“Creating money on the basis of debt, therefore, makes the economy fundamentally unstable. The system is always balanced on a knife-edge. If bank customers borrow too little, the economy moves into recession and, unless corrective action is taken, [...snip...] the positive feedbacks just discussed (such as people’s natural reluctance to borrow and spend) will kick in and produce a catastrophic depression.” “The Ecology of Money”, Douthwaite, p23.
“Another fundamental problem with the debt method of creating money is that, because interest has to be paid on almost all of it, the economy must grow continuously if it is not to collapse.” Ibid, p24.
“Continuous economic growth is impossible in a finite world. True, some people believe that growth can be made environmentally harmless (‘angelized’ to use Herman Daly’s term) by being stripped of its energy and natural resource content, [...snip...]. But this is a pipe dream. The energy and resource content of many activities can certainly be reduced so that we can do more of them without increasing our environmental impact, but that impact cannot be reduced to nothing.” Ibid, p25.
Why is growth good? Why is decline bad? Surely neither is good or bad. However, debt-money + interest = dependency on non-stop growth. Perpetual growth, as we understand it through orthodox economics, is mathematically necessitated by interest. And while this mad pursuit does indeed inspire innovation, it does so blindly, rapaciously, and is wrongly reliant on an unprovable Invisible Hand which either does not exist as conceived, or is inherently ‘co-optable,’ that is, not at all out of the reach of those who benefit greatly from manipulating it, which Adam Smith himself knew. Hence the usury model turns out to be unfair to a degree which would shame Mother Nature, famed for her inherent ‘unfairness.’
Economic growth of the interest-debt-money variety does not yield a sustainable relationship with the environment, finds decline to be bad, is systemically incapable of non-linear thinking, entrenches insoluble and gaping societal divisions, and prioritizes money-making above all other activities. All this encourages stifling corruption, corruption aimed both at milking and sustaining the status quo. Usury money is inescapably, mathematically the money of scarcity. A system built around the deep assumptions of scarcity necessarily encourages hoarding and fear regardless of the abundance of nature. The interest-debt-money system is a double-looped positive feedback loop (see hastily sketched graphic below), whose effects are the slow but accelerating destruction of those ecosystems which act as fuel for the process of non-stop growth. It is a fire burning itself out, its flames and heat are money and economic growth, its fuel is natural, cultural and spiritual resource. Therefore, only resource exhaustion, or, far less likely, a conscious decision, can stop it.
On the other hand, even before money and interest, there was human population growth. David Montgomery explores, on p30 of “Dirt, the Erosion of Civilizations”, competing theories of the advent of farming: oasis theory and cultural evolution theory, but is dissatisfied with both. He posits instead the idea that human population growth led to a need to get more food from settled land than jungle and wild can provide untended. Were homo sapiens sapiens not so inventive, our numbers would have stabilized. But our ancestors came up with farming, completely unaware of its long term effects.
“For over 99 percent of the last two million years, our ancestors lived off the land in small, mobile groups. While certain foods were likely to be in short supply at times, it appears that some food was available virtually all the time. Typically, hunting and gathering societies considered food to belong to all, readily shared what food they had, and did not store or hoard—egalitarian behavior indicating that shortages were rare. If more food was needed, more was found. There was plenty of time to look. Anthropologists generally contend that most hunting and gathering societies had relatively large amounts of leisure time, a problem few of us are plagued with today.” “Dirt: the Erosion of Civilizations”, Montgomery, 2007, p47.
Farming is hard work, radically alters one’s relationship to the land, and is uncertain in outcome – whereas hunter gathering is based on trust in nature's bounty, and 'day to day' rather than planing for the future – so needs to have been a forced decision. It must therefore have been a problem of increasing scarcity, or diminishing abundance, that forced humanity’s hand. The hunter gatherer pattern was to split a tribe that had become too big for its environment, and send one half in search of new, happy hunting-gathering grounds. Eventually this pattern hit a wall, especially when we consider glaciation and desertification over the relevant period. So Montgomery suggests food shortage forced an adaptation, forced humanity from the Eden of abundance/hunter gathering into the back-breaking world of farming and scarcity, ownership and competition, and everything else that has arisen as a consequence of that.
