Debt-money creates competition and scarcity

Money. We use it everyday yet our concept of it is limited. When we talk about money, we talk in terms of what it does, not what it is. Despite our ignorance of money it rules most of our lives. I recently finished a great documentary about money that I would like to share with you. “The Money Fix” goes into the detail of money and describes how our system creates money out of thin air, embeds each of us with a “scarcity complex” and incites competition instead of cooperation.

I described in a previous post how money is created by banks out of thin air. We exist in a debt-money system, using bank account ledgers more often than paper money. The way I had previously explained the concept of money creation the banks create money out of thin air through interest on debt. “The Money Fix” describes this differently. The money of the loan is created – all of it, be it $500 or $5 million – while the interest is “earned” money. When the loan is paid back the created money is canceled by the payment on the principle. But where does the interest come from? More debt.

Stealing From One to Pay Another? There are Better Ways

The unfortunate part of this system is that all our money is a debt in the system. In order to earn money you must compete for it. You go earn it to pay of yours, plus interest. The interest comes from the system. This means you are taking money that someone else owes to pay off your interest. This creates an inherit competition and scarcity. The only people who pseudo-profit from this system are the banks, while the people compete to pay off debts.

A great alternative is found in local currencies and mutual credit systems (similar to time banks). Local currency and barter systems are a great way to step outside of the inflationary debt-money system our society uses. Local currencies keep the money in the local economy, creating more stability locally and encouraging community.

Mutual credit systems are similar to bartering without a direct trade one-to-one. I do something for you. Then you have a debt in the system and I have a credit. Together our credit/debt cancel out, creating a closed loop system. As the number of people using the system grows, so does the complexity in exchanges. However, instead of using a scarcity model, mutual credit system users each gain something from the system and in the end the balances even out. I can build you a barn, then get some dental work from another person, who then in turn gets grain from your farm.

The Money Fix

I encourage you to take the time to watch this documentary by Alan Rosenblith. It is a very illuminating, and at the same time encouraging, film.

Greedy Banks Create Inflation

Our money was once valued by the worth of goods, but today it is our goods that are valued by their worth in money. Banks create money out of thin air by loaning it into existence. Increasing the money in the market creates inflation. This also means the system is required to continually grow in order to offset this inflation.

Money is not a real object, its value is abstract, and controlling large sums of it is imaginary wealth. We have given the power over our currency to private companies – they are greedy black holes, constantly starved for more. The good news for them is they can create more money. The bad news for us is that they can create more money.

Money is a tool, to be used in exchange for goods and services. The value of our currency is a conceptualized ideal that we all agree upon. For example, let’s say you can buy a watermelon for a dollar. The seller bases the value of his watermelon at a dollar on the assumption that another person will value dollars in a similar way. He can then buy some grain for the equivalent value with the dollar instead of trading his watermelon directly for grain.

Thus, currency acts as a medium to exchange goods and services instead of direct barter. It’s value is agreed upon by a consensus in the community. As Herman Daly and Joshua Farley describe it, “the value of a dollar, then, is the virtual wealth of the community divided by however many dollars are in circulation.” (Ecological Economics) Think about that as we talk about inflation…

Inflation

The value of money in our current system can be changed by the consensus (such as loosing or gaining trust in the dollar), but also by the total amount of currency in a market (how many dollars are in the world). If a watermelon is currently valued at one dollar, and suddenly there are more dollars in circulation, then as the number of dollars increases the cost of a watermelon rises as well. The watermelon might now cost two, three, or four dollars. The value of the watermelon hasn’t changed, only the value of the dollar. This is basically how inflation works.

There are many ways to mitigate inflation. The largest means of fight inflation is to make the market larger. Back to our original example, if you increased the number of watermelons with the increase in the number of bills, you would not experience any value changes. The Federal Reserve employs another method of slowing inflation: by reducing interest rates. This is essentially encouragement for the banks to loan money at lower rates (and make less profit), creating less new money in the market. (We’ll talk about money creation shortly)

The Fed has a few other things up its sleeve, though rarely uses them due to the disruption it can cause. One is increasing the reserve requirements – that is the amount the bank must keep on reserve versus the amount it lends. Generally the reserve requirements today are very low, but for simplicity we can assume they must keep 10% on reserve. So, for every $100 deposit they can loan out $90 of that money to someone else. This minimum is rarely changed, because of the far-reaching effects of changing it (and because the Fed is partly controlled by the banks that would be effected by it).

