Agricultural Revolution – See ‘Enclosure’
Alaska Permanent Fund
In Alaska, the state provides every citizen an annual share of the state’s income from the oil and gas industry, in 2015 paying each Alaskan resident over $2,000.
Alternative Banking
The ‘OWS Alternative Banking Group’ grew out of the ‘Occupy Movement’ in 2011. It is a discussion group around proposals for ‘popular regulation’ of banking. The group continues to meet weekly at Columbia University. See ‘Occupy movement’.
Autonomy.work
The think tank ‘Autonomy’, who focus on ‘work’ and how to make it work, report that we could save the planet with a nine-hour working week. Staying at home more would enable us to reach our 2 degrees global warming target. They discuss and research the impact of automation on employment and the idea of Universal Basic Income (UBI). Being unemployed could become ‘less of a luxury and more of an urgency.’ They ask the question ‘Designing a new work ethic: in light of the irrational and outdated work ethic we have inherited, how can we imagine a new disposition towards work?’ See ‘Universal Basic Income.’
Asset
An economic resource. Anything that can be owned or controlled to produce cash, although cash itself is considered an asset. ‘Tangible assets’ include land, buildings, equipment, people, materials. ‘Intangible assets’ include financial assets like ‘stocks’ and ‘bonds’. (See ‘Stock’, ‘Bonds’)
Asknature.org
The website set up by Janine Benyus, champion of ‘generous’ design. It aims to make details of nature’s materials, structures and processes open-source. Two million users since 2008 have learned from and contributed to the database, which Benyus hopes will prevent profit-making companies from trying to patent ‘innovations’ that actually nature has already been doing forever. See ’Generous Cities’.
Balance of Payments
The record of all financial transactions – incoming and outgoing – between one country (individual residents, companies and government) and another. Abbreviated to BOP. Sometimes called ‘balance of international payments’.
Bangladesh
By training women to be solar engineers who can install, maintain and repair renewable energy systems in their own villages, Bangladesh aims to become the first solar-powered nation.
Bangla Pesa
The Bangla Pesa is a ‘complimentary currency’. In Bangladesh – that is, the slum in Kenya, not the country – the local economy is insecure and people are often hungry when the Kenyan Shilling fluctuates. Traders – grocers, bakers, carpenters, seamstresses – can trade with Bangla vouchers. They are able to use Kenyan Shillings to pay for services like electricity that demand hard cash, while trading for other things in Bangla. When the official infrastructure lets them down, for example when a three-day power cut hit the district in 2014 and no-one could pay each other in shillings, they could continue to do business in Bangla (Bangla allowed them to feed themselves in a crisis). Within two years of the introduction of the Bangla in 2013 the sustainability of the area had increased substantially. The Kenyan Government initially tried to shut down the Bangla, but quickly recognised its positive contribution to the economy. The scheme’s founder was Will Ruddick, an American Community Development Worker. See ‘Complimentary Currency’, ‘Community’, ‘L.E.T.S.’
Barter
The idea of exchanging and labour for other goods or labour, without money (‘I’ll give you my beer for your bread’). Since Adam Smith wrote ‘The Wealth of Nations’ in 1776, economists have explained the rise of money (coinage etc.) by pointing out the inefficiency of barter. There needs to be, for example, a ‘double coincidence of wants’ (you find someone who needs to do a direct swap for what you’ve got). Today experts agree that credit economies and debt arrangements came before coinage, not barter. Some people think barter could still be a good idea. Since the 1830s different groups have played with the idea of swapping stuff or labour for stuff or labour, designed to prevent a ‘middle-man’ making a profit. See ‘Bangla Pesa’, ‘Complementary Currencies’, ‘L.E.T.S.’, ‘Zeitvorsorge’.
Benyus, Janine – See ‘Generous Cities’.
Big Bang
In finance, the Big Bang refers to the sudden deregulation of finance markets by Margaret Thatcher and her government in the UK in 1986. Previously the London Stock Exchange had rules about fixed minimum commissions, the ‘single capacity’ rule (that kept brokers acting for their clients on commission separate from ‘jobbers’ who speculated on the markets), the exclusion of all foreigners from stock exchange membership and the insistence that brokers and jobbers both acted independently from larger financial groups. These rules were considered ‘restrictive practices’ by the Office of Fair Trading and were seen as the reason that the once dominant City of London was losing business to New York. Over-regulation and ‘old boy networks’ were blamed. The term Big Bang was coined at the time to describe the expectation of greatly increased market activity. Many changes followed. The abolition of the single capacity rule allowed brokers to take greater risks with client’s money, old London firms were taken over by large foreign and British banks and London boomed, becoming the world’s most important financial centre and London’s Isle of Dogs was transformed into Canary Wharf to accommodate it. The finance market went global, and a failure to understand how interrelated banks had become, and the failure to adequately ‘regulate’ banking practices, led to the global financial crisis of 2007-2012. See ‘Deregulation’.
Biomimicry
The Idea that human systems can learn from natural systems. For example, by designing ‘generous’ cities: cities designed to ape the way that their local eco-systems contribute to, rather than deplete, their local environment. See ‘Benyus, Janine’, ‘Generous Cities’, ‘Regenerative Design’,
Bitcoin
Bitcoin is a digital currency, sometimes referred to as a ‘cryptocurrency’. As it has no central bank and no single administrator, it became the first electronic, decentralised, peer-to-peer means of exchange when it was invented by an anonymous person or people, under the name of Satoshi Nakamoto in 2009. Bitcoins are created by a process of ‘mining’, which is a kind of game, and can be exchanged for other currencies or products. ‘Cryptography’ is a word for the clever computational algorithms (i.e. maths) that allows the currency’s value to fluctuate like any other currency and allows Bitcoin exchange to be fully automated. Millions of people are trading currency with a ‘cryptocurrency wallet’, mostly using Bitcoin but there are now others. Like any modern currency the ‘value’ of Bitcoin has no relationship to physical resources and it’s ‘worth’ is whatever people are prepared to pay. Bitcoin bought (or mined) in 2009 that was worth a few dollars, in 2017 is worth millions. Some say its value is now so high that it will soon crash, like any other inflated ‘bubble’ has done in the past. Others point out that there was a fixed amount of bitcoin created, so when it has all been ‘mined’ there will be no more, and will therefore hold its value. See ‘Bubbles’.
