded back payment of the remaining amount, numerous investors got into difficulties, and after the first bankruptcies there was panic on the stock exchange, which spread to other European and American stock exchanges: the Jay Cooke bank in the USA collapsed & Company together and the New York Stock Exchange had to be temporarily closed; in Berlin the Quistorpsche Vereinsbank collapsed, and many of the new stock corporations went bankrupt. Only at the end of the 1870s did the economy slowly recover from this slump, the surviving new banks, above all Deutsche Bank, Commerzbank and Dresdner Bank, profited from the fact that at the end of the 1890s, chemicals and the use of electricity (>> more) a new cycle of growth began. However, the crash of 1873 dealt a severe blow to economic liberalism, and the ensuing economic-political disputes led Bismarck to join the emerging rise of the Social Democrats Social legislation sought to prevent accident, old age and health insurance were introduced during this period.
1873 was also the year in which the mark with 100 pfennigs was introduced as the main means of payment in Germany. It was covered with gold, even when banknotes were issued from 1909 onwards. Gold-covered means that the state guarantees to exchange each banknote for a corresponding amount of gold. With the so-called Gold standard the exchange rates between different currencies were also largely fixed. That did not mean, of course, that there was gold in a warehouse for every mark, but there had to be enough gold to meet every conceivable demand. The system soon fell apart: During the First World War, Germany said goodbye to the gold standard; otherwise the war could not have been paid for. A lot of cash was printed, only fixed maximum prices for important goods such as grain and coal initially slowed inflation. After the end of the war, however, this dam broke. At first the Weimar Republic even seemed to benefit from this, as the cheap mark made German goods cheaper abroad. But in addition to growing interest payments came the reparations burdens from the Peace Treaty of Versailles; and when the French occupied the Ruhr area in 1923, fuel also had to be bought at great expense from abroad; inflation expanded into hyperinflation: sometimes salaries had to be paid twice a day so that the money did not lose too much of its value in the meantime. In November 1923 the low point was reached, worth one dollar 4.2 trillion paper marks. When the Rentenmark was introduced in mid-November, all those who had financial assets had lost them overnight; The winner was those who were previously heavily in debt, above all the German state, but also those whose assets were in machines and buildings, such as manufacturers and craftsmen.
The Great Depression of 1929
In the United States, the economy had benefited from large-scale purchases by the Allies during the war; after the war, the world's first consumer society based on mass production emerged here. Workers and farmers could also afford a car, for example; the number of cars rose from eight to twenty million between 1920 and 1930. The triumphant advance of radio began with the first commercial radio stations, and Americans had enough money to go to the cinema on a regular basis. Stock prices grew even faster than the economy, and many Americans wanted to participate with borrowed money if necessary. Many entrepreneurs also prefer to speculate in stocks than invest their money in their companies. The production capacities built up during the war and afterwards were no longer fully utilized, and when it became clear that the situation was not as good as the stock exchange prices, these stock exchange prices collapsed: for over three years the stock markets fell by almost 70 percent. Many of those who bought stocks on credit were ruined. Unemployment rose to 25 percent. The Americans needed their money and withdrew their investments from Europe, whereupon the stock markets collapsed here too. The Americans also tried to protect their companies from foreign competitors with import tariffs. In Germany, which had had its golden years economically after the introduction of the Rentenmark, but whose reconstruction was largely financed by the USA, the effects were particularly drastic: over half of all construction workers lost their jobs. In 1931 the Austrian Creditanstalt was the first bank to collapse, and shortly afterwards the second largest bank in Germany, Danat-Bank. This also led to the banking crisis, and insecure investors stormed the banks. The government closed the bank counters (“bank holidays”) and worked out a reorganization concept (among other things, banking supervision was introduced at the time) and stepped in with money, for which it received blocks of shares in return. The idea worked, the citizens trusted the concept. The economy suffered more severely from the crisis, especially since not only had the Americans withdrawn their money, but the German state also made iron savings in response to the crisis. Companies with illustrious names such as Borsig or Flick also got into trouble.
