There is a link on this site to a 47 minute animated film entitled “Money As Debt.” The film contains a cogent description of the origins of the current banking system and why the system is headed for eventual collapse.

I was watching it with the Amazing Kathryn, however, and I remarked to her, about 2/3 of the way through, that the film was about to go off the tracks in its recommendations for the future. She asked me whether I have said that on this blog and the answer at the time was no. The purpose of this entry, therefore, is to explain why I believe the film goes astray once it enters the home stretch.

The first 35 minutes or so of the film spell out the history of banking as practiced today with an analysis is factual and rock solid. In a nutshell, it describes how banks create money out of thin air and must create more and more of it to keep the financial system afloat. But then, after setting out that history, the film turns to the obvious question of what should happen next. At this point it badly founders by dredging up a mishmash of worn out socialist ideas.

It brought to mind part of an old union song that was sung in college by some of the school’s budding young socialists. The lyrics, in part, went:

Oh the banks are made of marble,
With a guard at every door,
And the vaults are stuffed with silver,
That the workers sweated for.

Ironically, one of the film’s major points is that the vaults are NOT stuffed with silver. And that, if they were, we wouldn’t be in our current mess. But a link on the movie’s site to “socialistworld.net” pretty much foreshadows the harebrained ideas that follow. (A gratuitous dose of environmentalism is also throw in to give the film a more contemporary flavor.)

For starters, the film broaches the idea of modernizing barter into something workable as a substitute for money. For example, it suggest using vouchers representing an hour of someone’s work as a sort of currency. The problem, of course, that an hour of a lazy bum’s time cannot be equated with an hour from someone who is industrious. The old socialist notion of “from each according to his ability and to each according to his need” never ever ever ever works.

As another option the film suggests that the government issue money that is used for the building of useful infrastructure, such as bridges, and that then stays in circulation. Needless to say, any government issuance of money invites the issuance of greater and greater amounts, but the filmmakers solve that problem by suggesting that the electorate would vote out of office any administration that created excess inflation.

To call this naive is an understatement. Since when has any government been truthful with the electorate about its economic policies? The film makers fall into the eternal socialist trap: an unwillingness to accept the fact that power corrupts. We have dealt with enough “Peoples’ Republics” to know that collectivism is generally an excuse for tyranny. If government is the answer, then the film makers were obviously asking the wrong question.

The film rejects gold as part of any solution and that hardly surprises me. Gold is to socialists as Kryptonite is to Superman. It simply has too much historic symbolism for them to even begin to think about it. Their understanding is backwards on that score, but that is the subject for another blog entry.

So what SHOULD happen after the current system collapses of its own weight? I don’t really have the answer to that. There are those who say that gold is the only solution and I’m not sure I agree with that. The future is too unpredictable to draw such a hard and fast conclusion.

What I do know is that gold is a good parking place for wealth while the mess is sorted out. I view it as more of a shelter from the storm than as a permanent edifice. The ultimate solution to the eternal problem of money will be known only in the fulness of time.

However I still strongly recommend watching “Money As Debt.” Its usefulness as a diagnosis of the current money problem is admirable even though its prescriptions for the future leave a lot to be desired.

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