Another weapon of the Fed is to buy or sell government securities, in effect removing or adding money to the market. This is done, but not anywhere approaching a scale to compete with the creation of new money by private banks. Why would they compete with themselves, anyway?

Private Banks Control Our Public Money

Who controls the creation of our currency? The Government? They print the money, but most of our money is digital. Actually, 90% of our money is created through commercial banks by being loaned into existence. (Daly & Farley) Take the example displayed in the Summer 2009 issue of Yes! Magazine (emphasis added):

“You earn $100 and put it in the bank and then…. The bank keeps $10 in it Federal Reserve account…. Then loans Susie $90, at interest. Susie deposits the $90 in her bank. That bank keeps $9 and loans Joe $81, at interest.

See how it all adds up – for the banks. You have $100 in your account. Susie has $90 in hers. Joe has $81. There’s now $271 total in accounts that you and Susie and Joe can spend, and it all came from your $100 deposit. The banks have created an additional $171 by loaning it into existence.

Imagine this money trick over and over. If you do this operation 50 times, that $100 turns into $995.25 – $885.25 in loans, and your original $100. Mad Math: If those loans are for one year at 10% interest, the banks will make $88.53. They they’d only been able to loan your $100, they’d make $10.”

Most money is subject to interest as a price of existence. As we gain interest on savings (or charge interest on debt) we are gaining new money in the market. What happens when more money is placed in a market? Inflation. How can we control inflation? Grow!! If our market grows at the same rate, there is no inflation. We have to grow in order to meet the demands of the greedy banks. Remember, inflation is caused by the banks making money out of nothing for their profit and at our loss.

More over, as the demand to borrow increases in boom times so does the money through the creation of so many new loans and the interest they accrue. These bubbles are created by the increasing amount of money being added to the market. The bubbles are popped when loans are foreclosed, causing the money supply to contact during a recession. Since the adoption of these monetary policies we have experienced many boom-bust cycles. These occur in part by banks creating large sums money out of thin air.

Real Wealth for Phantom Wealth

This is a major point in argument for the steady state economy and against the current, neoclassical economy. Money is a tool created to simplify and improve our exchanges, thereby improving our life. We value real things like food, water, clothing, and family – real wealth; yet we try so hard to hoard small pieces of paper in big piles instead of the actual goods. This is what David Korten calls “phantom wealth,” not real wealth. We are trading real wealth for phantom wealth.

Once we believe the lie that money is “real” wealth, we infer that it is also a storehouse of real value. However, if you have a dollar today that is worth one apple, yet tomorrow the inflation causes that apple to cost twice as much – the “real wealth” money in your pocket just decreased in value without any exchange of real, physical goods or services. The apple didn’t change, remember, just the abstract worth of the dollar.

Daly and Farley talk about this in their textbook Ecological Economics:

“It is a collective illusion. Yet individuals voluntarily hold money instead of real assets, and they behave as if money were a real part of their individual wealth, even if they understand that collectively it is only ‘virtual’ or illusory….

The only possible explanation is that if those who produce nothing are earning, through speculation, more money that entitles them to more real wealth, then those who actually do something must be becoming entitled to increasingly less wealth.”

A Public Service Should be in Public Hands

We are diluting the real value in our system, throwing more money on bank executives, which entitles them to a larger share of real wealth. The real wealth they are stealing from us (those who contribute actual goods and services to the world) by speculating on imaginary numbers. They contribute nothing to increasing our well being, but in fact harm us, yet we reward them.

Money is a public service, created to improve our ability to make exchanges. Money should be a service provided by our government (the one run by its people). The power of the creation of money should rest in the hands of a public agency, not a for-profit commercial bank.

We as a community have decided to let the creation of money rest in the hands of privately owned banks. We as a community need to change were the power is stored and return it to our elected government. There are many ways of doing this:

• Supporting local currencies (like the Ithaca HOURS)
• Voting for banking reform
• Demanding moving to a 100% reserve system, and
• Call for money creation to be controlled by an accountable, public-controlled organization (the government).

