Where Did the Money Go? Part the Second

Now that there are some general statements made about how the system works, we can analyze a couple points that should be evident as problematic.

Continuing with the assumption that spending is the proper function of money, then an obvious problem would be the opposite: hoarding. The refusal to use money robs the Economy of all the activity that money would produce. It cannot be loaned out and no longer circulates. This can also be recognized as “extracting money from the system”. The term extractive processes has become more widely used in recent decades, but typically gets ascribed to industries like mining, forestry, oil & gas drilling, fishing, and even farming. When it comes to the economy itself, or the practice of draining money from circulation into private coffers, it has not been invoked. However, the extreme disparity of “wealth” using terms like “the 1%” are fairly common nowadays. What if even this framework does not adequately contextualize the problem? Here lies the central question prompting this pair of posts. To continue, there are 2 main culprits to address when it comes to extraction from the economy: the obvious and the obscure. The first, which gets attention, is tax havens, off-shore accounts, and generally "mattress money". This is why stories like the Panama Papers are important, but only partly the answer. Certainly, if money is not declared for tax purposes, there are additional issues with that. But for discussion here, the point is the removal from circulation and how that decreases what is possible for others when a single entity stuffs its own "mattress".

Now, for the second and more difficult to spot, issue: separate economies. This may conjure up thoughts of crypto-currency, but that is not what is intended. Here, we must consider another way that money is stripped from the shared or standard economy. One way to begin to picture it that many are already aware of is criminal activity. Mostly conducted with cash, this is often activity which happens along-side rather than with the general economy. Once money is spent on illegal drugs, guns, or other business, that cash has to be processed in order to rejoin the regular economy. This is called money laundering, and indicates that the criminal and regular economies are not entirely separated. A closer example would be "globalization" and the system beforehand. While this is a series of agreements, treaties, and laws which allow businesses to operate more easily across borders, many people see it as just a way for business to move away from their own area. This means that whatever money the business or worker was paid gets taken (or extracted) from that local area. Before globalization, many places did have separate economies; the spending in one town or country did not effect others. However, as many economic crises in preceding centuries indicate, the world was not entirely insulated. With these examples, we can appreciate the intended “second” factor mentioned above. In this case, it is something which operates alongside the regular economy, but has little impact on everyday persons. This would be the economy of the wealthy, whereby those individuals have created a separate pool of expenses and purchases. When it comes to entire office buildings, “super-yachts”, luxury items (cars, watches, clothes, etc.), or personal staff, the amount of money involved is absurd from a typical person’s perspective. Beyond that, however, is the fact of how much of this money is never seen in the typical person’s economy. Here is meant not the amount, but the actual dollars. Measured in millions of dollars, once this money is spent, it does not make its way back to Jane and Joe Taxpayer. These high-end items are produced, sold, and maintained by a group of people who are also wealthy (not the actual technicians, but owners of the companies, of course). The neighborhood mechanic is not working on a Bugatti; Bezo’s super-yacht is not moored down at the public dock. This is the separate economy mentioned before, the place money goes when collected by those rich individuals. Even when it is not in a tax haven, it still does little to benefit the regular Economy the rest of us deal with. It’s counted by someone, and included into the overall economy, but does it really—actually—count? If it never circulates back into the hands of a regular person who spends it at the corner market, does it really circulate? A bit like a tree in a forest that falls when no one is around, does it make a sound?

In addition to the embedded links, the citation below is a useful source of some of the information used herein.

 Robbins, R. H., & Dowty, R. (2022). Global problems and the culture of Capitalism. Langara College.