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  This is how I came to find the old maple sugarhouse, barely a quarter-mile from our front door. It was tucked into an impressive stand of fir; the trees pushed 100 or more feet into the sky, and some measured a full 2 feet across at their base. Little remained of the original structure but its foundation stones and the sugaring rig, which was rusted and listing, slowly returning to the rich forest soil. The first time I saw the dilapidated rig, out the corner of one eye, I was startled. From a distance, it looked like the flesh-stripped bones of a great beast. A dozen or so feet away, an old sugaring pan lay half buried in decades of accumulated forest duff.

  There was something about the foundation that drew me to it, although I can’t say exactly what that something was. I began to visit it often, usually in the early morning. I’d stroll down through the dew-wet grass of our meadow, and then enter the cool sanctuary of the trees, before perching myself on one of the stones, a smooth, flat wedge of basalt that was always cool to the touch, no matter the weather. There was something unshakable in the integrity of those rocks, which I knew had been pulled there by the hoofed power of some loyal beast, and then stacked by hand. Sitting atop the foundation, I imagined the draft horses, dust and chaff stuck to a sheen of sweat, and I considered their masters, bent to the task of arranging the stones into their final resting places. Looking up, I could almost see the wooden structure that had long since fallen away and been consumed by the forest, and I marveled at the toil of it all: the toothed saw blade’s back-and-forth, back-and-forth; the honed and oiled bit of the axe rising and falling, again and again and again; and the buckets of sap heavy and sloshing, 40 or more gallons to make just 1 of syrup, each gallon of sap weighing better than 8 pounds, and most of it to be boiled away, the water content rising from the sugarhouse and drifting into the air as if it were nothing at all.12

  I knew it was for the syrup—or perhaps more precisely, for the money the syrup would bring—that someone had once gathered and arranged those hundreds of stones. It had been the same someone who, perhaps with the assistance of family and neighbors, then felled the trees and shaped them, first singly and then collectively, into a building; who cut and piled the sugaring wood; who hung the empty buckets and regathered them, full to the brim with sap; who stoked the fire in the big rig; and who sat up late as steam rose high into the night sky. What might they have been thinking? Of the morning chores that would come all too soon? Of what they’d buy with the syrup money and how that money might ease some of the burdens of their life? Surely they wondered over the weather, hoping for another sap run or two before the maples budded out and the season ended as abruptly as it had begun.

  It was the scale of the sugarhouse that suggested to me that it had been constructed primarily for the income it would provide. The question, of course, is what happened? Why wasn’t it still standing, and why couldn’t I even find the big sugar maples that would have been essential to the viability of such an operation? Oh sure, a handful of sugar maples still stood scattered about, graceful giants that had seen generations of humans born and then, a lifetime later, lowered into the ground. But no matter how generous these few trees might have been, they could never have kept that evaporator pan full. I knew that once there had been dozens, if not hundreds, more maples, but they were long gone, harvested for firewood or high-grade lumber. The money would have likely been good, or at least good enough that the only remaining evidence of their existence was the large hummocks that dotted the forest floor like little graves.

  Of course, it’s impossible to know with certainty why the trees and the sugarhouse were gone—a death in the family, a change of ownership, a fire, a simple shift in interests—but it is not hard to imagine a plausible scenario, if for no other reason than that the condition of its remnants suggests it was built prior to the widespread adoption of internal combustion technology. To anyone alive today, the extreme concentration of energy fossil fuels provide, and the ever-increasing scale of industry they enable, does not seem an anomaly. No matter how much we might gripe about rising gas prices, the fact is, we have all been born and raised in an era of cheap, abundant, and accessible energy. It is worthwhile to consider that the energy contained in a single barrel of oil is roughly equivalent to 11 years of physical labor for a healthy adult man. The United States consumes approximately 19 million barrels of oil each and every day, which means that every 24 hours we consume the equivalent of 209 million years of one person’s physical labor.

  The industrial capacity enabled by this incredible concentration of toil and the shifts in manufacturing process that exploited this capacity created a tidal wave of goods. Economy of scale and efficiency were hallmarks of this period, which is perhaps best exemplified by Henry Ford’s invention in 1910 of a “line production system” for the assembly of his company’s automobiles. Prior to instituting this system, the average time required to assemble a single chassis was 12 hours and 28 minutes; within only 4 years, Ford had cut that to a mere 1 hour and 33 minutes. These sorts of “gains” played out again and again, across all industrial boundaries, creating a glut of manufactured products in search of a home.

  To help absorb that glut, manufacturers turned to the advertising industry for help with marketing their products, most aggressively to the very people who produced them. In 1918, total gross magazine advertising revenue was $58.5 million; by 1920, the total had reached $129.5 million. But the numbers tell only half the story, because this was a period that saw the advent of emotion-based marketing designed to exploit base desires for social status and simple acceptance. “The utilitarian value of a product or the traditional notion of mechanical quality were no longer sufficient inducements to move merchandise at the necessary rate and volume required by mass production,” writes Stewart Ewen in his book Captains of Consciousness, which chronicles the rise of mass production and industry’s attempts to capitalize on it. “The creation of ‘fancied need’ was crucial to the modern advertiser. The transcendence of traditional consumer markets and buying habits required people to buy, not to satisfy their own fundamental needs, but rather to satisfy the real, historic needs of capitalist productive machinery.” In other words, it’s not about what you need; it’s about what industry needs you to think you need.

