In response to my post last weekend on the emergence of meta-money, a hall of mirrors, in global finance, a US reader, Toby, said something that really had me thinking.
This is a very important article which, sadly in my view, does not address Perpetual Growth, a key component of the challenges facing humanity. There is this sort of unquestioned faith in The System that Things Have Always Been This Way, only recently, heaven knows why, derivatives came along and all hell broke loose. What to do?
It never really occurred to me to look at that issue, but when one does it creates an interesting cross reference or two. I believe those who worry about growth in this way are getting two things confused. Let us start with a definition. What is “economic growth”? A record of transactions. Can transactions continue to expand? Yes. They are only limited by the number of agreements that people can strike. So in one sense, Perpetual Growth is possible.
But that is not what people like Toby (or Jeremy Grantham, for that matter) are talking about. They are talking about continually increased consumption of finite resources, which obviously cannot be continued indefinitely. It is an understandable enough confusion. In the industrial era, the two were aligned. because there was only a limited amount of meta-money, the transactions largely reflected consumption. The two could be aligned. But in the post-industrial era, there has been a shift away from tangible, finite resources, and towards intangibles such as knowledge, brands, rapidly increasing computer power that results in less use of resources — and of course, the big one, meta-money. The significance of this has been to some extent covered up because China and India are still going through the industrial era. Their economic rise is putting great pressure on global resources. Had that not happened, mining would probably have been continuing its decade long decline and energy demand would probably also be plateauing.
So we are now at an intriguing cross roads. Some parts of the economy are subject to severe limits. Food is one. Goldman Sachs has a report out on the consequences of rising food inflation in developing couintries. It argues that it is mainly a consequence of changes in demand and supply due to greater purchasing power and some supply side constraints such as a reduction in arable land. There is expected to be a 70% increase in world demand for food as the global population rises to 9 billion. There is debate over whether we are reaching peak oil, but we are reaching peak in many other resources: zircon, for instance, mineral sands. Water will almost certainly become a problem. And so on. So the tangible world is subject to severe limits.
The intangible world has the opposite problem. It is not nearly as limited, but in many cases it should be. There is no real limit to the amount of derivatives contracts that can be struck, but there should be. A financial mechanism designed to be on the fringes now dominates. Applying the limit of common sense, this is crazy, quite frankly. The only limit in new economy transactions, such as those based on social media, or Twitter or communications commerce is time. There are only so many hours in the day to do it. Otherwise, they can continue indefinitely.
So for good sense to prevail we need to do a few things.
1. Recognise that growth is not the same as consumption. Then look for new forms of economic growth (transactions) that reduce the use of resources. This is the point of a book called The Sixth Wave, by James Bradfield Moody Executive Director, Development at the CSIRO. Its thesis is just what is being discussed here, that growth can continue, consumption can’t, ergo the new growth will come from business that reduces consumption. Bradfield Moody argues that this is the sixth Kondratieff cycle, where the new economic growth spurt will be located.
2. Admit that in some areas that are not subject to limits, limits should be imposed to stop the system from collapsing. The most pressing is the explosion of meta-money. Toby quoted Professor of economics Franz Hoermann from “Das Ende des Geldes”:
Debt-money has no independent physical existence, is neither scarce nor valuable material, has no substance whatsoever. It is simply a method for controlling human behaviour, for shepherding people into unpleasant activities, performed for others, activities which then produce numbers on paper or in computers, numbers we then call money. If there is no provable material substance present in the debt-money system, and this system only functions for as long as all of us believe in it, then this system cannot be said to be scientific.
Any system which does not rest on physical foundations and relies, for its functioning, on the belief of all its adherents, is in fact a religion. And when a religion is forcibly prescribed by the state – the use of debt-money as legal medium of exchange – then we are dealing with a state religion.
But, since the general public has been explained none of this, the people of so-called free market economies find themselves in a secret state religion, which, without their knowledge and agreement, shapes and determines their lives in perpetuity. [His translation.]
Hoermann is exaggerating. It is not a religion, although it is a value system. It is more that a system that is used to shape people’s behaviour; it also represents shared value (and in any case, who is doing the “using”?) But paring it back, he has a point. It does not have physical foundations, and that is what has led to the recent excesses in global finance.
3. Develop a new type of economics that deals with both the tangible and the intangible — and does so separately. Neo-classical economics and related idiocies all have a heavy positivist bias. “Something is only real if there is a transaction, and transactions must reflect something tangible.” Neither is true. The whole epistemological basis should be jettisoned. They should start again. There should be one economics for scarcity and another economics for what is not scarce. They will have different imperatives.
So, let’s get to it. Should take a week or two. The intangible economics involves dealing with the subjective, as another respondent last weekend, Valissa, noted. This means there can be no more pretence of being scientific and objective, other kinds of rigour will be required:
RE: “subjectivity is becoming the new objectivity” Or as I would say it… ‘The meaning of life is the meaning YOU give it!”
The increasinging personalization of meaning vs. meaning as given by a group, collective, or authority/establishment (be it religious, academic, political, etc) dogma/belief system.
RE: “we will see a growing readiness to accept …uncertainty”
Agreed this is very important… was just talking with my husband about this last night and it’s something I’ve been ‘practicing’ mentally for some time now. It comes more naturally to me than my husband. He still feels more comfortable with black-white/hyper-defined thinking but has been working on increasing his grayscale.