Not so in the USA: There Franklin D. Roosevelt, elected in 1932, followed the advice of economist John Maynard Keynes: "get the ball rolling". Roads, dams and schools were built as part of the “New Deal” and millions of people were employed in the process. It is a matter of dispute today whether the New Deal was really decisive in getting America out of the crisis; but in any case it prevented the mood in America from falling as it did in Germany, where Chancellor Brüning had even urged people to avoid “any excess of celebrations and entertainment”. It remains to be seen whether Brüning's course was really only owed to the fear of a new inflation or whether, as his finance state secretary Hans Schäffer later wrote, he wanted to shake off the reparations with the misery in Germany. Many economists believe, however, that work measures as suggested by Keynes might even have prevented the Nazi dictatorship in Germany.
John Maynard Keynes
Born in Cambridge, England in 1883, the economist John Maynard Keynes became famous in 1919 with his book "The Economic Consequences of Peace", in which he criticized the Treaty of Versailles: Keynes, who himself initially took part in the negotiations in Paris and Versailles for England, but soon had quit the service because he considered the result to be economically unreasonable for the foreseeable future, showed that Germany could not afford the reparations, feared the ruin of Europe and prophetically saw European civil wars imminent. Keynes, who belonged to the Bloomsbury group around the writer Virginia Woolf and was an art collector, married the famous Russian ballet dancer Lydia Lopokova in 1925; and keep working on monetary theories. Keynes’s basic idea, fitting in with his private life, was that the prosperity of a country was not based on frugality (as Adam Smith wrote in his 1776 Wealth of Nations) but on consumption. If there was no demand, companies would not invest (economists' “investment trap”). The state must therefore strengthen the lower incomes, because a large part of this would flow into consumption (while a larger part is saved with higher incomes) and, in times of crisis, stimulate demand even through investments. The "General Theory of Employment, Interest and Money" published in 1936 became Keynes' main work. In contrast to the Austrian economist Joseph Schumpeter, who in a broader sense belongs to the neoclassics, who explained the ups and downs of the economy in his “Theory of Economic Development” published in 1911, that innovations (new products, new production methods, new markets, etc.) .) lead to an upswing that subsides when imitators drop profit margins and saw the “creative destruction” of the existing through new innovations as a necessary component of capitalist markets Instruction first recorded in Anglo-Saxon countries (see above).
New rules - and their breakdown
John Maynard Keynes was also one of those who was already thinking during the Second World War about how a new world currency order could look, with which Europe was rebuilt as a trading partner for the USA, which had become even more dominant in the Second World War, and events such as the Great Depression or the German Inflation could be prevented in the future. The system should make it possible to help countries with balance of payments deficits without re-triggering devaluation races. It was decided in July 1944 at a monetary and financial conference of the United Nations in America Bretton Woods: The US dollar pegged to gold (at a price of 35 dollars per troy ounce) became the international reserve currency; the exchange rates of the other currencies were fixed and had to be stabilized by the respective national central banks in the range of plus / minus one percent around this exchange rate. Countries with economic problems could obtain loans from a new International Monetary Fund (IMF) under the condition of “structural adjustment programs”; a new “World Bank” should help the developing countries.
In the western zones of Germany, which was divided after the war, the German mark introduced, the old Reichsmark practically worthless. The newly founded Federal Republic of Germany joined the Bretton Woods system in 1949. Initially, the non-communist western countries benefited from this system of stable exchange rates (the Soviet Union had participated in the negotiations but never joined the system); Germany, whose industry will not be completely destroyed and rebuilt with the help of the Marshall Plan, also benefited from the fact that the USA, France and Great Britain are arming in order to be able to wage the Korean War (>> more) and Germany, which is prohibited from producing weapons, delivered what they lack in civilian goods and facilities. Soon from the German "Economic miracle”The speech, the Germans can now afford cars, televisions and vacation trips. The dark side of capitalism should be dealt withSocial market economyThe wages were set by bargaining parties (for strict liberals, these are cartels, not free markets). Labor was scarce, and so the integration of over ten million emigrants and emigrants from the east succeeded; and when this spring dried up, people were recruited from southern Europe and Turkey. However, there was also friction: the adjustment of exchange rates to varying levels of economic productivity by the governments, which had actually been agreed in Bretton Woods, did not work. For example, in the 1960s, German companies resisted an appreciation of the D-Mark, which was actually necessary due to the trade surplus, as this would have made German products more expensive abroad. In 1967, however, the economy stopped growing, and for the first time there were (half a million) unemployed people in West Germany. The German government now also took up Keynes' ideas and had, as it was called in the “Stability and Growth Act”, to ensure “adequate economic growth”. The 1967 crisis was quickly overcome.
