Authors: Carlijn Kingma (cartographer), Thomas Bollen (investigative journalist) and Martijn van der Linden (professor New Finance at The Hague University of Applied Sciences).
The money system visualized as an irrigation system
Most countries are dealing with a ‘cost of living crisis’. High inflation is eating into the budgets of ordinary people, which were already tight. Over the past decade wages have fallen sharply behind compared to corporate profits and shareholder remuneration. Meanwhile the collapse of US banks and the bailout of Swiss banking giant Credit Suisse show that financial instability remains an ongoing threat.
And there may be more skeletons in the closet. Not only within the tightly regulated banking sector, but also at ‘non-banks’. In April 2023 Klaas Knot, chair of the Financial Stability Board, warned for the known unknowns at other financial institutions: ‘If they are hidden for a very long period of time, sometimes the problem then grows so big, that it only becomes unhidden or visible when it's too big to deal with.’
The problems of cost of living and financial instability cannot be seen in isolation from the design of our money system.
Floods and droughts
The money system is to the economy what an irrigation system is for farming lands. Just as irrigation helps crops grow, money allows the economy to flourish. But if the architecture is fragile, or the sluices and floodgates are mismanaged, severe droughts will cause hardship and suffering.
During the past decade the super-rich and large corporations could borrow at record low interest rates. In 2019 hedge fund billionaire Ray Dalio warned of the consequences of what he considered a ‘broken system’. He pointed out that while ‘money is essentially free for those who already have money and creditworthiness’, it’s ‘essentially unavailable’ to those who don’t. This, he explained, contributes to the widening wealth gap, opportunity gap, and political divides we see today. The financial sector flooded certain parts of the economy while other parts remained parched.
During the pandemic the floodgates were opened even further. Although some free paychecks were sent to the people at the bottom of society – in the US for example several programmes were rolled out to support the unemployed – the chasm between the poor and rich grew further. The easy money boosted the markets for yacht-backed-loans and securities, dividends, share buy-backs, and M&A deals to new highs in 2021 and 2022. This came at the price of higher inflation. Ordinary citizens in many countries now struggle to make ends meet. Even despite pay raises, their real wages (accounting for the net effects of inflation) have further declined.
The two-tiered state
Fixing the design flaws within society’s irrigation system is not a commercial or technocratic task, but a democratic one – or as the American economist John H. Cochrane succinctly put it: ‘We voters need to tell our politicians which kind of central bank we want.’
The same applies for other parts of our money system; the payment infrastructure, the tax regime and the investment of our pension savings. Who gets the power to create and allocate new money––and for what purposes? How can we make large corporations pay their fair share of taxes instead of shifting the burden to family businesses? And what needs to be done if we want the rules of a market economy to apply for the banking sector as well? Answering the big questions that shape our economy, requires continuous political engagement.
In a democracy, the power to design the money system––and the laws and institutions that govern it––is ultimately in the hands of the people. However, in practice there is a big obstacle impeding the democratic process. ‘In the age of the CDS and CDO, most of us are financial illiterates,’ wrote US financial journalist Matt Taibbi in 2009. Taibbi tried to raise awareness of the dangers of ‘financial illiteracy’. He argued that by making finance needlessly complex, the bankers transformed our democracy into a ‘two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.’ Anyone unfamiliar with the jargon of economists, bankers and tax experts is excluded from the public debate on how our monetary system should work.
Why reform is necessary
After every crisis, the consequences of this exclusion become visible. In the aftermath of 2009, ordinary citizens footed the bill for the bank bailouts––the US Treasury spent 420 billion dollars and European countries roughly 1.6 trillion euros (Estimated costs of bailouts by EU member state governments €1.6tn, US $426.4bn. Howarth, D., and S. James (2022). Banking Politics: Structural Reform in Comparative Perspective. Oxford: Oxford University Press). Meanwhile, the bankers were negotiating the conditions of their own rescue packages and drafted future regulations.
The actual power over our monetary architecture is in the hands of a small and exclusive group – often employed by, or with close ties to the financial sector. In essence, they propped up the existing banking architecture, without addressing the fundamental design flaws that make it so fragile. When former American president Barack Obama signed the new banking regulations in 2010 he said: ‘There will be no more tax-funded bailouts. Period.’ However, in 2023 the US government had to dip into the public purse again to save four large banks from bankruptcy, and prevent ‘contagion’ to the rest of the financial system. Privatizing profits while socializing risks and losses has become standard practice.
The Waterworks of Money
In his 2009 polemic Taibbi concluded: ‘There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power.’ To put the power back into the hands of the people, we need to demystify the world of finance.
With this mission in mind, we (cartographer Carlijn Kingma, investigative financial journalist Thomas Bollen, and professor New Finance Martijn van der Linden) worked for two and half years to map ‘The Waterworks of Money’, an architectural visualization of our money system that bypasses the economic jargon. Kingma spent 2300 hours drawing this map by hand, based on in-depth research and interviews with more than 100 experts––from central bank governors and board members of pension funds and banks to politicians and monetary activists.
In an animated video, we walk you through a metaphorical representation of our money system, its hidden power made manifest. Only if ordinary citizens develop their own vocabulary to participate in the debate about our money system, can they tell their politicians which kind of ‘financial irrigation system’ they want.