Sacred Economics Study Guide

Key Terms and Definitions

* Demurrage: A system in which money depreciates over time, encouraging its circulation and discouraging hoarding.

* Fiduciary Value: The value of money derived from trust and social agreement, rather than its intrinsic worth.

* Open Market Operations: The Fed's buying and selling of government securities to influence the money supply.

* Quantitative Easing: A monetary policy in which central banks inject money into the economy by buying assets without the goal of lowering interest rates.

* Negative Interest Rate: An interest rate below zero, where lenders pay borrowers for holding their money.

* Monetary Base (M0): The total amount of currency in circulation plus bank reserves held at the central bank.

* M1 and M2: Broader measures of the money supply, including checking accounts, savings accounts, and other highly liquid assets.

* Multiplier Effect: The concept that an initial increase in the monetary base can lead to a larger increase in the overall money supply through bank lending.

* Marginal Efficiency of Capital: The expected rate of return on an additional unit of investment.

* Asceticism: Severe self-discipline and avoidance of indulgence, often for religious reasons.

Short Answer Questions

* According to Graeber, what are the two historical roots of money, and how did their conflation lead to social injustices?

* Explain Eisenstein's argument that the pursuit of financial freedom is a mirage.

* How does Eisenstein connect the concept of scarcity to economic growth?

* What is the significance of the phrase "Time is money," and how does it relate to the commodification of time?

* Explain the difference between the value of cash and the value of credit, according to Eisenstein.

* What is the "fiduciary value" of coins, and why was it significant in ancient Greece?

* How does money contribute to the commodification of goods and services?

* What are the real constraints on money creation by banks, according to Eisenstein?

* Explain the difference between the old and new thinking regarding the purpose of monetary policy.

* How does a negative-interest system incentivize different economic behaviors compared to a positive-interest system?

Short Answer Key

* Graeber identifies the two roots of money as commodities used for barter and credit systems based on debt. Their conflation led to inequalities as debt relationships, inherently power dynamics, were tied to the same currency used for everyday transactions, resulting in debt peonage and other forms of exploitation.

* Eisenstein argues that financial freedom is illusory because the relentless pursuit of money often leads to an insatiable desire for more. As people accumulate wealth, their needs and desires expand, making true financial freedom elusive.

* Eisenstein contends that economic growth, while typically associated with increased wealth, can also be seen as an increase in scarcity. As more aspects of life become monetized, things once freely available become commodities requiring payment, creating a sense of scarcity, particularly regarding money itself.

* The phrase "Time is money" reflects the commodification of time in modern society. As time becomes quantified and associated with monetary value, it is subject to the same scarcity principles as other economic goods. The metaphor "I can't afford the time" illustrates how time is treated as a limited resource that must be budgeted and spent wisely.

* Eisenstein distinguishes between cash and credit by highlighting their differing sources of value. Cash derives its value from a broader social agreement and trust, while credit relies on the specific relationship between the lender and borrower. This difference impacts how each form of money functions in economic transactions.

* The "fiduciary value" of coins refers to the value beyond the intrinsic worth of the metal itself, stemming from the trust and social agreement placed in the issuing authority. In ancient Greece, this value allowed coins to circulate and facilitate trade within a specific social context.

* Money, as a universal medium of exchange, facilitates the commodification of goods and services. By assigning a monetary value to items, they become interchangeable and subject to market forces, often obscuring their inherent value or purpose beyond their price.

* Eisenstein argues that banks' ability to create money is constrained not by reserve requirements, but by their total capital and their capacity to find creditworthy borrowers. This challenges the traditional view of fractional reserve banking and highlights the role of creditworthiness and risk assessment in money creation.

* The old thinking in monetary policy aimed to stimulate or restrain economic growth by adjusting interest rates. The new thinking focuses on aligning the base interest rate with the desired economic growth (or degrowth) rate, recognizing the need for economic models that prioritize sustainability over endless expansion.

* A negative-interest system disincentivizes hoarding and encourages spending and investment, as money loses value over time. It favors long-term investments and activities with delayed returns, promoting sustainability and discouraging speculative activities common in positive-interest systems.

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