Bonds
A bond is a debt. An IOU. Instead of a bank lending a business money, individuals buy ‘bonds’, as a way of financially backing that business and then the individuals receive interest on their bonds once a year. Bonds have a ‘maturity date’, when the individuals get their money back at ‘face value’, which is a value that may be more or less than they originally paid for it, depending on how well the business is doing, so it is a gamble. High risk bonds may pay higher rates. Bond maturities can range from a day or less to more than 30 years. Long bond maturities have more time for the business to fail, so may pay higher interest rates to reflect the higher risk. ‘Corporate bonds’ are issued by companies, ‘Municipal bonds’ by states, ‘US Treasury Bonds’ by the US Treasury (also known as ‘Treasuries’). Various government bonds are available in the UK. ‘Convertible bonds’ are debts that can be converted into ‘stock’ (equity). See ‘Stock’ and ‘Equity’.
Bubbles
An economic bubble is a time of high prices, or an ‘overheated’ economy. (Also referred to as a ‘speculative bubble’, ‘market bubble’, ‘price bubble’, ‘balloon’ or ‘speculative mania’). The price of something is hugely more than the thing’s intrinsic value, based on overoptimistic views about what it will be worth in the future. Bubbles are therefore hard to spot until after they have ‘burst’. Until they do it just seems as if prices will keep on going up indefinitely. The housing market is prone to bubbles, people pay often more than they can afford in a desperate attempt to ‘get on the ladder’ before prices go up any higher, and in the mistaken understanding that they will be able to sell in the future for even more money (‘speculation’) which drives prices higher still. When prices reach a point that no one can afford to pay higher, or people simply lose faith in the value of investing, the prices plateau, then start to drop rapidly because of fear and lack of confidence in the market as people sell for reduced prices to ‘offload risk’. People find themselves with a house worth less than the amount they have borrowed to buy it (‘negative equity’).
Sometimes also known as ‘Tulip Mania’. This refers to a 17th-century bubble in Holland, when a particularly fashionably tulip bulb was so expensive that at one point a single bulb was traded for 12 acres of land, before the price fantastically crashed, ruining investors with it. See ‘Speculation’.
Budget
The amount of money you’ve got to spend and how you allocate it. It may be a weekly household budget, considering the available income coming into the house and the cost of food and energy bills going out, over the same period. Or it could be a company’s annual budget, including planned sales, predicted costs and cashflows. It could include a budget surplus (money to save for later) or a budget deficit (where expenses are more than income, leaving a shortfall). Governments plan national budgets for countries for one year at a time. In the UK this is called ‘The Budget.’
Budget Surplus – see ‘Budget’
Capital
Usually used to describe assets or goods that allow a person to produce money. Traditional economics excludes land and non-renewable resources from the definition, seeing capital only as an asset that can enhance a person’s ability to contribute to the economy, i.e. can be increased through human labour to ‘make’ money. Capital could include ‘stock’ (all the moveable property of a farm, factory, industry or business), goods, buildings, or financial capital (money in the bank or shares in a business). Recently, we have started to appreciate other forms of capital that contribute to human wealth, of natural capital (trees, water, habitats, mineral reserves, etc.), human capital (people and investment in skills and education), intellectual capital (knowledge, intellectual property, copyright, patents etc.), common capital (that which is not ‘owned’ by anyone, like common land, water etc.), social capital, such as goodwill or brand value, and instructional capital (teaching and knowledge transfer, e.g. the asset of a university or universities). See ‘Commons’.
Capitalism
Capitalism describes a ‘market economy’, i.e. an economic system based on private ownership of the ‘means of production’, competitive trading and wage labour, made possible by the use of money-based social relations. Capitalism has been criticised for being an engine of inequality due to its prioritisation of profit over social good, natural resources and the environment, and its creation of a minority capitalist class and a poorer wage-earning majority. Supporters of capitalism say that it is the most efficient method for the allocation of resources and provides the best and cheapest products through competition. There are different models of capitalism, ‘laissez-faire’, welfare capitalism and state capitalism use differing levels of government intervention to manipulate the markets. Most capitalist countries are ‘mixed’ economies, that is, of privately and publically owned enterprises. See ‘Laissez Faire’.
Carbon Neutrality
CO2 pollution is caused by the burning of fossil fuels (gas, oil and coal). Carbon neutrality doesn’t relate to the mineral carbon itself, but to the carbon dioxide gas in the ozone layer around the earth that causes global warming and is therefore a threat to our survival on the planet. There are other gases that contribute to the problem (methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride), but carbon dioxide is the most abundant. (It would be more accurate to talk about ‘climate neutrality’ and the two terms can be used to mean the same thing.) An activity is ‘carbon neutral’ if it 1, produces no harmful gasses in the first place, or 2. Is ‘offset’, i.e. compensated for by, for example, planting trees that absorb an equivalent amount of carbon dioxide, thereby cancelling out the effect. Janine Benyus recommends that we go further and create environments that are ‘climate positive’, (regenerative) rather climate neutral. See ‘Generous Cities.’
Cash
Money in the form of notes and coins, rather than cheques, credit cards or loans.