As time went on, the skills of hunter gathering were lost as more and more wild land was domesticated. Humanity became increasingly dependent on farming. We got better and better at it (shortsightedness to one side), and have over the millennia populated every corner of the planet with our progeny, though at great cost. Nevertheless, we are now at the curious point where scarcity-based progress is delivering a new abundance, albeit against a background of serious scarcity of fossil fuels inhibiting the perverse over-consumption we promote in the interests of economic growth. New technologies like the Internet, automation, hydroponics and permaculture tease us with abundance, whisper of a new egalitarian/high-tech combination, while the institutions we have built up over the millennia, along with our deeply held cultural expectations, ‘wisdoms,’ fears and convictions, combine to prevent us from recognizing the deeper opportunity our gifts have yielded. We can no longer carry on along the path of blind consumption-driven growth and embrace the new egalitarianism and abundance our best technologies offer us. Depletion of water, soil, ecosystems, oil, climate etc., in the interests of profit, mean we must stop growing as we have done, stop lauding growth as evidence of our superiority over, and dominance of nature (as if such a perception could ever make sense), and begin a new growth paradigm; growth of health, literacy, trust, wisdom, and so on.
It is not a return to primitivism I promote. While hunter gatherers were indeed embedded in nature far more than are we, they did not have sufficient global/universal awareness to expand their circles of reciprocity across the planet, let alone to other tribes – there were of course wars and other brutalities even in Eden. But time and technological developments have brought us to exactly that point, the point at which we are beginning to imagine humanity as one group. Ideas of transcending petty tribalism and the nation state are taken more and more seriously:
“Leaders of the world’s principal economies – both advanced and emerging – will need to reform co-operatively and deeply if the world economy is not to suffer further earthquakes in years ahead.” Martin Wolf, Financial Times, 14.07.10 [My emphasis. Hat tip Yves Smith, Naked Capitalism.]
A return to a co-operative, symbiotic way of life – hinted at by open-source software, Google, YouTube, permaculture etc. – one which includes as much of the universe as we can manage, is called for. This requires a totally new economics, one not attached to growth, and therefore with new ideas on both debt and interest.
So, on to my thoughts on debt and why we might do without interest. I’m coming to think of debt simply as ‘an owing.’ For example, if a friend does me a favour, I owe him one. I am in debt to him, perhaps not explicitly, and certainly not in a ledger, but in some important way. If he does me many favours and I never return them, the friendship will break down. The owing becomes too great, too one-sided. I suffer the loss from my life of the presence of a kind and generous soul, he is rid of a selfish bum who was no real friend. And note there is neither need nor room for interest, nor for a standardized accountancy, nor is any entrenched and calcifying social division possible.
Another example. If, as is currently possible with permaculture techniques, I set up for myself a jungle-garden – a self-sustaining ecosystem providing fruit and vegetables as jungles do, but in a garden format – and take from it the food I need to survive in robust health, do I go into debt to the jungle-garden? Does it keep score? Well, only if my taking from it is large enough to upset its ability to self-sustain. Then ‘debt’ in this example could be thought of as tipping a system into collapse. If that point is not reached, ‘taking’ is simply part of the process, the cycle of growth and decay. (I am not expert on jungle-gardens, and imagine input/tending is necessary, but the basic principle I briefly lay out here is sound. Humans had this relationship with the abundance of nature for tens of thousands of years, many still do. Did/do they know food debt? Perhaps in the form of gratitude.) Again, no interest needed, no accumulation makes sense, no scarcity or growth sought.
More fundamentally, is breathing monitored? Should we count breaths? For many reasons the idea is laughable. There is a co-operation, a symbiosis between oxygen-inhaling, carbon dioxide-exhaling species and their oxygen-exhaling, carbon dioxide-inhaling counterparts, that requires no accounting. To talk of debt and interest in this sphere is silly. Nature manages fine without it. It self-organizes.
