In order to understand the monetary system it is first necessary to understand the nature of economics. It is necessary to understand that an economic system is not independent of the natural world in which it exists, and cannot be, as any human-made systems are nested within the Earthâ€™s natural system of ecology. An economic system does not necessarily presume monetary economics; however, our current economic paradigm is one of perpetual growth and monetary economics paradoxically nested within the confines of a finite planet. When one delves deeper into understanding the monetary system it becomes clear that the way in which it functions is rather at odds with the natural system in which it is uncomfortably nested.
The top line and the bottom line
Our global population has just hit 7 billion people. To add perspective to this number, it is only 150 years since we reached 1 billion. This growth is unprecedented and requires more than a momentary pause to take stock of what may be in store for us.
It is predicted that 90% of our forests will be gone by 2050, with disastrous knock-on effects for biodiversity loss. With the knowledge that species and their habitats that form the symbiotic systems that make life on earth possible take millions of years to evolve it is clear that this trend needs to be reversed, and fast. Global fish stocks are facing collapse due to unsustainable practices. In our current wasteful money-driven paradigm in which every kilo of prawns caught results in 28 kilos of wasted by-catch something is seriously amiss with our reasoning. CO2 levels are currently hovering at around 400 parts per million, and are going up by 3-4 parts per million each year. We already know that once we go over 500 parts per million weâ€™re in big trouble â€“ and damage will have been done that we will likely be unable to fix. This is the top line â€“ the environmental issue â€“ and the impetus for much-needed change.
The bottom line, with no surprises, is financial. It is commonly concluded that whenever an unsustainable practice makes no sense in the grand scheme of things the only answer to the riddle must involve money. And usually lots of it. However, a less-understood issue is that our monetary system is in just as big trouble as our ecosystems, and it has already gone past the point of no return.
In the USA the top 400 wealthiest people own 60% of the wealth, an issue we are constantly reminded of since the advent of the Occupy Movement. In Australia the statistics are along the lines of the wealthiest 20% owning just over 60% of the wealth. This is certainly well over 400 people, and, therefore, not nearly as stark a figure as that of the US, but, if we do not stop accelerating, as John Holdren, advisor to president Obama puts it, â€œwe will indeed drive the car over the cliffâ€. For those who truly understand money it is no secret that the more money you throw at the problem the bigger it gets as one cannot fix the problem by applying the same treatment that caused it.
These problems are not simple, and it is not possible to solve such a complexity of intertwined issues by tackling just one and hoping the others will simply go away.
Population reduction, according to a number of experts, in particular steady-state economists, is needed in order for our planet to sustain humanity at our current rate of consumption. It is speculated that Australia should aim to reduce its population to 15 million, not increase it to 25 million, as is predicted. Population decrease, however, brings with it further problems, aside from the issue of how it could even be ethically possible, suggesting that is likely to be an unviable solution. Australia builds 130,000 new homes per year to cater for both the needs of an increasing population and the financial needs of industry. The simple knock-on effect of population reduction on the housing sector alone include stagnation of the housing market and huge job losses for those working in construction, etc. This will, in turn, slow the economy due to rising unemployment and falling house prices. This is just the tip of the iceberg. Other dominoes will fall, many of which currently prop up our rather fragile economy. One thing to remember is that population increase is a major factor, indeed, was once the main factor in pre-modern industrial times, in the increase in any countryâ€™s economy. A decrease in population is expected to slow or even reverse growth.
Another urgent factor in progress toward a sustainable future is the need to slow consumption. This is a reasonable demand for our environment to press upon us as we clearly cannot go on living beyond the limits of our landbase. However, this is an impossibility within our current paradigm because our capitalist model doesnâ€™t allow for it â€“ needing cyclical consumption in order to survive. Simply put, the monetary system will implode if it doesnâ€™t get fed. The monetary systemâ€™s endless cycle of production, distribution, sale, consumption, and disposal are both what enables our economy to exist as it is, and what is fast-tracking us to ecological disaster. It seems that neither reducing population nor reducing consumption will be viable responses to the problem of environmental sustainability in our growth economic paradigm.
Right or profitable? That is the question!
A cultural mindset-shift away from the current mode of thinking is necessary. Our current system of so-called economic rationalism favours monetary growth over environmental sustainability, and, ultimately, survival. Such a ludicrous imbalance needs to be replaced with a system whereby the earth is valued intrinsically, and not just for the resources that can be extracted from it for the sake of money. If natural resources such as our rainforests and oceans are intrinsically valued we wonâ€™t destroy them. However, our culture is continually stepping away from what is the â€œright thing to doâ€ in our quest for profit.
When it comes to financial solutions to problems of ecological sustainability a problem arises in that in order for fund projects money must be borrowed; banks simply do not lend money to the cause of saving the planet because it is not profitable. Projects are only supported if return on investment can be guaranteed â€“ i.e. they only support â€˜profitableâ€™ projects in order to ensure they get their money back. Our hopes that governments and corporations will somehow â€œwake upâ€ and put money toward environmentally sustainable solutions is a false one, founded on fantasy, not the reality that both history and the markets inform us of.