But Germany wasn't alone in the world. The pegging of the Bretton Woods system to the US dollar, the key currency, meant that American monetary policy had global effects: when the USA printed money to finance the Vietnam War, for example, this led to inflation in all participating states due to the fixed exchange rate; this triggered fears, especially in Germany with the trauma of pre-war inflation, and Economics Minister Karl Schiller released the D-Mark exchange rate in May 1971. The value of the D-Mark increases, which makes German products more expensive abroad. When US President Richard Nixon gave up the peg of the US dollar to the gold standard in August 1971, the Bretton Woods system was practically dead - after many crisis meetings it was officially abandoned in 1973. Exchange rates have since been - at least in the western world - largely on the financial markets determined according to the rules of supply and demand. In particular for companies that import or export, many experts initially feared harmful effects from incalculable prices; The European Community initially limited the fluctuation ranges of its currencies among one another with the so-called "currency snake" in 1972 (and in 1979 introduced the European Monetary System [EMS], which led to the introduction of the euro as the common currency on January 1, 2002); In order to coordinate global economic developments, Chancellor Helmut Schmidt and French President Giscard d'Estaing invented the world economic summit of the seven major industrialized countries (G-7) in 1975.
Oil crisis and globalization
Overall, the economy coped better with the ups and downs in exchange rates than many expected, but the German economy continued to suffer from the stronger D-Mark. The first came in 1973 Oil crisis added (>> more) and increased - in Germany, however, weakened by the appreciation of the D-Mark - inflation. In 1974 the trade unions managed to protect employees with high wage agreements from these price increases (after a long strike, the ÖTV achieved 11 percent for the public sector), but consumer spending slackened nonetheless, there was short-time work and in 1975, despite all economic stimulus programs, it shrank the economy again - with over a million unemployed. Rising prices and scarce labor - that shouldn't have happened after Keynes; and so economists found that of the Austrians Friedrich August von Hayek or the American Milton Friedman more and more listeners who refused state intervention in the economy. Friedman especially thought that Money supply for economic policy decisive: If the money circulating in the economy does not increase faster than economic output, inflation cannot occur (this theory is called monetarism); In any case, high unemployment only arose for him as a result of harmful interventions by the state. With the inauguration of Margaret Thatcher in England in 1979 and Ronald Reagan in the USA in 1981, this theory (called "neoliberal" by its critics and "revitalized market capitalism" by its supporters) practically became a government program; Price stability instead of promoting employment and growth is the most important political goal. In Germany at that time retrofitting, nuclear power and the dying forest dominated the political discussion, but in 1982 the dispute over economic policy led the FDP to defected to the CDU and made Helmut Kohl Chancellor, who proclaimed the “spiritual and moral turnaround” - whatever was meant by that. Budget deficits fell, but unemployment continued to grow, to nearly 2.5 million people in the mid-1980s. In many cutting-edge technologies, such as optics and electronics, Germany had long been overtaken by Japan; We did not play a decisive role in the new information and communication technology either. Rationalization and the introduction of computers into companies destroyed jobs in industry on the one hand, but created new ones in software development and information processing. Cars and machines continued to be German export hits, but the textile and steel industries and shipyards came under pressure from cheaper production sites.
In 1989 the communism together (>> more), and in the former countries of the Eastern Bloc, such as Poland, the Czech Republic and Romania, market economies - and new production locations - emerged. In Asia, too, the former emerging countries grew rapidly and integrated themselves into the global economy (>> here); China and India in particular boomed. Thanks to the still cheap oil and huge container ships, transport costs hardly played a role; With the Internet, information and money could be transferred without wasting time. The economy was getting closer to what economists had always dreamed of: the transparent, global market. So far, the world export champion Germany had only benefited from globalization, only a few third world groups had criticized that global trade was not very fair (while we exported cars and machines, the developing countries were only allowed to deliver bananas and coffee); now many emerging economies became competitive at once. Economists like the native Indian Jagdish Bhagwati pointed out that many poor countries benefited from this, while in Germany it became clear for the first time that a large part of the previous prosperity had been based on the exploitation of the poor south and that many people - especially those with lower qualifications - could be among the losers here . In our still very rich country, this represents a solvable challenge for politics; But in the up-and-coming production locations, not only are wages low, but also occupational safety and environmental standards; some Chinese factories are reminiscent of early capitalism in Europe. It is incalculable that globalization also needs global rules if it is not to be carried out on the backs of people - this is what the American economist points out, for example Joseph Stiglitz again and again.
