Made Up Money

Two days a week, I buy a cup of coffee from a shop on London Road.  The money I use to pay for it can be from various sources, one of which is the herbs I sell or consultations I offer.  With services, there is often an element of needing to convince the customer that they can’t do it for themselves, so there is a problem with both being affirming and making a living that way.  Nonetheless, I do believe that the herbs and my services are worth something genuine, and herbalism being what it is, would have involved such exchanges going all the way back to yore, which was of course before capitalism or even feudalism.

The money I give them then goes towards paying their wages, utility bills, business rate, coffee machines, supplies of coffee and so forth.  This is an incontrovertibly real exchange made with an incontrovertibly real business.

However, this exchange will shortly stop because that block of buildings is being bought up by Abode Property Management.  CODE are a company which builds and rents student accommodation, and at first it might appear that this is simply another kind of economic activity on an equal footing with running a cafe.  Many people are, however, up in arms about this because it will involve the demolition of historic buildings to build a seven-storey block of flats, and that’s an entirely legitimate concern, but I want to focus on something slightly different.

The way student finance works right now in England is that most higher education students are given a certain sum of money by the Student Loans Company, a not-for profit organisation founded just as I left postgraduate education.  They ostensibly then have to pay them back once their income exceeds a certain level.  This, though, is suspiciously similar to the idea of a graduate tax which takes effect once the income of a person with a degree is above a threshold, so much in fact that some of the ministers involved in the policy have explicitly described it as such on the record.  The fact that it’s portrayed as a loan immediately raises my suspicions again, because there is a certain utility to people feeling indebted to an organisation and perceiving that they need to get their money’s worth from an education which might make them rather quiet and compliant which the portrayal of the exact same situation as a graduate tax would not.  Having said that, I don’t know if the current cohort of students tend look at it in that way.  Maybe, or they might just be cynically exploiting the situation, and that is way more than fine since the other way of looking at it seems to be about equally cynical manipulation on the other side.

This country is turning out increasing numbers of graduates who are expected to use their degrees vocationally, or rather, to further their careers, which is not the same thing.  I didn’t do my degrees for that reason at all, but there seems to be a strong tendency in this direction.  Consequently, a degree now seems to be something one gets a loan to buy in order to increase one’s earning power, and some of the increased income one gets from that increased earning power then goes back to the Student Loans Company to be lent out again to future students.  There are two problems with this picture.

The first can be illustrated by looking at a degree as training to pursue a particular profession, or at least as training in the basis of skills which will help one pursue further training for that purpose.  Such a degree would be best delivered with a large number of staff per student, appropriate facilities on campus or otherwise accessible and ample opportunities for networking with the academic community, and it would also involve the element of a relevant syllabus to the industry in question, although I would also like to emphasise that that last point is quite minor in terms of the actual value of a degree in this sense – prestigious institutions can often afford to give away their course content for free because the value of being on those courses at the institution is in the other aspects I’ve mentioned.  Nonetheless, it is important for a graduate to emerge from such a course with relevant and useful knowledge, skills and experience.  Unfortunately, this is often said not to happen by employers themselves, and in fact graduates are frequently ill-prepared for their work, even in terms of textbook knowledge.  Clearly education in a particular field can be said to begin with graduation, but in order for that to work there needs to be a proper grounding or the degree is, in vocational terms, not worth as much.

The second can be understood best by looking at two examples I’m particularly familiar with, namely creative arts such as drama and fine arts and complementary medicine.  I want to leave aside the question of whether complementary medicine is effective here because that’s a topic for another blog, and just look at it in economic terms.  There is a limited demand for all of these things and it doesn’t serve the graduates concerned for large numbers of homeopaths, artists and actors to qualify as this means there is less work to go round per person.  However, in the short term it does serve the institutions producing them because they get money for bums on seats.  This is particularly stark in these areas, but it also applies to more widespread professions such as accountancy and engineering.  Beyond a certain point, the law of supply and demand means that the earning power of degrees in accountancy and engineering will decline and they will become general degrees like history and philosophy, that is, the people with them will still be able to find jobs but those jobs won’t be as highly paid.  Also, considering their ubiquity, degrees in general will have less earning power.

Both of these things together mean that a graduate who has supposedly borrowed this money is not going to reach a point where they start to pay it back for a very long time if at all.  That in turn means that the money which is allegedly owed the Student Loans Company is arguably not real money but in a very real sense fictitious.  The money is given to the students, which they in turn use to pay for accommodation which the property developers, possibly using loans themselves but let’s not make it more complex than it already is, use to buy building materials, pay wages and presumably also pay their shareholders and interest on bank loans and the like.  This money will of course then filter through into the general economy, either through that direct spending or by being lent out by the banks.