With these three simple examples I want to point out that debt has different connotations in different contexts, plays different roles. Elsewhere in nature, food becomes waste becomes food. The process is cyclical. There is no waste systemically speaking. This is of course nothing new, and yet we so often fail to think these things through at the cultural level. Money-debt, as monitored and described by double entry bookkeeping, is linear, not cyclical. A bank loans money into existence and records the transaction as a debt/credit ‘zero’ on its books. When the last payment on the principle is made, the credit/debt entry disappears, and the bank keeps the interest. ‘Out there’ the borrower has competed for that money from the economy – which might have ‘grown’ as a consequence of this competing – by turning some raw resources into money. This ‘victory’ is matched by a corresponding scarcity in the overall money supply, though the bank experiences an increase in its reserves and can lend more. More loans are created, more resources turned into money, more scarcity, more competition, more debt, in a linear expansion onwards and upwards until collapse.
Should we cut profit-making from money-creation? Re-imagine government as the symbolic or institutional embodiment of the abundance of nature, as a jungle-garden-friend, birthed by The People, tended by The People? If not, why not? Why, as in accountancy, should a government go into debt simply for providing a medium of exchange in sufficient quantity to enable sustainable economic life? Surely only if we see money as a store of value. But money is not a store of value; you can’t eat it, drink it, or do anything with it unless all else is functioning well. Money is an abstraction or a representation of the relative value of other things. With this in mind, how can we believe we go into debt just by drawing pictures in the form of money to denote, for the use of exchange, the value of the economy generally? The economy is not made of money, economic activity is assisted by it.
To carry on along MMT lines: if the money ‘printed’ or spent into existence by government enters an economic sphere built on trust and abundance at its very core, why should we need the accountancy practice of registering that spending as the ‘debt’ half of a double bookkeeping entry? Keeping track of things would require some sort of accountancy, but perhaps a new sort. In the absence of scarcity at the paradigm level, in the absence of the need for unending growth, in the absence then too of having to exchange 40+ hours labour a week to produce junk just so we can buy the things we need to live (plus more and more junk), surely the scary notion of a government printing money ‘like there’s no tomorrow’ fades to absurdity. It is the pervasive and penetrating fear of want and scarcity that forces us to think this way, to save for a rainy day, to see value magically stored in money, to compete with the other guy, to win, to accumulate, etc. This profound misperception is where the problem lies. Failing to recognise this misperception blinds us to viable, but radically different alternatives.
Instinctively we know there’s no such thing as a free lunch. Hence, we should not print money, or somehow spend money into existence without it costing something. Interest is both the cost of money (for borrowing) and the reward for the risk of lending it to someone. This argument makes total sense. But, implicit in it, as I point out above, is the assumption that money stores value. It does not. Real value lies in healthy soil, clean air and water, low crime rates, a relevant education and much else besides. It takes work and wisdom to create/sustain these things. If money is needed to lubricate the processes of creating/sustaining real wealth and lasting health (personally I suspect not), then so be it. But let it be a money that does so, not one that can only ‘work’ in conditions of perpetual growth, and that is created as debt.
I imagine debt making sense in some form (perhaps as commitment or dedication) for some areas of human existence, though not for all, perhaps making sense for some money types, though not for all, but usury making no sense anywhere. We believe usury to be essential if we are happy to pursue perpetual economic growth at any cost. When we begin questioning the validity of that model, the health and wisdom of that desire, usury makes less and less sense, until it appears we don’t need it at all. There need be no hoarding, no accumulating ‘wealth’, no pensions, no retirement, we can do with less human law and lawyers, less labour and more work, more community, open and curiosity-led education, no nation states but a rich variety of cultures bleeding into each other geographically, intellectually, artistically. We can create a very different world indeed, a progression from where we are now to something new. Perhaps the new way I imagine might be thought of as the end of elitism, as a New Egalitarianism. We have everything we need to begin this journey but the will to start.