Chartalist Theory
German Economist Georg Friedrich Knapp coined the term ‘chartalism’. He said ‘money is a creature of law’, not a commodity in and of itself (in contrast to ‘metallism’ for example, where money is tied to the Gold Standard). Modern chartalism is more widely known as Modern Monetary Theory (MMT). See ‘Gold Standard’, ‘Keynes/Keynsianism’, ‘Modern Monetary Theory (MMT)’.
Cheques
A cheque is an order to a bank to pay a stated sum from one account, into the account of the person whose name is written on a specially printed form. The original ‘promissory notes’, which were also a written order to pay ‘the bearer’ of the note, actually preceded paper money. Cheques have been around since the 9th Century and their use peaked in the 20th Century, when automated cheque-sorting processed billions of cheques annually. Cheques have been mostly replaced by electronic payment methods.
Circular Economy
The idea of the creation of economic models with no negative environmental impact. The idea of ‘closing the loop’. E.g. when the waste process from one industry is used as a resource for another, such as recycling. Designing these models uses design thinking and systems thinking. See ‘Design Thinking’, ‘Systems Thinking’.
Coins
Small, flat, usually round pieces of metal or plastic (and historically other materials, e.g. porcelain) used as a means of exchange, standardised in weight and made in a ‘mint’. ‘Bullion’ coins are made of a valuable metal (copper, silver, gold, platinum or palladium) and stored in large quantities, while coins of cheaper metal are circulated along with banknotes as ‘legal tender’. The first known coins arose in the Iron Age (in what is now Turkey), around the 7th century BC and spread through ancient Greece, India, China, Persia and the Balkans.
Collaborative Commons
A phrase coined by Jeremy Rifkin describing the way the potential of the economy has been transformed by digital communications, renewable energy, 3D printing, and the way that they all three come together. If we can share a design and print anything, using free energy, then we all own everything. Now often called ‘Creative Commons’.
Colonialism
One country controlling another country fully or partly, occupying it with settlers and/or exploiting its capital or economy.
Commodity Money
Money whose value comes from what it’s made of (its commodity). Things that have a value in their own right, that can be traded with an understanding of their intrinsic (inbuilt) worth. Examples in our past include gold, silver, copper, salt, peppercorns, hemp, shells, alcohol, cannabis, sugar, barley, corn, cigarettes. See ‘Representative money’ and ‘Fiat’.
Commons
The Commons is a term that has grown out of the English term for common land. It is the cultural and natural resources including air, water and habitable earth accessible to all people, not privately owned. See ‘Capital’.
Community
Traditional economics believes ‘self-interest’ (selfishness) – as outlined by Adam Smith in 1776 in his ‘The Wealth of Nations’, and championed by ‘laissez-faire- ‘economics – leads to good financial management. Experience shows us that community and cooperation does a much better job of running wealth creation. In Nepal, for example, Elinor Ostrom observed the success of ‘self-organising’ rice farmers. Her team compared water-irrigation schemes constructed by the state, and those built by the farmers. They found the farmer-run schemes tend to be more basic in design but better repaired, producing more rice, and distributing water more fairly to everyone. So called ‘common pool’ resource users obviously need access to their own local resources to be able to make this possible. See ‘Bangla Pesa’, ‘Commons’, ‘Complimentary Currency’, ‘Laissez-Faire’, ‘Smith, Adam’.
Complimentary Currency (or Alternative Currency)
A currency that is not usually legal currency but can be used alongside existing currencies, to promote community, environmental or political goals. I.e barter or the LETS scheme, where items or labour can be exchanged for points. See ‘Bangla Pesa’, ‘LETS’, ‘Zeitvorsorge’.
Complexity Theory
Since the 1970s experts in all areas of science have started to question the simplicity with which we study separate subjects as if they were not interrelated. Complexity Theory acknowledges the need to look at scientific questions by factoring in every variable as part of the organic whole. ‘Complexity economics’, ‘network theory’ and ‘evolutionary economics’, for example, look at biology, ecology, social and political factors and how the relationships between them affect the behaviour of the whole. See ‘Systems Thinking’.
Conservatism
Conservativism is the political and social philosophy that promotes the conservation of traditional values. It aims to protect hierarchy, authority, religion, parliamentary government and property rights in order to maintain stability and continuity. The term was first used in post-revolutionary France to describe a desire to roll back the policies of the French Revolution. It means different things to different people around the world, as it depends what is considered traditional – and therefore worth conserving – in any given place or time.
In financial terms ‘fiscal conservatism’ is seen to be the philosophy of careful spending and not running up large debts. In the UK the ‘Tory’ movement grew up in the late 17th Century and supported a hierarchical society with a monarch who led by ‘divine right.’ In the UK in the 20th Century left-wing politics followed the Second World War, nationalising industry and establishing the Welfare State. Since the 1980s the Conservatives, guided by neoliberal economics, reversed many of Labour’s programmes. See ‘Milton Friedman’, ‘Monetarism’, ‘Thatcherism’.
Cooperatives
Employee-owned companies. In 2012 the 300 largest cooperatives worldwide made $2.2 trillion, equivalent to the world’s seventh largest economy. Examples include ‘Evergreen Cooperatives’ who run solar power plants, greenhouses and laundries in Ohio, the ‘Mamsera Rural Cooperative’ in Rombo, Tanzania who grow coffee and trees and Mondragon in Spain where the workers hire the managers and decide on their salaries. Mondragon’s pay ratio, from least to best paid workers (unskilled staff:managers) is 1:8. This contrasts with some American corporations who have pay ratios of 1:300 (bosses earning 300 times as much as the lowest paid worker). Mondragon has an annual turnover of E12 billion and is Spain’s tenth largest company.
Core Economy – see ‘Household’.
Corbyn/Corbynism
The labour movement in the UK with a manifesto that is a return to the ideals of Socialism. The leader of the Labour Party Jeremy Corbyn represents state ownership of energy and transport services, education and the health service along with free University-tuition and government control of housing costs to promote a greater equality of citizens’ living standards. Some consider these principals radical left-wing, others suggest that the ‘centre’ of politics had simply swung too far to the ‘right’ under previous UK governments and hold that Corbynism is a return to traditional ‘mainstream’ Social Democracy like that in Denmark, Finland and Sweden, for example.