What is money?
The question â€œwhat is moneyâ€ is, of course, a trick question. We work for money because stuff costs money â€“ but what puts the cost in stuff? Wages, resources (both raw and processes), money cost (property and plant), and profit are the factors that put the cost in stuff. Wages are highly variable, dependent upon location, conditions and the level of democracy and equality, among other factors, and can therefore increase or decrease, thus increasing or decreasing the cost of any given endeavour. Resources, however, are available free of charge â€“ i.e. the planet doesnâ€™t charge us for them â€“ it is the extraction and processing that add cost. The concepts of ownership and property as they exist today are relatively new concepts which didnâ€™t exist 1000 years ago, and the concept of profit to be gained from trade and transactions is a product of our relatively new growth paradigm in which society has trained us to buy into the idea that greed is relative to success. So, the answer to the question of what money is, in fact, is based on the human factor, and not on the intrinsic value of any of the resources necessary for survival. Money is a tool, and not necessarily one which facilitates access to the resources necessary for survival, as these are given freely of the earth.
To illustrate the concept of money the history of the Great Depression provides perspective and a sharp reality-check. During the Great Depression money stopped flowing â€“ almost completely – yet the sun still shone, the rain still fell, and plants still grew â€“ yet people starved. Food was plentiful as mother nature did not put her job on hold while the monetary system was in free-fall, yet humans still lacked access to the food necessary for survival. A question arising from this is, â€œHow did we allow our relationship with money to cause this?â€ How did our society allow money to function as a barrier to the access to resources made abundant by mother earth, who doesnâ€™t charge a cent for her work?
The monetary system
To understand the issues of the monetary system it is necessary to go further back in human history than one might think. Our current monetary-driven problems are not based on something new, but have, rather, grown out of an evolving concept of ownership.
Human civilization started as hunter/gatherer society, which later developed into an agricultural system â€“ we no longer trusted in nature to provide that which we needed, but took control of cultivating the Earth ourselves.
What followed the early agricultural revolution was the concept of ownership. When people began to cultivate the land they carved out lots for themselves and owned them, first in common, and then later, privately. Ownership had become a perceived necessity as agriculture had led to surplus production that was hoarded and stored for use within kinship groups. Along with this came a need to protect oneâ€™s property from those who may attempt to take it in times of scarcity.
With concept of private ownership came the system of trade, and a measuring stick was needed for resource/asset exchange â€“ a tally stick â€“ which later evolved to a system of exchange with precious metals with gold being the yardstick for accumulated wealth, not money. Money was only used for funding wars and importing luxuries. Otherwise currency simply existed in the form of community sharing and working together.
Promissory notes later replaced gold and silver coins, which were heavy to carry around for those who had accumulated a lot. These notes were originally backed by the tangible asset. Only 20% of the actual asset was ever called on, with 80% remaining in vaults. The system of providing loans grew from this remainder when goldsmiths realized that promissory notes could be lent out for interest â€“ a system which later morphed into the fractional reserve banking system â€“ a system based on the debt and never-ending cycle of the fractional reserve debt and lending. Although this fractional reserve system has been in place since the days of trading in precious metals, it is now fiat, meaning that its promises are not backed by anything real. This system is what will lead to our inevitable monetary collapse.
Now that money, to the surprise of many, is not backed by anything real, our reserve banking system is one in which the government sells treasury bonds to banks. Treasury bonds are legal documents supported by the assets of the country, basically meaning the wealth of the people. This means that the wealth of the people is literally propping up the banks. The banks then print money to pay for government bonds. These days money is not actually printed as it used to be â€“ instead electronic entries do the job and create billions of dollars without ever being backed by anything real. The fractional reserve lending system is a system in which money is literally made out of nothing as the majority of every bank deposit can be loaned out for interest, leaving so little in the â€œvaultâ€ that if we were all to cash in the contents of our accounts no bank would have enough to supply more than a fraction of what we theoretically own. And even if we try to pay back all our debts it will be impossible because there is literally not enough money in existence to pay all the interest that the system has accumulated.
Stimulating the economy, therefore, takes the form not of giving people money, but of lending it and encouraging spending, thus adding to the cycle of further loans and spending, and the need to work in order to make enough money to pay off the loans. In times of economic difficulty in this paradigm in which money is created out of nothing, and lent out for interest, it is â€œpaid backâ€ by the instigation of austerity measures by governments. In effect the public pay twice and receive little, if anything, in return.
It is precisely this system that allows wealth to accumulate in the hands of the so-called 1%. It is likely that we will see an enormous transfer of wealth when Europe falls over, with the wealthy, banks not excluded, benefiting despite losses for the majority. Even in such times of crisis banks have no risk as they are bailed out when they make â€œmistakesâ€. Bank fees paid by the public who entrust the banks to â€œcare forâ€ their money are, therefore, a crude joke in light of the fact that they make a fortune out of so carelessly lending out peopleâ€™s money. And so it is that so much money is made by those who contribute absolutely nothing to this world.