In a steady state economy, banks are held to 100% reserves and make their profit from fees for things like withdrawals, transfers, checks, et cetera. In a steady state economy banks do not have the power to create money, they exist to serve their purpose: hold money, provide transactions, and secure our holdings. We need this change, let’s make a sustainable world with a steady state economy!

Don’t forget to: Write to your congressman, join supporting political movements, and VOTE!

Here are the steps:

• 1. Go to this URL: http://youtopia.freerangeproject.com/
• 2. Click on Vote Now.
• 3. Click on “Sign Up” in the upper right corner.
• 4. Click on “Signup” at the lower left.
• 5. Enter your information, check the “Accept terms of service” box, and click the Sign Up button.
• 6. Click on Sustainable Living in the list of categories on the right.
• 7. Find “Grow better, not bigger!” in the list that appears.
• 8. Click on “Vote”.
• 9. Click on 3 to answer “How many votes?”

If you are inclined, please cast your votes for CASSE now, and encourage your colleagues to do the same.

Click here to go to the voting website.

We’re hosting a showing on Dec 18th at the Greenwood Senior Center at 7pm (one month from today). The 90 min film will be followed by a short discussion period and activity. Snacks and drinks will be provided and we are asking for a donation of $5 or 3 cans of food for the local food bank. All (monetary) proceeds will go to the No Impact Project and with every donation you are entered into a raffle to win one of 2 pre-release DVDs or 2 No Impact Man books!

More information:

• Movie Press Packet
• Movie Spectacular Flyer

If you only read 5, 10, or 16 books/articles about sustainable economics and post-growth thought these are my suggestions:

Introduction to Post Growth, Steady State Economics

1. Shoveling Fuel for a Runaway Train, by Brian Czech
2. Thought Control in Economics, Adbusters Issue #85
3. Deep Economy, by Bill Mckibben
4. Prosperity Without Growth, report by Prof. Tim Jackson at the SDC (now a book)
5. The Great Transition, report by New Economics Foundation

Further Post Growth Reading

• Ecological Economics: Principles and Applications, by Herman Daly & Joshua Farley
• Small is Beautiful: Economics as if People Mattered, by E. F. Schumacher
• Peak Everything, by Richard Heinberg
• Managing without Growth, by Peter Victor
• Something New Under the Sun: An Environmental History of the Twentieth-Century World (Global Century Series), by J. R. McNeill
• The Lorax, by Theodor Geisel (aka Dr. Seuss) – this is Rob Dietz’s pick.
• Life in the Land Without Growth, special report from New Scientist
• The Economics of the Coming Spaceship Earth, by Kenneth Boulding
• The Costs of Economic Growth, by E. J. Mishan
• The Affluent Society, by John Kenneth Galbraith
• Beyond Growth: Economics of Sustainable Development, by Herman Daly
• New Economy, a collection of articles by Yes! Magazine and David Korten

There you have it. There are many other books/articles/blogs out there and I would definitely recommend you read as much as you can on anything that interests you. My problem usually lies in having more books to read than I have time to devote to them. I’m sure there are worse up-hill battles to be in, though.

The Wall Fell, But We Didn't Learn

The fall of the Berlin wall was a monumental event in history. Interestingly enough it acted as the end of a large-scale governance/economic experiment. Here we have two societies, each with similar backgrounds, but each with drastically different views of government and economics. On one side was placed a highly controlled society and on the other was placed a free market society. The prevalence of the capitalism in this instance was taken as proof of its superiority and also acted to secure it in our minds as they way for the future. However, there have not been any others to step up in competition – even if they would have been allowed socially.

So we are still locked in the same debate – capitalistic democracy or communism/socialism. Note how it is one or the other in this debate; no one seems to question that perhaps neither is the correct form for human prosperity. Given that the two extremes are both unsustainable, and the incredibly unlikely (and perhaps socially unwanted) possibility of a green, benign dictator coming to our rescue, we are ultimately left to our own devices to re-envision government So how do we make this change in the bureaucracies we have established and entrenched in unsustainable growth? How do we transition to a truly beneficial and socially just form of governance?

I would suggest we first ignore the initial pessimistic view (however likely it might seem to be) of a collapse of society in favor of an optimistic view of successfully transitioning without collapse. Why bother? Because the latter option gives us a challenge to work towards while the former option encourages laziness (and, in my case, would significantly increase my drinking habits in order to cope).