Creative Commons – See ‘Collaborative Commons’
Cryptocurrency – See Bitcoin
Debit
Money (noun) taken out of a bank account, or to withdraw (verb) money from a bank account.
Debt
Something owed by one party (the borrower or debtor) to another (the lender or creditor). Either parties might be an individual or company, country or government. Debts include loans, bonds and mortgages as well as moral obligations, eg: a debt of gratitude or kindness. See ‘Interest’.
Debt Cancellation
Or ‘debt relief’. This is the idea of cancellation or forgiveness of debt. Until the 20th century this meant the freeing of agricultural debt and the freeing of slaves. More recently it is used to refer to the idea of cancelling Third World debt, or the debt of individuals who are ‘overextended’ (cannot repay) due to credit and housing ‘bubbles’. See ‘Bubbles, ‘Jubilee’, ‘Jubilee 2000’, ‘Religion.’
Degrowth
An idea, and a social movement, that recommends the idea that over-developed countries should scale-back production and consumption and instead maximise happiness and well-being.
Demurrage
Demurrage is a small fee charged for holding money. A concept proposed by businessman Silvio Gesell. If it costs to store money then the value of stored money would go down. This would encourage regenerative investment rather than hoarding. Gesell said ‘We must make money worse as a commodity if we wish to make it better as a medium of exchange’.
Deregulation
In the past banks weren’t allowed to charge interest of more than 10%. This regulation was lifted in the 1970s. The 1980s and 1990s saw changing regulation of the banks and how they create money. In the US the Glass-Steagall Act required banks to keep customer’s savings and loans separate from the bank’s speculative investments. This ended when the act was repealed in 1998. In the UK, Thatcherism and the ‘Big Bang’ – inspired by ‘monetarism’ – also allowed the banks to ‘speculate’ without previous controls on what they were doing, in a way that we now know led to the financial collapse of 2008. See ‘Big Bang’.
Derivatives
(First read ‘Futures’, ‘Stock’, ‘Shares’). Derivatives are financial ‘products’ based on, or derived from, other products. For example, a ‘futures’ product could be a legally-binding contract to buy an amount of wheat at a future date, the contract is a separate item derived from the wheat.
Divestment
The opposite of investment. To withdraw or reduce capital or assets or sell a business, or parts of a business, for the purpose of saving money or offloading risk, or withdrawing funds due to ethical or social reasons (e.g. fossil fuel divestment). On a larger scale, depletion of natural resources is also divestment (the opposite of planting trees as an investment in the future, for example).
Dividends – See ‘Shares’
Doughnut Economics
Economist Kate Raworth coined the phrase in 2012 in an attempt to change the perception of world economics by offering an alternative visual image to traditional flow-charts and x-y axes. A two-dimensional doughnut (the kind with the hole in the middle) is basically two circles, one inside the other. Outside the outer circle is environmental disaster, inside the inner circle is poverty and deprivation. The area between the two circles is the area of safety and prosperity. Humanity’s 21st century challenge is ‘..to ensure that no one falls short on life’s essentials (from food and housing to healthcare and political voice), while ensuring that collectively we do not overshoot our pressure on Earth’s life-supporting systems’. Her book on the subject challenges traditional ideas about the need for ‘growth’. She says ‘be agnostic about growth’, pointing out that an economy can have wealth without growth, and that this is true already in many of the world’s richest nations. Our guiding light should be about staying in the area between the two circles, and not seeking ‘growth’ at all costs. She says that a failure to redistribute wealth more fairly is simply a design fault on our part. Raworth provides not just a critique of traditional economics, but the first new models for progress in over 70 years, leading some to dub her the ‘new Keynes’. George Monbiot argues that the ‘doughnut’ highlights the importance of dealing with sustainability and social justice together. See ‘George Monbiot’.
Economics. The study of the flow of resources. The term was coined by Xenaphon in Ancient Greece, meaning ‘the art of household management’. He had a completely different word – ‘crematistics’ – for the art of acquiring wealth and the two things were quite separate ideas.
Electronic Money
E-money is an electronic store of monetary value on a technical device that does not necessarily involve bank accounts. E-money could be hardware- based (e.g. chip card) or software based (e.g. pay-pal).
Ellen Macarthur Foundation
A British charity designed to ‘inspire a generation to re-think, redesign and build a positive future, through the framework of a circular economy. See ‘Circular Economy’.
Equity
Equity in finance-speak, or ‘shareholders’ equity’, is the value of what is owed as a result of ownership, to individuals or agencies who have a share in the total capital of a business. ‘Home equity’ (how much of your house you own) is the difference between the market price of a home and the unpaid mortgage. ‘Private equity’ is your stock in a private company. In more general terms Equity is the study of fairness in economics. ‘Equity theory’ explores perceptions of fairness in the distribution of resources.
Empire
A group of states or countries ruled over by a single state, or monarch.
Employment
Employment is a relationship where one party works for another, a contract where work is paid for, by an hourly rate, piecework or a monthly salary.