Who actually makes money - and how?
Historically, money first had to be “made” with the production of coins. Because you can earn money with it - for example because the coins have a higher exchange value than the precious metals they contain (the difference was even greater in the case of banknotes) - the feudal and feudal lords historically reserved this right; and today their successors, the nation-states, hold this monopoly. However, these leave a large part of the actual "Money creation”The banks and limit themselves to setting rules for this. Money is created in two ways: On the one hand, by the Central bank the state (in Germany formerly the Bundesbank, today in the euro area the European Central Bank, ECB) prints money or has coins minted; on the other hand - and much more important in terms of quantity - money is created when commercial banks grant loans. Every time a bank grants a loan and transfers money to the borrower's account, it only has to use a small part of the deposit (currently two percent) in return for the deposit in the checking account Reserve balance invest at the central bank - for a loan of 10,000 euros that is transferred to a current account, i.e. an amount of 200 euros. Alternatively, the bank can also pay out the loan in cash, in which case it needs 10,000 euros in cash. Both cash and reserve are what are called Monetary base, on the basis of which banks can issue loans. (There is a high probability that the cash will end up in a bank account at some point and can then be used as a reserve balance - for a loan of 500,000 euros.) This monetary base is usually created by the central bank in the form of "refinancing loans" which they give to the banks Deposit of securities as security and against payment of interest, the "Base rate“Offers. According to the theory, the bank can use the key interest rate to influence the demand for the monetary base and thus the possibility of lending (and ultimately also this part of the creation of money): a low key interest rate should trigger high demand, a high key interest rate low demand. Alternatively, the central bank can buy securities from the banks, which also expands the monetary base.
And who makes money today from the production of money? When it comes to the production of banknotes and coins, the state benefits in particular (and of course the companies involved, printing, paint and paper manufacturers, etc.); in the case of money creation through lending, it is primarily the banks that receive interest on the loans and have to pay the lower key interest rates for a small part of them. The banks will have to pass on part of this profit, at least when there is competition in the banking sector, to the holders of savings as interest.
Money makes money - the new role of financial markets
Stiglitz also repeatedly points out that the financial markets should not determine everything: their actors are neither sacred nor objective, but rather pursue their own interests. In fact, with the release of exchange rates, completely new markets had emerged, from which the banks benefited in particular, which from 1972 onwards hedged risks from currency transactions with futures in the USA. Since the mid-1980s, the increasing importance of market-liberal economists in the financial sector had meant that many regulations were gradually removed. Markets, they believed, were the best way to fix the prices of stocks and commodities; Nobel prizes were awarded for the doctrine of efficient markets. Eliminated in 1986 Margareth Thatcher In the UK, fees and admission restrictions in exchange trading, lifted in 1999 Bill Clinton the Glas-Steagall Act, which until then had forbidden banks to conduct traditional lending business and investment banking at the same time. In 2001, the US Securities and Exchange Commission lowered the minimum traded value to one cent, creating the basis for high-speed trading (see below). In 2005, electronic trading was introduced on all US stock exchanges. The deregulation race was also motivated by the fact that governments wanted to make their countries more attractive as locations for the growing financial industry; England was able to stop its economic decline and London became the European financial center.
The financial sector gratefully accepted the templates. She was constantly inventing new "products" and making ever higher sales and profits. In the United States, in the first decade of this millennium, the financial sector accounted for more than 40 percent of the profits of all American companies; In 2010, the volume of foreign exchange transactions alone, at $ 955 trillion, exceeded the value of all goods and services produced in the world by more than 15 times.According to estimates, around two percent of these transactions were based on a real exchange of goods and services, 98 percent were pure speculation. Money is only there to earn more money, the “detour” with factories, production and jobs, from which the social benefit in the sense of Adam Smith should arise, is foregone from the start. This gigantic volume of trade was only made possible by information technology: the majority of trade has long been carried out fully automatically by computer programs. The computers can buy and sell thousands of securities per second and thus take advantage of the smallest price differences at lightning speed ("High speed trading”) - but also automatically reinforce them. If, for example, securities are sold or bought when predetermined brands are reached, falling or rising prices lead to chain reactions.