We Need a Father, Not a Big Brother

What is a government? Is it a bunch of guys (and girls) in suits telling us what to do and not do? Is it the all-knowing, all-controlling “state” that presides over our daily life? Obviously there is room here for debate and what we want our government to look like. The government’s role is to protect us, but also protect our continued prosperity (and thereby assure it’s own continued existence). While those on the far right fear a big brother government and those on the left fear reckless consumerism, I fear a general lack of protection from both. What we need is a government to act like a father, not a big brother.

Like a loving parent, the government is supposed to look out for our future while sustaining our present happiness as best as it can. However, any parent knows that often temporary setbacks in momentary happiness are made in order to ensure a bright future. We cannot, as is noted in Prosperity Without Growth, continue to be “lured by our evolutionary roots, bombarded with persuasion, and seduced by novelty: we are like children in the sweet shop, knowing that sugar is bad for us; unable to resist the temptation.”

It should be the role of our government to curb consumerism and consumption when it threatens to destroy any chance of future prosperity. It is important to note that it should be our government who realizes that happiness is not found in a big car or fancy house and that the decreasing marginal returns of consumptive happiness should signal a flaw with a system that encourages infinite growth. Now, I’m not suggesting that our government become totalitarian or turn into the aforementioned “big brother,” I am suggesting that policies are vital in shaping the way our economy works.

Sustainable Economy Requires Sustainable Government Policy

As Prosperity Without Growth notes,

“Examples of the perverse effect of dominant structures are legion: private transport is incentivized over public transport; motorists are prioritize over pedestrians; energy supply is subsidized [oil] and protected, while demand management is often chaotic and expensive; waste disposal is cheap, economically and behaviorally; recycling demands time and effort; ‘bring centers’ are few and far between and often overflowing with waste.

Equally important are the subtle but damaging signals sent by government, regulatory frameworks, financial institutions, the media, and our education systems: business salaries are higher than those in the public sector, particularly at the top; nurses and those are in the caring professions are consistently lower paid; private investment is written down at high discount rates making long-term costs invisible; success is counted in terms of material status (salary, house size etc); children are brought up as a ’shopping generation’ – hooked on brand, celebrity and status.”

Our governments must now engage in many important and related tasks in order to create a society and economy that is not only sustainable but more in-line with the true prosperity of its people. We need our government to “develop and apply a robust macro-economics for sustainability; redress the damaging and unsustainable social logic of consumerism; and establish and impose meaningful resource and environmental limits on economic activity.”

Lucky for us, we elect our government in the states. They have no choice to but listen to us (despite how unlikely it may seem, they do listen or they get replaced). Do something right now, sign the position on economic growth. Then read Prosperity Without Growth and The Great Transition. I’m still working on them myself, but have so far found the insight invaluable.

Copenhagen Needs Some Help

The countdown is on with now just about a month until the much anxiously awaited Copenhagen Climate Conference where world leaders (we hope it’s the leaders, not delegates) will work on drafting a follow-up to the Kyoto Protocol that expires in 2012 (and a serious agreement is needed).

Nations know that there is no excuse for waiting, binding action must be taken at Copenhagen. Not only to maintain a decent standard of living and healthy planet for ourselves, but for our children. However, in order to realize this green dream we must recognize the inherent problems with our current system. Otherwise, we will continue to feed the growth machine without making ourselves happier and while making the world worse for our children.

Climate Change 101

Climate change is far from simple, but the basics are this: we’re causing a build up for greenhouse gasses which is warming the planet and causing chaos in our biosphere. Chaos comes in many forms: increasing severity and frequency of storms, rising sea levels, desertification, soil erosion, species extinction, and the list goes on. Besides pushing our environment farther and farther away from life supporting capability, our harmful actions will soon push us over the tipping point and induce feedback loops.

When the feedback loops take over, the emissions from sequestered parts of the planet will outstrip everything we could have emitted and spiral our environment quickly out of control. We cannot stop the ocean from belching out tons of methane once we’ve warmed the oceans enough to get it started. The only thing we can do is not allow it to start in the first place. I think it is safe to say that if we allow it to reach this point most, if not all, of civilization will come apart and we will likely be placed back into a stone age we may never fully recover from (not to mention all the people who will die).