Enclosure
Before ‘enclosure’ large areas of British land were commonly owned, or owned by the Lord of the Manor, and divided into allotment-style strips to be used by tenants to grow their own food (so-called ‘strip farming’) in exchange for work on the manor, and ‘waste’ land (narrow or awkward land that was not officially used by anyone so could be cultivated by landless peasants). The ‘Inclosure Acts’ in the UK (1604 – 1914) granted legal property rights to this land (6.8 million acres). The previous ‘open field system’ was parcelled up and fenced or hedged (‘enclosed’), creating larger privately-owned fields. Landlords were then able to use more efficient farming techniques, in what we now call the ‘Agricultural Revolution’, increasing crop yields, creating more food for sale, which the poor had no other option than to buy with money from wages. Where work was not available the poor starved or moved to the cities, providing the cheap labour that made the ‘Industrial Revolution’ possible. The ‘Levellers’ were a protest organisation that tried to remove, or level, the fences, but they were ruthlessly dealt with, in what was effectively a transfer of land from the poor to the rich. More recently the idea of ‘enclosure’ has been expanded to include the way that other common property (natural resources, education and human, technological and intellectual capital) has been ‘fenced off’ by the few from the many. See ‘Capital’ ‘Rentier’, ‘Commons’.
Ethereum
A digital block-chain currency that is enabling homes and offices with solar panels on their roofs to set up peer-to-peer trading in renewable energy, creating energy ‘microgrids’.
Externalities (‘private profits, public costs’)
This is the term economists use for the real costs of financial transactions that are not included in the maths of profit. The logging industry, for example, can be seen to be profitable if the costs of soil erosion, water pollution and greenhouse gases are ‘external’ factors not included in the costs of deforestation. Nuclear radiation that lasts for millennia, and the future cost of containing it, is an ‘externality’ that the nuclear industry is not required to factor into its costs, thus making it look like an ‘efficient’ form of energy production and distorting the real cost. So when tax-payers pay for the costs of cleaning up pollution, this allows the profits of industry to go to private individuals, while the real costs are paid by the public. Accounting with ‘inclusivity’ is difficult when pollution from one country could land on the other side of the world, and can only be tackled with global cooperation. See ‘Inclusivity’.
Fiat money
Since the world left the Gold Standard, fiat currencies have been used globally. Fiat money is a currency that has no value linked to goods (‘commodity money’), neither is it redeemable against something else (‘representative money’, e.g. gold). Its value comes only from a government’s power to enforce it, or because people agree to its exchange rate. The first recorded use of fiat money was in China around 1000AD in the form of Yuan dynasty banknotes. See ‘Commodity Money’, ‘Gold Standard’, ‘Representative Money’.
Finance
The study of investments, or ‘money management’. Finance puts a price on monetary assets based on ‘risk’ level and ‘rate of return’. ‘Personal finance’ may include life and health insurance, inheritance, tax management, savings, pensions, buying property, loans and debts. These are all things that attempt to protect against risk. ‘Corporate Finance’ deals with the funding and capital structure of businesses, and ‘Public Finance’ with a country’s tax income, the cost of public works, budgeting and national debt management. National banks play an important role in public finance, influencing interest rates and as the lenders of last resort.
Financial
‘Financial’ usually relates to money matters or transactions of size or importance (e.g. financial wizard).
Fiscal is a term usually used in connection with government money.
Futures
Futures, or ‘stock futures’ are contracts to buy or sell goods or financial assets now, for delivery on a future date. (In contrast to the ‘spots market’, where trades are completed immediately). You may buy a farmer’s entire tomato crop for an agreed price before it has been planted, and run the risk of it failing, but as you are guaranteeing to buy it whatever, you may be able to negotiate a cheap price for something that could also become highly priced and highly profitable, so it’s a kind of gamble. For the farmer this is a way of spreading risk, or hedging his bets. This is the idea of buying ‘long’ (you take on the obligation to pay up in the future on the contract maturity date), and selling’ short’ (you take on the obligation to sell at the agreed, reduced price). (Futures are ‘derivatives’, because they are a separate product derived from something else: the tomatoes). Futures are different from ‘Options’ which are a right to buy or sell at the fixed price, but not an obligation. See ‘Options’.
Game Theory
Game Theory is used in economics, political science, psychology, logic, computer science and biology. It is the study of conflict and cooperation between people (and animals and computers) using mathematical models. It has become an umbrella term for the science of logical decision-making and has its origins in a two-person version of a card game called ‘Le Her’. At its simplest: two players have two options: 1. to share the prize or 2. Take it all. The risk is that if they both opt for option two, take it all, then both lose. If you opt to share and the other player opts to take it all, then you lose. If you both opt to share then you get to split the prize 50/50. The winner is the player who is best able to predict the behaviour of the other. Game Theory has been used to develop nuclear strategy and methods of taxation. A game is cooperative if players are able to form commitments like legally-binding contracts, and is non-cooperative if they cannot form alliances and agreements need to be self-enforcing through, for example, threats. Variations on the theme include the ‘prisoner’s dilemma’ which looks at why rational individuals don’t cooperative even when it would be in their best interest, ‘chicken’, which leads to mutually assured destruction, and ‘stag hunt’ which involves making decisions about whether to cooperate with the other player or not and offers lessons about international agreements, like climate change, for example. Sometimes also known as the ‘Ultimatum Game’, results will vary dramatically depending where in the world you play it and the nature of the local culture of reciprocity. See ‘Reciprocity’.
Gender Inequality
The Gender Pay Gap is the term used to measure how much, on average, women in the western world are paid less than men (about 20%). The reasons for the gender pay gap in the West can often be seen as historical. For example, wall cleaners may get paid more than floor cleaners (walls are often cleaned by contractors,usually men, floors by ‘cleaners’, usually women). This is because the work of women in the past was thought to be worth less than men. This example also shows how it is difficult to compare ‘like-for-like’, to make a comparison. But, more importantly, if you factor in all the things that are viewed as ‘externalities’ in the traditional economic model, it all looks very different.
For example, half the world’s population lives on less than two dollars a day and the majority of these people are women. In some countries 80 – 90% of migrants are women sending money home to their families. A young woman in Lowveld, Zimbabwe, may wake up at 4am, carry a bucket eleven kilometres to a well and back, get home three hours later, do all of the chores needed to keep her family alive (washing dishes, collecting firewood, cooking, gardening), go back to collect water again and help her younger brothers and sisters with their homework, but her input into her economy is unmeasured. Her contribution to her country’s GDP is invisible.