Now consider the situation a few decades down the line when graduates are not going to pay back those alleged loans.  The money said to have been lent to the students is theirs and has been handed over to, for example, the property developer.  In fact a substantial proportion of the money has gone either there or to the university they went to.  However, that money has appeared from nowhere.  It’s very close to being money printed to get out of a recession, and, well:


A hundred million B-pengő note, in other words, on the long scale, a hundred trillion pengő, which existed because there was loads of “money” chasing no goods and services, which led to this kind of thing:


I don’t think this is going to happen again. and in fact it had better not because that kind of situation contributed to the rise of Nazism.  However, what is actually happening is almost as disturbing.  Certain people who already have a lot of money seem to be allowing the value of money to fall while amassing their own.  Clearly  student accommodation is a valuable thing to the tenants and the people renting it out.  Some of the people renting it out are private individuals who have accidentally drifted into renting accommodation in order to help them pay their own rent from the building society, whoops, sorry, mortgages, and the reason for that is the difficulty in making a living in other ways.  The property developers are putting people out of business while amassing their own money, inflated though it might become.

Also, note the shift in how that tiny bit of the economy worked.  In the past and future, both kinds of economic activity lead to people getting their wages paid, materials getting bought and rates getting paid, but in the former case the money doing that could be traced back to me seeing clients and selling herbs, which were useful to the people concerned, and all the other multifarious things done by the people frequenting the place such as taxi drivers, postal workers, nurses, all doing tangibly useful things which involved getting money in exchange for those useful things, and so on down the line.  In the latter case, though, that money is a mere financial fiction.  It isn’t to do with goods and services, but is several storeys up a teetering tower of abstraction from someone digging a bit of iron ore out of the ground, someone else turning that into steel, another person making it into a scalpel and a final person using that scalpel to excise an otherwise fatal tumour, to pick a random example.  It isn’t even real work.  The Student Loans Company appears to be built on sand.

Even so, I don’t want to suggest a conspiracy.  Instead, I see this as a manifestation of muddling through and booting a problem down the road for someone else to deal with.  Something else which happened in this city a few years ago made me realise that another thing was not as it seemed.

Right now of course, Leicester City Football Club are doing phenomenally well.  However, this follows decades of languishing at the bottoms of league tables in a manner which I don’t really care about but which occasionally impinged slightly on my consciousness.  No offence to any football fans – to those who are, no explanation is necessary, to those who aren’t, no explanation is possible, and there are many, many things I’m interested in which would be equally obscure to almost everyone else.  Anyway, during this era in the doldrums, LCFC demolished their stadium and built a better one, which I have to say as the parent of a daughter who was able to make a fair income for a while working in hospitality for another sports stadium in the city, may have been viable and I suspect made most of its money by renting out rooms and providing special boxes, and possibly selling players, so I’m not maligning that either.  That said, I recall being puzzled that such an apparently impoverished football club could afford to spend that much money on a new stadium, and presumably be lent that much money to do so in the first place by financial institutions which understood these things.  It isn’t that simple apparently, because football clubs often do need to do that kind of thing to maintain visibility or something – I admit to not fully understanding.  Speaking of which, when they spent the money and built the new stadium, I just shrugged and thought, well it makes no sense to me but what do I know?

The club proceeded to go bust and it was borne in upon me that my rejected impression that they didn’t know what they were doing was in fact very probably the correct impression.  I then generalised this into the realisation that in fact, a lot of the time people really and truly don’t know what they’re doing and are just bumbling through and hoping for the best.

That may be what this is.  It may not be a conspiracy even though it looks like one.  There are, after all, a lot of apparent conspiracies which are nothing of the sort.  That doesn’t let people completely off the hook though, because the student “loan” situation does, like so many other things, seem to me to be an attempt by people who don’t expect to be around to worry about it when the time comes to defer a problem into the future.  We are already dealing with that kind of thing today from when it was done in the past.  Three examples which come to mind are Public Funding Initiatives in the NHS, the violent activities of groups pretending to represent Islam and the consequences presence of more carbon dioxide in the atmosphere than we’re used to as a species.  Whether or not the financial deferral is being done deliberately, it clearly will have adverse consequences at some point in the future unless something even worse happens, and while those consequences may not affect the people involved directly, they definitely will either affect people close to them or they will personally be affected by analogous processes going on elsewhere, such as with long-term care for the elderly.  This is not just karma or a belief in a just world, but simply cause and effect.


One thought on “Made Up Money

  1. there is another way of looking at the student loan thing though, which is; university education is free unless you are financially succesful, so in a way, the loan system actually a socialist (dare I say marxist?) construct as it gives to those who need and takes from those who can…….to slightly alter a Karl quote. I, for one, never intend to make enough to pay it back until after I retire because at that point my debt is wiped clean. But I know what youre talking about.


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