Okay, now that we have the basics out of the way, let’s talk about one of the larger issues (in my opinion) that is going to make our quick, decisive movement to a sustainable world more difficult unless addressed: the economy.

Copenhagen Can Only Get Us So Far

Some might argue that we can continue to grow the economy while curbing climate change. This is probably not too far from the truth in the short term, but long term goals will require us to deal with the 2-ton elephant in the room: our economy model is unsustainable. We are fueling increasing growth that is pushing us against more ecological limits everyday. One of the broader, more obvious limits is the very issue at hand: we can’t continue living on fossil fuels because we are warming the planet and changing the climate.

The basic laws of thermodynamics are starting to trump the theories of neo-economists. We cannot increase exponentially in size while the planet stays that same – science and basic common sense) says so. Don’t be fooled by the economists that claim their social science is based on good physics or math. For one, economists hate math. And two, they base their economic equations on outdated physics – stuff that is taught only in history classes not in the physics department. If they are based on flawed theories why do we trust them?

Most neoclassical economists might not admit this, or even know it, but even the founders of their prized economic thought, most notably John Maynard Keynes and John Stuart Mill, recognized that growth could not continue indefinitely. We have surely reached (or perhaps passed) this point.

The Paradigm Must Shift: What has growth done for you lately?

It should be noted that we haven’t always been addicted to growth, society as a whole for a long time maintained a steady “throughput” – or consumption and production. This changed with the miracles brought by cheap oil. Once we broke the cycle, we started creating policies that encouraged more growth because it seemed to work.

We have been indoctrinated with the need to fuel that machine called growth, feed that monkey on our backs named consumption. Unfortunately for us continued growth on a finite planet will only create more and more scarcity. Sure, it’s a lot easier for our current model to keep going when it doesn’t account for the “externalities” of climate change or resource depletion, but it’s not realistic or ethical.

Fear not! There is a change brewing in the economic thought now – on campuses around the world and in conversations on your local street. We are realizing one by one that our economy doesn’t function the way we think it should. We’re seeing more and more poverty not less. We’re cluing into the fact that most economic growth is placed in the pockets of those who are already stinking rich. We have seen how unhappy we are becoming – our happiness in America hasn’t changed much since the 50s! Growth is no longer economic in the true sense of the word.

So, how do we fix the problem? Well, you’re reading this so that’s a good start. Second is to become involved in the conversation and in your democracy. Third is to create non-violent civil disobedience demanding change. Fourth, and just as important as the rest, is to live the steady state life – walk the walk.

Sustainable Economy for a Sustainable Planet

Our economy is by definition the accounting of our actions on earth, so shouldn’t it include the earth in the account books? The first real step will come when governments recognize that there is more to the economy they growth in GDP. This metric is out of date and horrible at accounting for true progress, as many believe it does, it simple puts all the economic transactions (good or bad) into a total. As Paul Hawken says, “We have an economy where we steal the future, sell it in the present, and call it G.D.P.” We need something better and some countries are already beginning to realize this by adopting other metrics to indicate progress.

After we start to take into account our impacts on the planet and the effects of the economy on the happiness and true prosperity we must then focus on changing our focus. The realization that GDP is just the beginning, next we will turn away from constant growth-at-all-costs to a more sustainable economy. We must begin to put money creation in the back in the hands of the people instead of the profit-hungry private banks. We must look for a better way to live our lives, instead of working ourselves to death. We must make the maximum wages and minimum incomes for a fair distribution of wealth.

With a sustainable economic scale and policies in place to make the progress of our new economy based not on more but better we will have a much more realistic chance to not only address climate change, but maintain comfortable human life on Earth indefinitely. The Earth demands from us a sustainable economy if we wish to live, so let’s do it already!

Take Action!

Every country should be making a commitment to a better planet. Developed nations especially have an ethical duty to lead a binding agreement with strong carbon emission reduction targets. But long term goals are not enough, we need large short term goals as well. And any talk of cuts being unrealistic are unfounded, the facts show that nations have already successfully met Kyoto Protocol goals.

