When creating Zopa, people in focus groups and interviews always told us not to put ourselves up against banks. The reason being that they saw Zopa as representing ‘doing something different’ with their money. If Zopa was just a more efficient, more customer friendly or better value ‘bank’ then they couldn’t see the point of it. We have plenty of banks, good and bad, with whom I can save or borrow money with varying degrees of difficulty as a self employed person. The recent debate, kicked off by Martin at Zopa and James at Bankervision and followed up by Ft.com illustrates the difficulties of trying to compare Zopa with banks. In essence, you come down to a debate which is rather like comparing football teams, with each fan base wanting to show their choice is the superior one. As with Football such a debate will run and run and short of a total drubbing in some competition, will never be resolved. And so it should be. My response to this debate is that you are not comparing like with like. By that I mean that ‘money’ on Zopa is different than ‘money’ in banks. My experience is that money cannot be understood in everyday life as a ‘neutral token’ or ‘symbolic medium’ facilitating social and economic exchange – as Simmel discovered, although that is the ultimate aim of money, it is a long way from achieving it. The way we value money is instead a direct function of its usage and the context of that usage. (If you want a more detailed and well reasoned sociological perspective on this point I suggest you read Geoffrey Ingram’s book ‘the Nature of money’). Banks' ‘money’ is created ultimately by the Bank of England and their own ability to lend deposits to borrowers. Investment banks also create money through complex derivative credit products which in some cases used the same money to generate 8x the value of the underlying asset at the height of the bubble. This is one form of capitalism which took advantage of the new global, broadband and largely automated social and economic connections which exist between banks to create an abundance of money which we were all happy to take advantage of (both governments and consumers). The creation of money on such an industrial scale was unprecedented and put the final nail in the coffin in the believe that the value of money was based on tangible assets or was a commodity that was limited in supply in some way. Zopa too creates money. I posted before about the thought experiment of Wicksell who postulated two worlds of money – one where money was a commodity and one where money was purely money of account or what we might call credit money. In the first world the bank rate of interest and what he called the natural rate (a function of supply and demand, or if you follow Weber’s account – conflict between competing institutional powers – or both!) can become disconnected, creating bubbles and overheating the economy. In the credit money world, supply is purely a function of the natural rate as it is individual transactions which define the market price at any particular time. Zopa seems to perform in this way with lenders and borrowers reacting to demand and supply with different levels of expertise (and understanding ) and while it benefits from the current disconnection between the bank rate and the natural rate (where banks are trying to rebuild balance sheets and re-price risk for a more ‘scarce’ money world) it does not participate in that world of money beyond that. This is why Zopa does not compete with banks directly but instead offers a different system for creating money. Banks are part of a system of creating money in which individuals are encouraged to leave their money ‘idle’ by institutions who then lend to those individuals for the things that they need in the short and long term. Sometimes the goals of the major powers of that system are aligned with the individual but currently they are not. As an individual who lends and borrows from Zopa I can access a natural rate of interest which is a function of a complex mix of supply/demand and the politics of some lenders on Zopa (who are more altruistic than banks can be) without needing to worry about macroeconomic decisions which are a function of political and commercial powers over whom I have little control (beyond a 4-5 yearly vote) and taken by people who seemingly take very little accountability for their actions. It is its unique mix of collaboration and competition which makes Zopa a better place to put my money and to borrow money as an individual. It is not for everyone, but then it never set out to create a new banking system, merely to tap into what we saw as an emerging trend of people wanting to do more than just accept the choices ‘of the herd’ but rather create and control their own choices as the means to a more authentic and fulfilling life.
I'd disagree that Zopa creates money - but perhaps I just have a narrower conception of it.
Banks are unique in having their short-term liabilities circulate as a widely accepted currency. You can't own a Zopa loan, and then use it to buy stuff.
As a claim over future cashflows, it's certainly a creation of financial capital though.
Posted by: Thomas Barker | September 05, 2009 at 03:51 PM
Thanks for the comment, Thomas. I agree that Zopa doesn't create money as classical economics would describe it, however as you say it is only one convention and definition of money creation. Simmel saw that 'neutrality' and ability to transfer to different fields of value being an ideal it was building towards rather than a statement of its essential reality.
Now that we (i.e. politicians) are starting to ask what are the socially useful usages and forms of money (although not in a very mature way : ) ) then we can also ask whether it is better for money to be fluid and constantly moving or more solid and fixed?
Posted by: Bruce Davis | September 07, 2009 at 10:19 AM
That's fair.
It's certainly money in the sense that your behaviour will change by knowing that you will get things later by owning it. (Independantly of your own efforts, which I suppose would distinguish it from a business asset.)
Posted by: Thomas Barker | September 07, 2009 at 09:25 PM