Today hardly anyone believes that there is some “wisdom of the financial markets” behind the price fluctuations produced in this way. But they have an impact on the real economy: if investors' wealth falls, so does consumption; and managers are influenced by stock market prices when making investment decisions. If a George Soros was supposed to make a billion pounds in 1995 speculating against the British pound, someone else lost that money; In sum, speculative profits are always a redistribution of wealth from those who produce to those who speculate. The losers do not pay the bill directly, but indirectly, for example through higher prices. The poorest of the poor also suffer from this: If speculation drives up grain prices, many of them no longer have enough money for adequate nutrition (>> more). But they also make the trading system itself more and more unstable; The first warnings were the “tequila crisis” in Mexico in 1994, the crisis in the Asian tiger states in 1997 and the bursting of the “dot-com bubble” in 2000.
This did not affect the mood on the financial markets. However, after the “dot-com bubble” burst, which was based on excessive expectations of Internet companies, many retail investors inexperienced in stock trading lost their money. To support the economy, the US central bank cut interest rates. After the terrorist attacks of September 11, 2001 and the stock market slump after the start of the Iraq war in March 2003, this policy was continued - after all, the key interest rate in June 2003 was one percent. More and more Americans used cheap loans to buy houses; from 2000 to 2005 house prices rose by more than half. At the same time, new financial products ensured that the banks were able to resell their loan receivables to investors - they were no longer on the books, the banks no longer needed any reserves and could issue further loans; the investors had - as it turned out, apparently - safe investments. However, in order to find enough borrowers at all, people whose income was actually insufficient for this (“subprime loans”) were now given loans - sometimes the installment payments in the first two years were not even enough to repay the interest. The issuing banks did not care, they collected commissions and sold the subprime loans in a package with other loans to investors. These, including German banks such as IKB and Bayerische Landesbank, were happy to buy, apparently without knowing exactly what they were actually buying, but reassured by the positive ratings of large rating agencies such as Standard & Poor's. Anyone who suspected that part of the credit might burst, bought credit default swaps (CDS), a kind of loan default protection; a market in which the US insurance group AIG made a major entry.
Subprime crisis in 2007 and impending state bankruptcies
In 2006, one million homeowners, many of whom had rates rising after the first two years, could no longer pay their loan installments; In mid-2007 there were already one and a half million. House prices began to fall; and with that the mortgages were no longer secured by the value of the houses. In late July, two funds invested in credit collapsed; the mortgage securities also lost value. The AIG had to write off $ 11 billion on its CDS in 2007, in 2008 it needed government support amounting to $ 150 billion and was de facto emergency nationalized - the AIG had not provided nearly enough capital to really cover loan defaults, it had it not seriously considered possible (which is why this “credit default insurance” of the AIB was simply referred to as fraud by many). Mortgage investment banks also got into trouble. The investment bank Bear Stearns was bailed out by the state in the spring of 2008, but on September 15, 2008 the investment bank went Lehman Brothers broke. The financial system dried up overnight, banks stopped lending money to each other; share prices collapsed and the real economy followed. General Motors filed for bankruptcy in the USA, and numerous companies were also hit in Germany, including Rosenthal and Märklin. In order to prevent further bank failures, states are now supporting their distressed banks - the German rescue package alone comprised almost 500 billion euros in aid and guarantees. Banks around the world took out EUR 994 billion in government guarantees; With stimulus packages and other aid, the bailouts have cost over $ 15,000 billion. These sums also brought some states to the limit of their capacity; in total, they have accumulated more than $ 39,000 billion in debt worldwide. The USA are at the forefront with $ 10,040 billion and Japan with $ 9,840 billion, but many European countries have also reached the limits of their capabilities: in 2010 Greece could no longer obtain new loans at affordable interest costs on the capital market, Ireland and Portugal followed in 2011 ; Spain and Italy also became crisis countries in the euro area.
