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Why have we lost social capital?
by Deirdre Kent 8 Mar 01
My partner and I are now in the process of starting a neighbourhood e-mail group which will hopefully improve the
quality of life for people in our street. The plan is that we will supplement the Internet with some real life
interactions to build community and social capital.
I immediately came across a neighbour devoting his time to the question of the loss of social capital over the last few
hundred years. As an actuary for a major insurance company he had been involved in a comprehensive study in the mid1990s
of why New Zealanders are losing faith in institutions like insurance companies.
I had a fascinating discussion with him and I talked about the book I was working on - the way we create our money
supply as interest-bearing debt and the disastrous social and environmental consequences of this. I am also studying the
growth of community currencies and pondering the question of why green dollar systems work best when the membership is
small and they know and trust one another, and barter exchanges work best when they have very strict rules.
So how is our money supply system having deleterious effects? I explain it this way:-
There is, unbeknown to most people except a few economists and a very few politicians, a secret understanding by
Governments to allow the private banks to create the bulk of each country’s money supply as interest-bearing debt. When
banks issue a loan for a mortgage or a business or a government, they essentially create new money.
The principle is then created, but not the interest.
Therefore everyone has to compete to raise the interest payable. Firms, forced to find the extra interest every year
from a money supply which is always too small, have two options - they must either further go into debt to pay it or
force others into bankruptcy. They must invest in growth or face collapse. So a win-lose, dog-eat-dog society is created
by the very system we use to create our money for essential transactions.
Forced economic growth is therefore an imperative built into the world’s financial system. The alternative is
unemployment and bankruptcy - not a great option.
But economic growth is now most likely these days to come from one of two sources -
1. The formal economy gobbles up the informal economy. Goods and services previously provided free are moving into
the money economy. Care of the elderly is moving to the formal economy, as is care of children and care of the weak and
vulnerable. Backyard chat is replaced by formal counselling. The grandmother or mother is replaced by the paid nanny.
The formerly unpaid production of meals within the household is replaced by paid production of meals in restaurants.
Parents, stressed through having to pay high interest on mortgages, often working for companies who demand from them 60
hours a week, now put their kids in front of a video rather than read them stories. Deprived of leisure time, they work
harder and harder just to stay afloat
2. A second way to grow the economy is by exploiting natural resources formerly left untouched in the ground or as
wilderness or wetlands - a native forest has no commercial value until cut down and sold. With deforestation, loss of
soil and water quality, the spiritual, medical and recreational value of the natural habitat are progressively lost.
But we then go ahead and trick ourselves. In our national accounts the loss shows on the national ledger as a gain -
expenditure on prisons or social services. Our GDP goes up, not down. It looks as though we can add but not subtract.
Likewise expenditure on cleaning up pollution, a slow death from lung cancer, bitter litigation or claiming on insurance
from accidents all show up as positive.
Pardoxically, as the environment and social milieu is degraded, the economy can boom. With all this self trickery, it is
little wonder we are confused. We can no longer measure our progress or gauge where we are. We end up with species loss,
and never imagine a major reason was that we create our money the wrong way. As the spectre of global warming and freak
weather events is now causing alarm among scientists and insurance companies alike, it is timely that we should be
addressing the issue of money creation.
Another major consequence of allowing the private banks to have an effective monopoly on creating the country’s money
supply is that businesses, now desperate for growth, become competitive. In this system, not all can win. A competitive
system leads to mergers and acquisitions and the consolidation of economic power within fewer and fewer
megacorporations. Transnational corporations, with no loyalty to place or community or country, anxious for further
resource control , now prey on public services. They buy out previously publicly controlled infrastructure services like
power and water supply, health services and education. This results in a steady transfer of power from democratically
elected local and central governments to megacorporations run by CEOs who can make major changes at the beck and call of
fund managers and large shareholders demanding more profit. It results in a global economic system which gives
progressively more power to corporations, and to the international agencies of corporations like the IMF, WTO and World
Bank, and less to elected governments.
A further consequence, as Rowbotham has documented, is the continuing growth of debt - national, corporate and personal.
Since, apart from the tiny amount of currency created as notes and coins by governments, money is only issued by
creating debt, almost all money is essentially burdened with debt. Our very money supply is dependent on growing debt.
The debt cannot be paid off or we would lose our money supply. The growth of unrepayable debt by countries, corporates
and private individuals is an essential feature of this financial system. For example, outstanding consumer credit is US
doubled in the last decade, according to the Federal Reserve.
Moreover it is a system which inevitably leads to a widening gap between rich and poor, between and within nations. The
gap between those who are net debtors and therefore pay interest, and those who are net creditors and receive interest,
will continue to widen. In developing countries this results in suffering, poverty and loss of life, while in the
‘developed’ world it results in a widening gap between billionaires and beneficaries. Debt enslavement and poverty
brings stress and loss of control, ill health, child abuse, crime.
With the growth of corporates, transactions become very impersonal, as chain stores replace mainstreet shops. Whereas
social interactions between trader and customer used to occur daily in the small businesses in communities, now people
travel to a big supermarket in a neighbouring town. Whereas once local trade provided much of the social glue which
linked and strengthened small communities, interactions are often reduced to listening to the perfunctory ‘Hullo, how
are you today?’ of a16 year old checkout operator.
Amongst all of this we have the growth of the Internet, allowing us to have almost as much information flood into our
households as we can bear. At work, e-mails are sent to the person in the adjacent desk; face to face interactions are
replaced by messages on a screen.
So what has been a major factor in our loss of social capital, the glue that holds us together and builds our trust in
our institutions? I believe it is the way we allow our private banks to create our country’s money supply.
Few of us have ever thought about this topic. When we think of money, we think of the money aleady existing or how we
might get more of it, save it, invest it wisely, get out of debt. We forget that money has been created by someone,
somewhere, by some process.
An examination of what money is, how it should be brought into being to serve the needs of healthy people on a healthy
planet, is critical to any discussion of loss of social capital.
- Deirdre Kent is Chairperson and Co-founder of New Zealand Banking Reform. deirdrek@paradise.net.nz