A woman in the western world spends two-thirds of her day working on unpaid work (compared to men: one quarter). In Nepal, women work twenty hours more each week than men. In India, around twelve. Canada’s national statistical agency have tried to measure the value of unpaid work (about 30 – 40% of GDP). The undervalued, unquantified contribution of ‘women’s work’ has not yet been fully factored into the global economic picture. This role has been identified by Kate Raworth (‘Doughnut Economics’) as the essential financial contribution of ‘The Household’. See ‘Doughnut Economics’, ‘GDP’, ‘Household’.
Generous Cities
This is an idea of Janine Benyus. She observes a city’s local natural ecosystem (such as the nearby forest or wetland) and records how it absorbs solar energy, stores rainwater, fertilises soil, purifies air etc, and then designs cities that recreate this standard (‘biomimicry’) with, for example, solar rooftops that grow food. The city is ‘regenerative’ because it contributes more than it consumes. Benyus says ‘Don’t ask: what’s my fair share to take. Ask: What other benefits can we layer into this so we can give some away.’
See ‘Oberlin Project’, ‘Park 20/20’ in the Netherlands, ‘Newlight Technologies’ in California, ‘Sundrop Farms’ in Australia, ‘Sanergy’ in Kenya, ‘Regenerative Design’.
Gift Relationship, The
The title of Richard Tismuss’ 1970 book. He found that blood donors in the UK who gave their blood for free, gave more and healthier blood than in the US where people are paid for it. His examples, and many other research experiments since, have shown that people are more inspired to ‘do good’ by community spirit than by money. In fact, cash incentives designed to, for example, encourage kids to go to school in poor achieving areas, are found to be de-motivating and counter-productive.
Globalism
Globalism is the ideology or ideologies that promote globalization. The Empires of Rome and Ancient Greece attempted to expand across the world and capitalism has sought to colonize every corner of the globe. Spreading networks of ideas around the world include the concepts of corporate globalization,justice globalism (which opposes corporate globalization), imperial globalism (empire building), jihad globalism and market globalism. The word is used in debating the economic, social and cultural developments involved in globalization. The term globalism, along with ‘economic integration’ was first used in the United States in the 1940s as a justification for America’s expansionist policies. Seen as both a positive and a negative force, some argue that far from being an unstoppable progression, globalization is breaking into pieces, as citizens reassert ‘national interests’, both positive and destructive.
Global Alliance for Tax Justice
Transnational corporations shift around $660 billion to near-zero tax-havens every year. The Global Alliance for Tax Justice is – along with other agencies – an organisation campaigning for greater corporate transparency, fairer tax rules and innovative national taxing systems.
GNH
The concept of ‘Gross National Happiness’ (GNH) was included in the Constitution of Bhutan in 2008. The idea took hold following an interview with the then King of Bhutan in 1979 when he said ‘We do not believe in Gross National Product. Gross National Happiness is more important.’ It is both a developing international concept and an index system to measure collective happiness in any specific country. See also ‘HDI (Human Development Index)’
GNP
Gross National Product (GNP) is the total value of goods and services produced by a country in one year, that is, all Gross Domestic Product (GDP) plus all foreign investment. GNP is a purely financial measure and pays no attention to human benefits or costs, which are factored into GNH or HDI. See ‘GNH’, ‘HDI’.
Gold Standard
Between 1871 and 1914 the Gold Standard was the dominant money system in the world. It was the idea that ‘money’, paper and coin, should be equivalent to an equal amount of gold. The notes and coins were supposedly ‘receipts’ against your actual gold wealth stored in the bank vaults. The world currencies were ‘pegged’ to gold directly and the theory was that nations couldn’t have more currency in circulation than they had in actual gold in the bank. This stopped countries becoming unstable, going into unsustainable debt or into escalating inflation. The need to go into substantial debt to fight two world wars caused the Bank of England to leave the Gold Standard, so after the 1940s currencies were pegged to the dollar, which in turn had its value tied to the value of gold, at a rate of $35 per ounce. The problem was when you tried to withdraw it. If everyone tried to withdraw all the gold at once it became clear that there wasn’t as much gold as there was notes, coins and credit (debt) in circulation and the illusion fell apart, as President Nixon found out when France sent a battleship to New York in 1971 and demanded $151 million of US debt in gold. Nixon was forced to abandon the gold standard. The US finally removed anything resembling a tie between gold and the world’s currencies in 1971. Since then currencies haven’t been ‘backed’ by anything tangible and they now trade with each other at exchange rates determined by the ‘market’, and that illusive thing: ‘confidence’ (i.e. something is worth whatever people think it’s worth), These national currencies are known as ‘fiat’ money. Since the 70s banks have been able to ‘create’ electronic money without limit, leading to out-of-control debt and inflation.
In recent years returning to a gold standard has started to seem like a good way to restore stability to the system. But there isn’t enough gold in the world to match the current money supply and probably never was (In 2012 the world’s total gold supplies equalled 170,000 metric tons, roughly equivalent to $9 trillion, while the US national debt alone was roughly $18 trillion). For this reason some people have even suggested that the new standard could be Bitcoin, and that it is the new ‘digital gold’. Like gold, Bitcoin apparently has a limited supply, and is allegedly ‘mined’ at a similar rate to actual gold being mined. At its creation the computer algorithm that is Bitcoin limited the total amount of available Bitcoin to B21 million. When all that total has been ‘mined’ there won’t be any more. Could that create a new global standard? Except, since Bitcoin, a whole new load of cryptocurrencies have been launched into our cyber economy, so probably not. It’s very interesting that cryptocurrency (currency not linked to anything actually tangible, like any other ‘fiat’ money) should be growing at the same time as the idea of ‘resource-based’ economy (economy based on actual stuff). The two ideas seem to be at polar opposites to each other, but who knows? See: ‘Bitcoin’, ‘Resource-based economy’, ‘Fiat’, ‘Deregulation’.