  Of course, the era of oil, the increasing capacity of industry, and the cleverly worded copy of advertising agencies are not the sole causes of the ever-widening divide between nature and us. Nor do they fully explain how it is that we have arrived at a hollow and ultimately detrimental definition of wealth. And they do not reveal why we have willingly squandered so much of our true prosperity in our scramble to accumulate money and physical assets. They are certainly factors in all of these conditions, and their contributions in these regards have been generous. But there is an underlying factor that drives both industry and fossil fuel consumption in an unrelenting skyward trajectory, and does so by design. Of course, I’m speaking of our monetary system.

  It is telling that I feel compelled to interject at this point, lest I risk losing your attention. Because let’s be honest: The phrase “monetary system” (along with its sibling “monetary policy”) carries the burden of being one of the least exciting pair of words ever to be unleashed upon the innocent people of this nation. What would you do if you were at a party and the fellow next to you started babbling about “monetary policy”? Yeah, I’d probably feel the sudden need to visit the restroom too. Or at the very least, get another drink.

  But the fact that relatively few people are cognizant of even the most basic aspects of contemporary monetary policy is unfortunate given the critical role money plays in modern society and the ways in which that role is defined by the policies behind it, which often seem to have been engineered to monetize and commodify almost every aspect of our well-being. And not inconsequently, separate us from the foundation of holistic wealth.

  It is often said that contemporary monetary policy is convoluted and arcane, perhaps even by design. Henry Ford, the very same man
who revolutionized automobile production, is famous for having said, “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”13 Many have offered Ford’s quote as evidence that our monetary system is intentionally complex, engineered for obfuscation and outright confusion. This may be so, and there’s little question that understanding the minutia of money is an exhausting proposal.14

  In one sense, Henry Ford and the multitudes of others who claim that our money system is complicated beyond the point of reason and basic comprehension are exactly right. But in another sense, they’re exactly wrong, because there is one core truth to both our money and its design that tells you pretty much everything you truly need to know about it. This truth is incredibly simple, so much so that it can be summed up in precisely three words: Money is debt. It is literally loaned into existence.

  For those of you who are quite justifiably experiencing symptoms of acute disbelief, I want you to know I understand that it sounds absurd and that not so long ago, I struggled mightily with this concept. And for good reason, I believe. After all, we have come to view money as being the very antithesis of debt; you either have money, or you’re in debt.15 So how could they possibly be one and the same?

  The idea that money is debt works on levels both literal and metaphoric; my interest here is strictly literal, in no small part because I’ve already hinted at the metaphoric in previous chapters. If, as I have contended, money is at its core a representation of natural resources and if, as is widely acknowledged, many of the natural resources represented by money are either nonrenewable or so slowly renewable that they will effectively run dry before our need for them does, then it’s no stretch to say that we are borrowing these resources from our future. And that the money we exchange as representation of these resources is therefore a debt we owe to our future selves and those who will follow.

  But that does little to explain the self-generating nature of money and how that generation is entirely reliant on the continued expansion of debt. To help explain this dynamic, I’m going to return to 1913, the year the Federal Reserve Act was enacted, establishing the very same Federal Reserve that has played such a pivotal role in recent economic events.

  The Federal Reserve is popularly understood to be a branch of the federal government, which it emphatically is not. Although the Fed chairman (as of this writing, Ben Bernanke) is appointed by the president, the reserve actually consists of a consortium of privately owned banks, including Citibank and J.P. Morgan Chase, that essentially operate with no governmental oversight. The purpose of the Federal Reserve is multifaceted, but its primary raison d’être is the management of our nation’s money supply, which it accomplishes through a variety of mechanisms, all of which fall under the umbrella of “monetary policy,” which ranks right up there with “money system” in the quest to be Wonkiest Term Ever.

  Of these mechanisms, the one that concerns us most is the actual creation of money, which for the purposes of our discussion is understood to include physical currency and debt. The somewhat surprising truth is that the bills in your pocket and the so-called money in your bank account do not exist at the behest of the United States government, as is commonly believed; rather, they were called into being via a convoluted process that defies logic.

  Roughly, here’s how it works. The Fed is, among other things, a large-scale dealer in government-backed securities—bonds, basically—which it purchases from the US Treasury and then lends to banks through what is known as open market operations. Interestingly—and this is key to understanding how the system works—when the Fed purchases a bond, it counts the bond not as a liability, but as an asset, even though it has not been paid in full (or even in part) for the bond. The apt analogy, I suppose, would be if you extended a loan to a friend and, under the assumption that your friend is trustworthy and solvent enough to repay the loan, counted the pending repayment as an asset. As in: “Bubba owes me a hundred bucks, so I have a hundred bucks.”

