02-27-2011, 12:00 AM
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Money and the Crisis of Civilization
Charles Eisenstein
[An RS Encore Presentation] • Suppose you give me a
million dollars with the instructions, "Invest this profitably, and I'll
pay you well." I'm a sharp dresser -- why not? So I go out onto the
street and hand out stacks of bills to random passers-by. Ten thousand
dollars each. In return, each scribbles out an IOU for $20,000, payable
in five years. I come back to you and say, "Look at these IOUs! I have
generated a 20% annual return on your investment." You are very pleased,
and pay me an enormous commission.
Now I've got a big stack of IOUs, so I use these "assets" as collateral
to borrow even more money, which I lend out to even more people, or sell
them to others like myself who do the same. I also buy insurance to
cover me in case the borrowers default -- and I pay for it with those
self-same IOUs! Round and round it goes, each new loan becoming
somebody's asset on which to borrow yet more money. We all rake in huge
commissions and bonuses, as the total face value of all the assets we've
created from that initial million dollars is now fifty times that.
Then one day, the first batch of IOUs comes due. But guess what? The
person who scribbled his name on the IOU can't pay me back right now. In
fact, lots of the borrowers can't. I try to hush up this embarrassing
fact as long as possible, but pretty soon you get suspicious. You want
your million-plus dollars back -- in cash. I try to sell the IOUs and
their derivatives that I hold, but everyone else is suspicious too, and
no one buys them. The insurance company tries to cover my losses, but it
can only do so by selling the IOUs I gave it!
So finally, the government steps in and buys the IOUs, bails out the
insurance company and everyone else holding the IOUs and the derivatives
stacked on them. Their total value is way more than a million dollars
now. I and my fellow entrepreneurs retire with our lucre. Everyone else
pays for it.
This is the first level of what has happened in the financial industry
over the past decade. It is a huge transfer of wealth to the financial
elite, to be funded by US taxpayers, foreign corporations and
governments, and ultimately the foreign workers who subsidize US debt
indirectly via the lower purchasing power of their wages. However, to
see the current crisis as merely the result of a big con is to miss its
true significance.
I think we all sense that we are nearing the end of an era. On the most
superficial level, it is the era of unregulated casino-style financial
manipulation that is ending. But the current efforts of the political
elites to fix the crisis at this level will only reveal its deeper
dimensions. In fact, the crisis goes "all the way to the bottom." It
arises from the very nature of money and property in the world today,
and it will persist and continue to intensify until money itself is
transformed. A process centuries in the making is in its final stages of
unfoldment.
Money as we know it today has crisis and collapse built into its basic
design. That is because money seeks interest, bears interest, and indeed
is born of interest. To see how this works, lets go back to some
finance basics. Money is created when somebody takes out a loan from a
bank (or more recently, a disguised loan from some other kind of
institution). A debt is a promise to pay money in the future in order to
buy something today; in other words, borrowing money is a form of
delayed trading. I receive something now (bought with the money I
borrowed) and agree to give something in the future (a good or service
which I will sell for the money to pay back the debt). A bank or any
other lender will ordinarily only agree to lend you money if there is a
reasonable expectation you will pay it back; in other words, if there is
a reasonable expectation you will produce goods or services of
equivalent value. This "reasonable expectation" can be guaranteed in the
form of collateral, or it can be encoded in one's credit rating.
Any time you use money, you are essentially guaranteeing "I have
performed a service or provided a good of equivalent value to the one I
am buying." If the money is borrowed money, you are saying that you will
provide an equivalent good/service in the future.
Now enter interest. What motivates a bank to lend anyone money in the
first place? It is interest. Interest drives the creation of money
today. Any time money is created through debt, a need to create even
more money in the future is also created. The amount of money must grow
over time, which means that the volume of goods and services must grow
over time as well.
If the volume of money grows faster than the volume of goods and
services, the result is inflation. If it grows more slowly -- for
example through a slowdown in lending -- the result is bankruptcies,
recession, or deflation. The government can increase or decrease the
supply of money in several ways. First, it can create money by borrowing
it from the central bank, or in America, from the Federal Reserve. This
money ends up as bank deposits, which in turn give banks more margin
reserves on which to extend loans. You see, a bank's capacity to create
money is limited by margin reserve requirements. Typically, a bank must
hold cash (or central bank deposits) equal to about 10% of its total
customer deposits. The other 90%, it can loan out, thus creating new
money. This money ends up back in a bank as deposits, allowing another
81% of it (90% of 90%) to be lent out again. In this way, each dollar of
initial deposits ends up as $9 of new money. Government spending of
money borrowed from the central bank acts a seed for new money creation.
(Of course, this depends on banks' willingness to lend! In a credit
freeze, banks hoard excess reserves and the repeated injections of
government money have little effect.)
Another way to increase the money supply is to lower margin reserve
requirements. In practice this is rarely done, at least directly.
However, in the last decade, various kinds of non-bank lending have
skirted the margin reserve requirement, through the alphabet soup of
financial instruments you've been hearing about in the news. The result
is that each dollar of original equity has been leveraged not to nine
times it original value, as in traditional banking, but to 70 times or
even more. This has allowed returns on investment far beyond the 5% or
so available from traditional banking, along with "compensation"
packages beyond the dreams of avarice.
