BBMillions throws down the gauntlet

Capitalists* beware! The burning fire of my unstoppable logic shall reduce your palaces to small yet tasteful townhouses and your foot soldiers to part-time mall security guards. This is no dead letter, but an UNdead letter, who unnatural power and longevity are wholly bent on the destruction of your economic engine of doom. Tremble--yes, tremble! The fear you feel from this preamble is nothing compared to the bone-melting terror that will seize you when my rhetorical drumbeat reaches its bloody crescendo. Capital flight cannot save you; tariff walls cannot hide you; angel investors cannot protect you. Kiss your shibboleths goodbye because they'll be nothing but shi't when I'm done with them.

Now then, where was I?

Some months back, I tried to grapple intellectually with my discovery that private banks literally have a license to print money. (This contributes to inflation, exacerbates boom-bust cycles, and enriches well-placed individuals at the expense of the rest of us.) Lately I came across an author who developed this line of thinking more clearly and fully (Herman Daly, Beyond Growth, ch.12). He points out that traditional lenders charged interest in exchange for temporarily giving up the use of their cash. However, modern banks sacrifice nothing when they lend because they create cash out of thin air when they draft the loan (and destroy an equal amount when the loan is repaid). There is no longer any economic justification for charging interest on loans beyond the tiny bookkeeping cost.

I also discussed that, to prevent inflation, the money supply needs to keep up the with the uneven growth of the "goods and services" supply. I said banks are useful for that because they create money case-by-case for those who intend to spend on new goods or services. I realize now that that is wrong: the net money created is equal to the interest charged by the banks not the capital, so there will still be a mismatch between the growth of goods and services and the money supply. Daly has a different proposal: banks should only lend money which they actually have, and the size of the money supply is controlled directly by the state through the issue or redemtion of government debt. It would be controlled to keep purchasing power constant, ie to average zero inflation on a certain basket of goods. Something else to consider.

This monetary skimming is irksome, but it's far from the most important economic problem. The worldwide ecological damage is related only to the total physical throughput of the economy, not the amount or distribution of human currency. By throughput I mean the rate of input (trees cut per year, fish caught per year, oil pumped per year) and output (CO2 emitted per year, garbage landfilled per year, wastewater discharged per year). Daly combines neoclassical economics with the second law of thermodynamics (irreversibility) to develop a crude but useable economic model. (In contrast, mainstream economics is like mechanical engineering without heat loss, corrosion, plastic deformation, or any other irreversible behaviour.) Needless to say, his new economic model leads to very different economic policies than the pervasive perpetual-growth paradigm. He was a World Bank economist, and in more enlightened times he might have sparked a transformation there, but as it is this book is essentially an extended letter of resignation.

I don't have space to reproduce his arguments here, but his central postulate is that manmade capital (industrial machinery, buildings, consumer goods) requires not only labour and capital but also high-value material and energy from nature (coal, sunlight, soil nutrients) and that such "natural capital" is non-infinite. Sounds reasonable to me, but that heresy was enough to get him stonewalled at the World Bank.

I'll mention one last thing, which Daly doesn't address but which follows from his argument. There can only be environmental macroeconomics not microeconomics because it is unfeasible for citizens and firms acting independently to keep resource consumption and pollution within safe limits. To make a rational economic choice, they would need to know all the material and energy that goes into each item they could buy and how close each type of input and output is to its safe limit. In other words, microeconomics must be a subset of the human economy, whether or not macroeconomic planning incorporates environmental limits.


*Defined herein as those who live well by creating and/or exploiting flaws in the monetary/financial system rather than through their manual or intellectual labour. This includes bank senior executives, speculators, and most economists but not bank clerks or other salaried financial workers.