The market system
In a monetary-driven society the aim to accumulate more and more wealth is what drives the market system. The market system is our current system of trading and exchange, in which goods and services are traded for money, with no real alternatives available.
In their aim to maximize profits for themselves, and in the case of corporations for their shareholders, businesses externalize their monetary costs wherever possible in order to maintain a competitive edge when it comes to pricing. This automatically removes social and environmental ethics from the business model, meaning that the earth is exploited for its resources and people are exploited for their labour. In a monetary-driven market system there is no competitive alternative to underpaying oneâ€™s labour force and demanding ever more production. There is also no benefit to a company in maintaining a level of environmental ethics if the cost of cleaning up oneâ€™s waste or of not dumping it into waterways, for example, is greater than the cost of polluting. Of course the true cost is astronomical, but the monetary-driven world of the market only responds to the financial cost. In a market system if environmental or social concerns are not immediately profitable then they are not a priority. It is also the case that items are produced in a way that is inferior as to use high-quality materials would be too expensive, in most cases, for the business to retain a competitive edge.
Another worrying issue within the market system is that of cyclical consumption. Of course cyclical consumption is necessary for a monetary market-driven system to perpetuate itself and survive. Without this consumption businesses would have no business. Therefore the goal of business is to create needs or wants, and satisfy these with products and services, hence the worlds of advertising and production. However, it would not serve the system if products were to last a long time as that would slow the rate of consumption. For this reason products are made to be sub-standard or become rapidly obsolete â€“ and quickly surpassed by the newest model. This system is known as planned obsolescence â€“ where the obsolescence of an item is literally planned into its design in order to ensure that consumers will have to acquire replacements at a rate that maintains the flow of money through the system. Of course this system of planned obsolescence and cyclical consumption is extremely resource intensive, and we will ultimately have to face the fact that we live on a finite planet on which perpetual growth and consumption are logical impossibilities.
With this knowledge simply a matter of common sense for most people to understand it has become necessary to stimulate our desires for more ownership, more acquisition, for keeping up with the Jonesâ€™ and staying ahead of the game. Such a system can only have a negative impact on a cultureâ€™s value system, and on its accepted code of behavior.
In addition to an understanding of the market system in terms of consumption it also needs to be understood that when it comes to commodities markets these are neither rational nor efficient. Markets are driven by perception, not reality. They are not driven by fundamentals, but are simply chasing momentum. The market system creates a self-fulfilling prophecy fuelled by hope and greed. Once the peak of euphoric optimism is reached there is nowhere to go but down, as exemplified by the bursting of the .com bubble. It is fear that drives contraction and this adds to the collective emotional swing that drives the market. The idea prevalent among modern-day finance gurus and neoclassical economists that the markets will somehow, via an invisible hand, self-regulate and adjust for all eventualities, is clearly a gross error in faith, a religious-like belief in a system that has only ever been proven irrational and not self-regulating at all.
The growth paradigm and its effects
The majority of the damage we perpetuate is largely caused by our desire for economic growth. The concept that an economy must grow is a premise that needs to be examined as it is an underlying premise of our culture; one that defines most corporate and political activity, and which drives destruction. It is our addiction to fossil fuel energy that has led to such economic growth, to population growth, and caused us to emit enough greenhouse gases to change our climate to the extent of rendering some ecosystems unviable. And we are not stopping.
Almost an example of poetic justice our obsession with money and ownership is leading us to economic collapse and deprivation. Our oil economy will come to an end, and civilization as we know along with it. If environmental devastation does not destroy us first, that is.
It is not just our environment and our economy that are suffering. We have caused inequality by our competitive default. The concept of ownership that grew out of scarcity has made us compete, even fight for the means of survival. We have also lost our democracy â€“ with those who control the lionâ€™s share of resources being in control of decision-making we have disempowered those who most need change. Our values have also become skewed. We view success as having more, hoarding more, showing off, decorating our meaningless empty lives with pettiness. We have allowed our egos to be defined by materialism and competition, not integrity and compassion.
Principles for sustainable resource use
Herman Daly outlines three principles for sustainable resource use. Firstly it is necessary to limit the use of all resources to rates that ultimately result in levels of waste that can be absorbed by the ecosystem. Secondly the exploitation of renewable resources needs to happen at rates that do not exceed the ability of the ecosystem to regenerate resources. Finally, non-renewable rates must not be depleted at rates that exceed the rate of development of renewable substitutes.
Dalyâ€™s principles seem to be simply a matter of common sense. However, such common sense is not rewarded by a system that is dependent on planned obsolescence, cyclical consumption and the endless quest for profit and growth. Instead it presents to us an extreme cognitive dissonance between what we know to be necessary and what we have learnt as a cultural narrative.
Monetary hangover Â Â
It needs to be understood that money is a pyramid scheme only creating the perception of much greater wealth than existed before. In a monetary economy there is an implicit acceptance that someone else will always pay the shortfall â€“ a system of speculation and the greater fool. Eventually we run out of fools and the financial bubble will implode. Currently we are emerging from the largest ever bubble â€“ and the hangover will likely be proportional to the party.