  To my way of thinking, this sort of accounting conveniently ignores two key factors. First, the money paid out, which itself had to come from somewhere, and leaves that somewhere a bit poorer; second, the possibility, however remote, that Bubba is going to take your money and split for Jamaica, where he will spend the rest of his days sprawled on a beach consuming enormous quantities of rum, which helps explain why he’s totally forgotten about his debt to you.

  To be fair, there’s some historical precedence supporting the assumption that the US government will make good on its obligation. So it’s not as if the Fed is playing the slots. But it gets weirder. Much weirder. Because the Fed now holds this “asset” (which arguably is really a liability), it can create a liability (this time, inarguably so) against the bond purchased from the Treasury. And this liability is created in the form of a check, which it writes to the Treasury in payment for the bond. There is no “money” to cover this check, only the “asset” of the bond it just purchased with the check written against it. In other words, in order to loan a hundred clams to your steadfast buddy Bubba, you purchased a bond from him, and then wrote him a check for the amount of the bond. That’s all logical enough, if somewhat convoluted. Here’s the real piece of magic: The money you used to purchase Bubba’s bond did not come from your savings, but rather from the assets you assume you’ll have when Bubba repays the debt. Talk about “creative accounting.”

  The Fed also lends its so-called assets to banks at the federal funds target rate, which is set by the Fed in reaction to prevailing economic conditions. Generally, if the economy is roaring, the Fed raises the rate to keep growth in check; if it’s in the doldrums, the rate is lowered. This rather depressingly explains why the rate has been virtually zero for an extended period of time.

  Still, none of this explains how most of the money in our economy is created, and it doesn’t fully explain why money is, quite literally, debt. To understand that, you have to understand what happens at the level of individual banks, which are allowed to leverage their reserves, some of which were originally created through the strange arrangement outlined above, through a process known as fractional reserve lending.

  Essentially, any money coming into commercial banks, whether from checks cashed by government employees, or assets transferred from the Federal Reserve, or interest income, is listed as a reserve. These are “assets” that the bank actually has, no matter how dubious their origin. But here’s the kicker: Banks are allowed to lend nine times more money than they have on reserve. In other words, if a bank holds $100 on reserve, it can lend out $900. Of course, it can charge interest on these loans, and you better bet it’s going to be a significantly higher rate than it’s paying the Fed. Here’s a rhetorical question to make my point: When was the last time your bank offered you a loan at 0.25 percent, which is the current federal funds target rate?

  What happens to the repaid loans? Naturally, they are added to the bank’s reserves, further expanding the base against which the bank can lend against at a rate of 900 percent. You can see how this might seem like a pretty plum gig for the banks, which are backstopped by the Fed and are doing quite well playing the spread between the interest rate they are charged by the Fed and the interest rate you and I are paying the bank. You can see how this might get a wee bit out of control.

  You can also see what I mean when I say “money is debt” because money is, very literally, loaned into existence, and not just at a Federal level. It happens every time you or I borrow to buy a car, or a boat, or a house, or whatever. The money we borrow does not exist until we borrow it.16 It’s the same for Bubba, as it is for the federal government, as it is for you and me. The “money” is actually written into existence at the loan origination, to be returned to the bank with interest, allowing them to expand their reserve base and thus extend more loans to create more so-called money. This helps explain why the money supply is always expanding and must al
ways be allowed to do so, because otherwise, the interest accrued by all outstanding loans could not be paid.17

  But the larger point, I believe, is that while the credit used to purchase an item is simply created out of thin air, the actual item is a product of the real world. At its core, it is a representation of extracted natural resources and the toil involved in both extracting those resources and producing the item. It is a representation—though largely unacknowledged—of the environmental and, too often, the humanitarian toll inherent in the process of resource extraction and the industrial manufacturing it enables. We have, in essence, engineered a system that creates limitless purchasing power against a limited resource base. It may not always feel this way, particularly given the ever-rising wealth and income imbalances in 21st-century America (which is itself a direct result of monetary policy and system design). But of course it matters not who holds the money; it matters not who demands all those resources. It only matters that it happens.

  If, as I did, you are struggling to clear this conceptual hurdle, consider the very emblem of American prosperity and contentedness (indeed, the very emblem—however diminished in size and scope—of Erik’s prosperity and contentedness): the home. To own a house has become part and parcel of the American Dream, a goal so promoted and deemed so worthy that we willingly—gratefully, even—assume an enormous debt burden in order to achieve it. There are few of us who acquire a home without borrowing; in contemporary America, this is assumed to be a 30-year loan, although it’s interesting to consider that there’s little historical precedence for such lengthy repayment schedules. As a matter fact, prior to the Depression–era New Deal, which included the National Housing Act of 1934, most home loans were granted on 5- or 10-year terms. By extending the term of the typical mortgage, the Roosevelt administration hoped to sow the seeds of a home ownership boom, which it saw as essential for pulling the economy out of its doldrums.