Why national debt is bad
High debts mean high interest payments: if they are not used for investments that reap these interest payments, states restrict their scope for investment and policy-making, and they make themselves dependent on the financial markets that have to provide them with the money ( if they do not want to print money themselves and reduce their debts through the devaluation of money, which would amount to expropriating the savers) How did it come about that the richest countries in the world - the USA, Japan and Europe - built up such debts? In short, most markets are near saturation here, most people have what they need and want. For two decades, the old industrialized countries have therefore been losing importance globally; in the emerging countries, where there is a lot of catching up to do, the economy is growing much faster. From 2000 to 2007, the gross domestic product in Germany grew by 381 billion euros - and the German national debt by the same amount. Even before the banking and sovereign debt crisis, German growth was financed entirely on credit. Then there are the sums with which we pay for the losses of the financial sector, which should actually replace the lack of growth in production.
In the long term, debts mean much more than just a temporary restriction of political leeway: they jeopardize ecological sustainability as well as social justice between the generations. On the one hand, debts are the most important driving force for economic growth - if economic output grows faster than interest rates, debts decrease in relation to economic output, otherwise economic growth reduces at least the interest-related increase in debt -; on the other hand, debts burden future generations just like overexploitation of nature and environmental destruction. A sustainable policy must therefore reduce government debts that are not used for investments, but rather to fool people into growing prosperity despite the lack of growth. Incidentally, this should not be confused with the dismantling of the welfare state (otherwise the USA would not be the most heavily indebted state), but with the insight that in a world with borders, the solution for everyone is not automatically more and more money Problems can be. If the next generation doesn't get even richer, but if we just keep our prosperity - what would be so bad about that? (See also >> here.)
Since Richard Nixon finally removed the dollar from the gold standard in 1971, money is no longer tied to any material reality. Money is created practically out of nothing by private banks (>> here), but is supposed to be the benchmark for the global economy. One contradiction in particular has long been preoccupying many thinkers, and today especially those economists who are interested in an ecological economy: How can money that increases exponentially through interest be a measure of value in the real, finite world, in which exponential growth is not permanent is possible (>> here)? The Nobel Laureate in Chemistry came up with this question as early as the 1920s and 30s Frederick Soddywho wondered why the findings of the natural sciences were not first used for the benefit of mankind, but rather in war. He also dealt with banking, and examined the contradiction between money, the value of which increases solely according to mathematical laws, and real goods such as pigs, which can die, have to be fed and whose reproduction depends on biological laws. Money that is not tied to material reality was only “virtual prosperity” for Soddy, and should actually not be taken into account when considering the prosperity of a society. As a chemist, Soddy was not taken very seriously by economists, but in 1965, for example, the economist (and Nobel Prize winner) also made a distinction James Tobin between real goods, which, along with people, make up the actual value of a society, and the paper “goods” that a government can create out of nothing and that the real thing is an illusion that everyone simply believes in. Today, for example, the Swiss economist demands Hans Christoph Binswangerthat only the central banks are allowed to create money.
For Binswanger, another aspect is in the foreground: When money is created through lending, money is given to a company for which it can only create the equivalent value in the future. It is similar when a company raises money by selling stocks. Through the interest or the Return expectations As shareholders grow, there is a compulsion to grow (which is still driven by the fact that shareholders reinvest their profits and thus keep the “growth spiral” (the title of Binswanger's late work) going). However, it is this compulsion to economic growth that is incompatible with a finite world (>> here). Binswanger therefore not only wants to change the creation of money, but also suggests examining whether joint-stock companies could be replaced by forms of foundations for companies.
interest not only act as a growth driver, they also make short-term thinking in the economy profitable: 100 euros, discounted at 10 percent, will be worth only 7 cents in 100 years, even without inflation, and such approaches do not contribute to long-term ecological and social consequences to consider today's trade. In addition, interest helps accumulate money rather than use it as a medium of exchange. Economists like the Belgian Bernard Lietaer therefore propose the central bank currencies with interest rates through local currencies to supplement, where there is no interest, but on the contrary, a small fee has to be paid for use. This would mean that these local currencies would no longer be suitable as a “store of value”, they would be a pure medium of exchange and unit of account, but would just thereby strengthen the local economy and combat unemployment. In this way they would create social capital and supplement central bank money. There are currently around 2,700 local currencies in the world.
>> Sources and literature tips
>> Doing business on a finite planet
>> What really makes people happy?
© Jürgen Paeger 2006 - 2014
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