Great Acceleration
The economic era between 1950 and 2010 when the global population trebled in size, world GDP increased by seven times, freshwater use trebled, energy use increased fourfold and fertiliser use rose tenfold.
Green New Deal
The name ‘Green New Deal’ refers to the ‘New Deal’ of the ‘Works Projects Administration (WPA)’ in the US in the 1930s, which was a response to the ‘Great Depression’. Under Roosevelt’s WPA, America paid the unemployed to do public works and built hundreds of hospitals, libraries and schools, thousands of miles of roads and created literature, theatre and poetry to literally spend its way out of recession. In 2006 the ‘New Green Deal Task Force’ created a plan to revamp the idea for the 21st century to build a clean, renewable energy infrastructure, a free college system, single-payer healthcare and a new green America, employing people in need of employment using a ‘Job Guarantee’ promise to find useful work for anyone unemployed. The idea is growing rapidly, as a way of using state-sponsored jobs to tackle climate crisis and is receiving large support from green and environmental agencies.
Critics are various. Some worry about ‘greenwash capitalism’ and suggest that the idea is still invested in the concept of ‘growth’, which is not what the planet needs, unless it truly embraces concepts like equality.
In Europe and the UK, the idea is looking like the best option for creating both economic security and environmental responsibility. It mirrors the idea of Kate Raworth’s ‘Doughnut Economics’. See ‘Doughnut Economics’, ‘Job Guarantee’. Look up ‘WPA’ elsewhere, it was remarkably effective.
Growth
Growth in economic terms is the increase in value of goods or services, ‘inflation-adjusted’ to compensate for the effect of inflation. The economic growth of a nation is traditionally measured in the increase of Gross Domestic Product. Figures about growth are distorted because of the failure to include externalities in growth calculations. Economist Donella Meadows, co-author of the 1972 Limits to Growth report, says, ‘Growth is one of the stupidest purposes ever invented by any culture, we’ve got to have an enough’. Kate Raworth in Doughnut Economics calls it the cuckoo in the economic nest, saying ‘In the twentieth century, economics lost the desire to articulate its goals: in their absence, the economic nest got hijacked by the cuckoo goal of GDP growth ‘.’See: ‘Doughnut Economics’, ‘GDP’, ‘Externalities’.
HDI (Human Development Index)
Created in 1990, the UN’s Human Development Index (HDI) ranks countries in terms of health and education as well as income per person, to try to move away from the idea that wealth is purely financial (GNP). Other similar scales include the Happy Planet Index, the Inclusive Wealth index, the Social Progress Index and Gross National Happiness (GNH). See ‘GNH’, ‘GNP’
Hedge Funds
A hedge fund is an investment fund that lumps together capital from different people and invests in a variety of different assets in order to ‘hedge’ market risk, as in ‘hedging your bets’. Hedge funds have investment managers that receive annual fees and performance fees, because the range of ‘products’, ‘risk-management strategies’ and financial ‘instruments’ are so complicated that hedge funds are not available to the public. Unlike ‘mutual funds’ they have been mostly unregulated so are able to bypass control by the finance industry, giving them greater flexibility to invest in liquid assets (see ‘Liquidity’) and make profit whether markets are rising or falling, but also to take uncontrolled risks leading to potential danger situations like the global financial crisis of 2008 that was caused by one man single-handedly mismanaging one hedge fund, creating a ripple effect that impacted the whole world. See ‘Ponzi schemes’.
Household
Kate Raworth, in Doughnut Economics points out that the role of the household is core to the economy. The unpaid labour of women and girls supports and contributes to the wealth of the family in largely unquantifiable ways, but the contribution is substantial. Some attempts have been made to calculate this contribution. In a Swiss study, the value of unpaid care in Basle exceeded the total of all salaries paid to all the staff of Basle’s hospitals, daycare centres and schools. 15,000 mothers in the US were surveyed and hourly rates calculated for all their roles: housekeeper, teacher, van driver, cleaner. The study found that, if paid, a stay-at-home mum would earn $120,000 dollars per year, and a working mum would earn $70,000 on top of her wages. In sub-Saharan Africa and South Asia, this contribution is more visible, where millions of women and girls spend hours a day carrying water, food and firewood on their heads, often whilst also carrying a baby. There is a gendered division of paid and unpaid work in every society and because the ‘core economy’ is unpaid, says Raworth: ‘it is routinely undervalued and exploited, generating life-long inequalities in social standing, job opportunities, income, and power between women and men’. See ‘Doughnut Economics’, ‘Gender Inequality’.
Human Capital – See ‘Capital’.
Imperialism
A nation taking ownership of land that is already inhabited by somebody else.
Income Inequality
Income Inequality is the gap between the richest and the poorest. It is currently at the highest it has been for 100 years, for reasons that we now think of as the ‘trickle up’ effect. In America and the west, highest earners within one corporation may earn 300 times as much as the lowest. In Spain within the Mondragon Cooperative Corporation, where the workers hire and fire their managers, the ratio is capped at 8:1. See ‘Trickle Down’, ‘Trickle Up’, ‘Cooperatives’.
Inclusivity
When calculations include all capital costs in the accounting of financial transactions, including unpaid labour, costs paid by a different country to the business making money, human cost, pollution, climate change, resource depletion, environmental damage and cost to future generations. Traditional accounting is not ‘inclusive’, and up until now has dismissed these consequences as ‘externalities’. See ‘Externalities’.
Industrial Revolution
The Industrial Revolution in the UK, between about 1760 and 1840 was the transition from an agricultural lifestyle to an industrial one. Hand production methods were replaced by machine manufacture. This was partly made possible by a series of inventions based around steam power and coal-mining. Partly also made possible by the rise of banking, required to raise huge capital investment. It was also largely made possible by the movement of cheap labour from the land to the towns and cities caused by Enclosure. See ‘Enclosure’.
