It’s time for some straightforward economics. Mr. Douglas Rushkoff posted an excellent article on the internet a few months ago, and it was our good fortune to record it. We’d like to share that good fortune by reprinting Mr. Rushkoff’s study, entitled “Too big to fail?”

“The real economy in America happens on Main Street, not Wall Street,” he began. “Over 90% of working Americans are involved with small, family-owned businesses, not big corporations. So before we start resuscitating big corporations, we need to pause and reflect whether anything in America is ‘too big to fail’.

“Big corporations were never meant to support a real economy. To understand why you have to go back to their genesis after the late Middle Ages. People then did business with each other pretty much locally. But as traveling got easier and people got access to new resources and markets, a middle class of merchants and small business people started to get very wealthy – threatening the power of the aristocracy. So Monarchs came up with a way to secure their dominance over the commerce – they invented the corporate charter. By granting an exclusive charter, a king could give one of his friends in the merchant class monopoly control over a region or sector. In exchange, he’d get shares in the company. So the businessperson no longer had to worry about competition – his position at the top of the business hierarchy was locked in place, by law. And the monarch never had to worry about losing his authority; businesses with crown-guaranteed charters tend to support the crown. But this changed the shape of business fundamentally.

“Instead of thriving on innovation and progress, corporate monopolies simply sought to extract wealth from the regions they controlled. They didn’t need to compete anymore, so they just consumed resources from places and people. Meanwhile, people living and working in the real world lost the ability to generate value by or for themselves. For example: In the 1700s, American colonists were allowed to grow corn but they weren’t allowed to do anything with it – except sell at fixed prices to the British East India Trading Company, the corporation sanctioned by England to do business in the colonies. Colonists weren’t allowed to sell their cotton to each other or, worse, make clothes out of it. They were mandated, by law, to ship it back to England where clothes were fabricated by another chartered monopoly, then shipped back to America where they could be purchased. The American war for independence was less a revolt against England than a revolt against her chartered corporations.

“The other big innovation of the early corporate era was monopoly currency.

“There used to be lots of different kinds of money: local currencies, which helped regions to invest in their own activities – and centralized currencies, for long distance transactions. Local currencies were earned into existence. A farmer would grow a bunch of grain, bring it to the grain store, and get receipts for how much grain he had deposited. The receipts could then be used as money – even by people who didn’t need grain at that particular moment. Everyone knew what it was worth.

“The interesting thing about local, grain-based currencies was that they lost value over time. The people at the grain store had to be paid, and a certain amount of grain was lost to rain or rodents. So every year the money would be worth less. This encouraged people to spend it rather than save it. And they did. This dramatically sped up the velocity in the local economy.

“Late Middle Ages workers were paid more for less work time than at any point in history. Evidence of their prosperity was found in the fact that people did preventative maintenance on their equipment, and invested in innovation. They could afford better health as well, as evidenced by the fact that women were taller in England in that era than they are today.

“There was so much extra money for productive investment that people built cathedrals. The great cathedrals of Europe were not paid for with money from the Vatican; they were local investments, made by small towns looking for ways to share their prosperity with future generations by creating tourist attractions.

“Local currencies favored local transactions, and worked against the interests of large corporations far away. In order to secure their own position as well as that of their chartered monopolies, monarchs began to make local currencies illegal, and force locals to instead use ‘coin of the realm.’ These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money lent to a person or business had to be paid back to the central bank, with interest.

“An economy based on an interest-bearing centralized currency must grow to survive, and this means: extracting more, producing more and consuming more. Interest-bearing currency favors the redistribution of wealth from the people to the banks and their corporations. By lending money at interest to people and businesses that had no other way to conduct transactions or make investments, banks put themselves at the center of the extraction equation. The longer the economy survived, the more money would have to be borrowed, and the more interest earned by the bank.

“The problem today is that since we don’t make anything anymore in America, the only remaining growth area in the economy is the Medical industry. In other words, there is no longer any real growth area in the economy – save one – from which to extract wealth. And while there were domestic short-term gains in profitability caused by outsourcing, layoffs, and technology – wars, rising costs of health care, and exchange rates have essentially offset these gains. Plus you can’t put people to work in factories that don’t exist anymore.

“All the capital accumulated by the wealthy need markets to invest in. There is a ton of money out there, just nowhere to put it – nothing on which to speculate. We had the dot.com boom that fizzled almost as quickly as it rose. Then speculators turned to real assets, like corn, oil … even real estate. They started investing speculatively on the things that real people need to stay alive.

“What ordinary people didn’t understand was that there is no way to compete against speculators. Speculators aren’t buying homes to live in, they are buying houses to flip. Speculators aren’t buying corn to eat, but bushels to hoard until prices rise.

“The fact that the speculative economy for cash and commodities accounts for over 95% of economic transactions, while people actually consuming commodities constitute less than 5% – tells us that real supply and demand have almost nothing to do with prices. We do not live in an economy, we live in a maze of Ponzi schemes.

“The last administration sold us on the notion of home ownership as a prerequisite to the American dream. And they created a number of loan products that made it look as if we could actually afford over-priced homes. At the same time, the banking industry spent hundreds of millions of dollars lobbying for laws making bankruptcy difficult or impossible for average people to accomplish – while simultaneously selling average people loans that they would never be able to pay back. Of course the big banks never meant to hold these loans. They simply provided the cash to mortgage companies, who then packaged the loans. In return for putting up the original cash, the banks also won the right to underwrite the sale of those mortgage packages to investors – investors like pension funds, retirement funds, or you and me. So while the banks get all the interest, we put up all the money. Our retirement accounts and pension funds invest in the very mortgages that we can’t pay back. The bank collects any interest, playing both sides of the equation but responsible for neither.

“And when the whole scheme begins to break down, what do we do? We try to bail out the very banks that created the mess, under the premise that we need these banks in order for business to come back, since only banks can lend the capital required for businesses to flourish. So now the current administration is trying to rescue the very institutions that robbed us in the first place. Using future tax dollars to fund government job programs is one thing. Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor.

“All this will inevitably lead to a new situation for us all: we will be forced to provide for ourselves and one another. We’ll start acting like we belong to extended families and to communities. We’ll exchange services or favors. We’ll even start developing alternative, local currencies as Central bank-issued currencies become too hard to get without a corporate job. Regardless of Federal prohibitions, states and local communities may have to start issuing scrip again. It will be interesting to see just what will happen.

“When we become forced to do things again for ourselves, we may even discover that these institutions who first seemed ‘too big to fail’, now appear to not be our benefactors at all.

“They were never meant to be. They were invented to mediate transactions between people, and extract the value that would have passed between us. Far from making commerce or industry more efficient, they served to turn the real world into a set of speculative assets, and real people into debtors.

“The current financial crisis is the best opportunity we have had in a very long time for a change from the dysfunctional system under which we have been living, unaware, for much too long. Let us seize the day.”

[And let us hope that this is the extent of the “desperate measures” required for survival.]