We need to wake up to reality. The solution will require a global rationing of carbon emissions. It is time for citizens to rise up and demand change. We must address climate change. The consequences of inaction are great, we are beyond talk, we must act now. Create civil disobedience! Take to the streets! We can and must stabilize our atmospheric concentration of CO2 at 350 ppm!

Impact Climate Action

We’ve been in the process of moving and I have also ramped up my studying for the professional engineers exam (taking in 3 weeks), but we did manage to break away last Friday to see Colin Beavan’s book signing at our local bookstore. It was quite illuminating, here are my thoughts on his book No Impact Man.

It is pretty easy to fall into habits that we know are bad but we do them anyway. Maybe yours is coffee or alcohol or TV. It doesn’t really matter, in the end these things provide escape from “the daily grind” or the all-consuming weight of things (e.g., “real life”). What happens when our life becomes just the means of escape? When do we stop to face it and all the questions it has for us?

When the end comes and the final breathe leaves my lips I hope my last thought is not about stuff I wish I had in my life. When I make that final thought I hope it’s not a worry that I could have gotten a better score on a video game. I hope my last thought is of the life I lived, the love I was blessed with, and the difference I made for the better in the world.

Efficient Resource Use

We’re using all these resources to make all these “conveniences that make our lives better,” but we’re wrecking the planet while we’re at it. Worse yet, it doesn’t seem to be making us any happier.

“So many people are now taking Prozac that unmetabolized traces of the drug, excreted in their urine, show up in our drinking-water supplies. So many people are depressed that the Prozac in their pee is tainting our water!”

It would appear that most of our resources are used not just for material trash and waste, but to fuel an ever growing consumption rate without increasing our well being. We’re not just trashing the planet and it’s resources, but we’re wasting our lives in the process.

“Many of us work so hard that we don’t get to spend enough time with the people we love, and so we feel isolated… Those of us lucky enough to be well compensated for these sacrifices get to distract ourselves with expensive toys and adventures – big cars and boats and plasma TVs and world travel in airplanes. But while the consolation prizes temporarily divert us from our dissatisfaction, they never actually take it away.”

Why are we here?

The big philosophical question, “why are we here” is one that we don’t usually ask ourselves in day-to-day life. However, Colin uses his experiment to ask that question in every aspect of his life. Throughout the book he recants on how removing something typical (yet environmentally harmful) would often mean adding an alternative that was not only better for the environment, but better for his quality of life. Colin questions the very meaning of our consumption lifestyles.

“Sit down with your trash and you see your life laid before you on the floor… you wonder: If life begets life and death begets death, does was beget waste? If my life begets waste, what does that say about my life? Is a waste of resources a sign of a waste of life?”

When you ask yourself that question, “why are we here?” think about if it is to make our lives better or worse, to wreck the planet and waste our lives, or to slow down and enjoy what little time we have here on this beautiful planet.

Live with Impact

It is ridiculous to think that we don’t create an impact on our environment. Just breathing creates an impact. The question comes down to whether or not that impact is worthwhile. Is it worth killing off our oceans in order to have disposable plastic bags at the grocery store? Is it worth the lungs of children living in the Bronx for the rest of New York to have a fossil fuel driven garbage collection? Is it worth your childern’s future to have more things in the present?

Perhaps we can all take a look at our daily lives and make a more conscious decision about out actions and their impacts. The individual action is just as important as the system action, as Beavan says, “We cannot wait for the system to change. We individuals are the system.” You cannot engage a system to act without first acting as an individual.

“We need to pick up a new model of engaged citizenship and realize that the ways we live affects everyone around us. We need to develop new ways to take up and assert our responsibility. We need to take ‘participatory democracy’ to a new level, where we don’t just vote for leaders who will bring us the culture we want, but where we take responsibility for making the culture ourselves.

And what we get in return is the feeling of a life fully lived, in a world where we are not victims of the system but leaders of it. Where we choose instead of inherit. Where we stride purposefully instead of sleepwalk. Where we are true masters of our destiny.”

I would recommend this book to anyone, it appeals to many with just a simply amount of common sense and asks the big questions: “Why are we here? Are we having any fun? What’s the point?” If you don’t know the answers to these questions, I think now is the time to start looking for them.

Read the book and check out the No Impact Man Blog, the No Impact Project, and watch the No Impact Man documentary in a city near you.