What does it mean when the economy of a country shrinks, as Greece’s has done, by a quarter? It means that the money flowing through the economy is reduced in quantity, that the total of people’s money incomes (both earned and unearned) is reduced and that the total money value of what they buy is reduced accordingly. This also means that the country is less productive in money terms.
That use of the word “money” as a qualifier in each phrase of the previous sentence is significant. “Money incomes”, “money value” and “money terms” are not the only ways of quantifying wealth, and the fact that assets or goods become more expensive does not make them inherently more worth having. Cheap money flooded into Greece in the decade before the crash, funding investments based on rising asset values. The size of the money economy, measured as GDP, soared as a consequence. But much of that wealth was not real.
The crash, when it came, illustrated this clearly. As asset values such as house prices rise, they eventually reach the point at which they can only be justified by the fact that they are rising. The logic of this – that nothing is too expensive that somebody will subsequently pay more for – inflates a bubble that eventually is bound to burst. When the banking crisis hit, all that unreal wealth rapidly disappeared.
Now here’s the crunch: if the wealth was not real, why would it matter if it vanished? When the mousse subsides in the champagne flute, the real stuff is still there to enjoy, so if the effect of the contraction in GDP was simply to eliminate the bubbly froth from the Greek economy (as this helpful graph suggests), why couldn’t things simply pick up again on a lower growth trajectory?
It’s a fair question. When asset prices fall, it does not reduce their real or useful value (provided they were useful in the first place). Buildings still provide shelter and a place to work.
The same applies to food. The land, the climate and the people make Greece a major food producer. No bursting bubble can take away any of those three. So there is no reason in principle why, in a post-crisis Greece, people should starve.
The actuality is rather different. Homelessness and food poverty have risen dramatically in Greece, while buildings and land lie empty because the people who need them have no access. So the resources of wealth production have not gone away, but the thing that people most closely associate with wealth – which is money – is preventing them from making use of them.
The hierarchy of advantage in money-based economic activity places the supplier of money – the bank or investor – at the top of the pile, receiving rent or interest on money as a way of making more money. Next comes the business owner, who uses the money to acquire commercial assets which they hope will prosper. If they do, they accumulate money; if they fail they lose their business assets to the lender. At the bottom comes everybody else – people with no commercial assets who are dependent upon business owners for employment and wages.
Since, within this hierarchy, all wealth-creating opportunities begin with money, the loss of money from the system closes those options down. If the business owners get into trouble the employees are the first to pay: they either lose their jobs or are forced to accept lower wages. As that money flows back to investors and lenders, the resources of land, buildings and equipment lie about unused, because the only access to them is through money.
That is the tragedy of the Greece at present: abandoned factories, shuttered shops and people without productive opportunity, because they lack the money to put themselves to work. Worse still, the solution the international financial community has arrived at to address this problem is entirely logical within the framework of money-wealth. Since wealth-creation starts at the top, it is necessary to re-establish financial security at this level in order to get activity moving again.
Unfortunately for the people at the bottom, this means funnelling more money upwards. Taking it away from the worst-off in society may be bad, the theory goes, but the only way to get that money making more money is to get it back to where it came from and start lending it again. This is why the institutions negotiating with Greece have resisted proposals for tax on businesses, preferring instead to see lower wages and pensions. The growth of money-wealth can only originate at the top of the hierarchy.
This also explains why the Eurozone is hailing as successful its intervention in Spain, where unemployment is at 22.5% and youth unemployment, at 52%, is even higher than in Greece. For, despite these figures, Spain’s GDP is growing at a respectable rate. If the theory of money-wealth applies, that will eventually circulate back down to the unemployed.
Meanwhile, however, the anti-austerity Podemos is hoovering up electoral support from those unemployed Spanish masses. With a general election due in December, things need to pick up quickly if the Eurozone establishment is not to risk a bloody nose. It is also quite possible that another financial downturn will hit before the circumstances of the unemployed have time to improve.
There is another way. It involves turning the hierarchy on its head, making productive work the driver of the economic system and putting money in its appropriate place. In this alternative hierarchy, productive work starts in the home, family and community, where people prepare meals, look after the young, sick and elderly, maintain (or even build) their homes, grow food, make clothes and other hand-crafted goods, educate themselves and each other and keep themselves healthy.
Little – if any – of this work is paid for. It has little to do with the money economy and does not register in the measurement of GDP. It remains, however, among the most useful and productive work that people do, and it is highly resilient to shocks and changed circumstances. The Greeks have not lost any of their capacity to do this work, and to do even more of it than usual as the circumstances require. It is only a lack of access to basic resources such as land and buildings that is preventing them.
In this alternative hierarchy, money facilitates the work that people do for themselves, rather than obstructing them by putting resources out of their reach. The money a hotel receives from its guests goes to the people who built and run it, rather than to financiers who have pushed up the value of the underlying land. In measuring value, productive work, both paid and unpaid, is included, but the transactional work of exploiting asset values is not.
Ultimately, that is all it takes – changing the political perception of what is merely cost, and what has real value in people’s lives. Paying to gain access to the resources of real wealth-creation is a cost in human terms; the work that people choose to do because it brings undeniable benefit to their lives has value, even if no money changes hands.
These are the inviolable basics of an economy measured in human terms. Seeking profit from commercial activity, and taking rents from accumulated assets, have their places in the hierarchy, but they are lower down and can safely fail while the basics continue to operate. In Greece, the obligation to pay debts has been placed before the need for food and shelter because society has chosen to place money above real human value. For all of our sakes, it’s time for that choice to change.