Inflation
The idea that the more currency there is in the system (available ‘money supply’) the more prices will rise, and the value of the currency will go down. A ‘good’ annual inflation rate is estimated by current economic theory to be 2%. This means that a dollar in your pocket today will be worth 98 cents next year. In practice, the purchasing power of a dollar has gone down by 98% in 100 years. Unfortunately, wages don’t rise at the same rate as inflation, leading to a drop in standards of living, leading to people going into debt to buy the same things that they were previously able to afford. At national levels this leads to debt on a whole other level, with US national debt standing at more than $17.5 trillion.
Interest
Interest is a payment made by a borrower to a lender. It is usually a percentage of the amount borrowed, paid monthly or yearly.
A ‘simple interest’ rate of 1% on a loan of £100 (payable monthly) means that the borrower would pay £1 per month until the £100 is repaid, or if the loan was repaid at ten pounds a month, then in the second month the interest would be 1% of £90, in the third would be 1% of £80, etc.
However, ‘compound interest’ is common practice in finance and economics. Compound interest means paying interest on the original sum, plus interest on the interest. Here it all gets so complicated that what a loan will actually cost is usually calculated over the year (even though it may be ‘compounded’ every month), and called ‘annual percentage rate’ (APR), ‘annual equivalent rate’ (AER), ‘effective interest rate’, ‘effective annual rate’, ‘annual percentage yield’.
So, a rate of 1% per month is equal to a simple annual interest rate of 12% (i.e. 1% x 12 months), but if you’re paying compound interest you’d pay 12.68%.
If you don’t replay a loan the interest will still be charged so that over time you will owe more and eventually more than you borrowed in the first place. For this reason the major religions of the world have historically considered the charging of interest (or ‘usury’) to be an act against God, a heresy. The latter half of the 20th-century saw the rise of interest-free Islamic banking and finance, a movement that applies Islamic law to financial institutions. See ‘Islamic banking and finance.’
Investment
To allocate money or resources in the expectation of some benefit in the future. You could, for example, invest time, goods, land or property, product development, research and development, education, environmental protection or financial assets.
In finance, the benefit from investment is called the ‘return’ and could be capital, dividends, interest, rental income etc. High risk investments expect higher returns, low-risk investments – for example Government bonds – pay lower returns. See ‘Divestment’, ‘Rentier’.
Islamic banking
Islamic banking, or ‘sharia-compliant finance’, is banking without the payment of interest which is ‘riba’ (usury) and considered ‘haraam’ (sinful). Investment in goods prohibited by Islam (e.g. pork or alcohol) is also haraam. Islamic banking saw a revival in the twentieth century. It now represents 1% of the world’s finance and growing. At its best it advocates ‘no inflation, no unemployment, no exploitation and no poverty’, through ‘Mudarabah’ (profit sharing and loss bearing), ‘Musharaka’ (joint venture), ‘Murabahah (cost plus) and ‘Ijar’ (leasing). It is sometimes criticised for using loopholes to conceal interest in other costs whilst still sticking to the letter of Islamic law.
Job Guarantee
In contrast to the Universal Basic Income (UBI) idea, Stephanie Kelton and others in the US, propose a National Job Guarantee. Anyone who finds themselves out of work could go to an Employment Office (as opposed to an Unemployment office as they now exist) and be given a job with a reasonable minimum wage of $15 plus holidays and benefits. The jobs created for this purpose would be in creating a green, renewable energy infrastructure and could involve, for example, retraining steel-workers to make windmills. The system is often referred to as ‘Green New Deal’. See ‘Green New Deal’, ‘Universal Basic Income (UBI)’.
Jubilee
In Judaism, a Jubilee is a cancellation of debt every forty-nine (seven times seven) years, and to a lesser extent every seven years. It was the idea that all the ‘favours’ (credit) you have received under the understanding of ‘reciprocity’ and all the favours due to you, must be written-off in a ‘Day of Atonement’. In a pre-monetary society, under jubilee, every parcel of land that you have ‘borrowed’ and every sack of grain you have ‘lent’, is a debt that must be neutralised. So you owe no-one and no-one owes you. Leviticus 25:8-13 says ‘each of you shall return to his own property, and each of you shall return to his family. That fiftieth year shall be a jubilee to you. In it you shall not sow, neither reap that which grows of itself… For it is a jubilee; it shall be holy to you. You shall eat of its increase out of the field. In this year of Jubilee each of you shall return to his property.’ In other words, after Jubilee, no matter what wealth you have acquired in the last 50 years, you don’t ‘own’ anything except your home. ‘That which grows of itself’ in this sense is ‘common’ resources,(owned by all) and the ‘increase out of the field’ is the common capital owned by all. The ‘Jubilee 2000’ movement, and the idea of ‘debt cancellation’ that aimed to cancel so-called ‘Third World’ debt owes its name to this idea of jubilee. See ‘Commons’, ‘Jubilee 2000’, ‘Reciprocity’, ‘Religion’.
Jubilee 2000
Jubilee 2000 was an international idea to cancel third world debt by the year 2000, based on the idea of ‘jubilee’ enshrined by Judaism and Christianity. The Jubilee Year – as quoted in the book of the bible ‘Leviticus’ – is an idea to periodically free all those enslaved by debt, to restore community torn by inequality and to return lands lost because of debt. The ‘Great Jubilee’ of 2000 was a major religious event for the Roman Catholic Church, celebrating the mercy of God and forgiveness of sins. Jubilee 2000 aimed to wipe out $90bn of debt owed by the world’s poorest nations, reducing the total debt to about $37bn. As we now know, this didn’t happen. See ‘Jubilee’, ‘Religion’.