Each new dollar that is created comes with a new dollar of debt -- more
than a dollar of debt, because of interest. The debt is eventually
redeemed either with goods and services, or with more borrowed money,
which in turn can be redeemed with yet more borrowed money... but
eventually it will be used to buy goods and services. The interest has
to come from somewhere. Borrowing more money to make the interest
payments on an existing loan merely postpones the day of reckoning by
deferring the need to create new goods and services.
The whole system of interest-bearing money works fine as long as the
volume of goods and services exchanged for money keeps growing. The
crisis we are seeing today is in part because new money has been created
much faster than goods and services have, and much faster than has been
historically sustainable. There are only two ways out of such a
situation: inflation and defaults. Each involve the destruction of
money. The current convulsions of the financial and political elites
basically come down to a futile attempt to prevent both. Their first
concern is to prevent the evaporation of money through massive
bankruptcies, because it is, after all, their money.
There is a much deeper crisis at work as well, a crisis in the creation
of goods and services that underlies money to begin with, and it is this
crisis that gave birth to the real estate bubble everyone blames for
the current situation. To understand it, let's get clear on what
constitutes a "good" or a "service". In economics, these terms refer to
something that is exchanged for money. If I babysit your children for
free, economists don't count it as a service. It cannot be used to pay a
financial debt: I cannot go to the supermarket and say, "I watched my
neighbors kids this morning, so please give me food." But if I open a
day care center and charge you money, I have created a "service". GDP
rises and, according to economists, society has become wealthier.
The same is true if I cut down a forest and sell the timber. While it is
still standing and inaccessible, it is not a good. It only becomes
"good" when I build a logging road, hire labor, cut it down, and
transport it to a buyer. I convert a forest to timber, a commodity, and
GDP goes up. Similarly, if I create a new song and share it for free,
GDP does not go up and society is not considered wealthier, but if I
copyright it and sell it, it becomes a good. Or I can find a traditional
society that uses herbs and shamanic techniques for healing, destroy
their culture and make them dependent on pharmaceutical medicine which
they must purchase, evict them from their land so they cannot be
subsistence farmers and must buy food, clear the land and hire them on a
banana plantation -- and I have made the world richer. I have brought
various functions, relationships, and natural resources into the realm
of money. In The Ascent of Humanity I describe this process in depth:
the conversion of social capital, natural capital, cultural capital, and
spiritual capital into money.
Essentially, for the economy to continue growing and for the
(interest-based) money system to remain viable, more and more of nature
and human relationship must be monetized. For example, thirty years ago
most meals were prepared at home; today some two-thirds are prepared
outside, in restaurants or supermarket delis. A once unpaid function,
cooking, has become a "service". And we are the richer for it. Right?
Another major engine of economic growth over the last three decades,
child care, has also made us richer. We are now relieved of the burden
of caring for our own children. We pay experts instead, who can do it
much more efficiently.
In ancient times entertainment was also a free, participatory function.
Everyone played an instrument, sang, participated in drama. Even 75
years ago in America, every small town had its own marching band and
baseball team. Now we pay for those services. The economy has grown.
Hooray.
The crisis we are facing today arises from the fact there there is
almost no more social, cultural, natural, and spiritual capital left to
convert into money. Centuries, millennia of near-continuous money
creation has left us so destitute that we have nothing left to sell. Our
forests are damaged beyond repair, our soil depleted and washed into
the sea, our fisheries fished out, the rejuvenating capacity of the
earth to recycle our waste saturated. Our cultural treasury of songs and
stories, images and icons, has been looted and copyrighted. Any clever
phrase you can think of is already a trademarked slogan. Our very human
relationships and abilities have been taken away from us and sold back,
so that we are now dependent on strangers, and therefore on money, for
things few humans ever paid for until recently: food, shelter, clothing,
entertainment, child care, cooking. Life itself has become a consumer
item. Today we sell away the last vestiges of our divine bequeathment:
our health, the biosphere and genome, even our own minds. This is the
process that is culminating in our age. It is almost complete,
especially in America and the "developed" world. In the developing world
there still remain people who live substantially in gift cultures,
where natural and social wealth is not yet the subject of property.
Globalization is the process of stripping away these assets, to feed the
money machine's insatiable, existential need to grow. Yet this
stripmining of other lands is running up against its limits too, both
because there is almost nothing left to take, and because of growing
pockets of effective resistance.
The result is that the supply of money -- and the corresponding volume
of debt -- has for several decades outstripped the production of goods
and services that it promises. It is deeply related to the classic
problem of oversupply in capitalist economics. The Marxian crisis of
capital can be deferred into the future as long as new, high-profit
industries and markets can be developed to compensate for the vicious
circle of falling profits, falling wages, depressed consumption, and
overproduction in mature industries. The continuation of capitalism as
we know it depends on an infinite supply of these new industries, which
essentially must convert infinite new realms of social, natural,
cultural, and spiritual capital into money. The problem is, these
resources are finite, and the closer they come to exhaustion, the more
painful their extraction becomes. Therefore, contemporaneous with the
financial crisis we have an ecological crisis and a health crisis. They
are intimately interlinked. We cannot convert much more of the earth
into money, or much more of our health into money, before the basis of
life itself is threatened.
Faced with the exhaustion of the non-monetized commonwealth that it
consumes, financial capital has tried to delay the inevitable by
cannibalizing itself. The dot-com bubble of the late 90s showed that the
productive economy could not longer keep up with the growth of money.
Lots of excess money was running around frantically, searching for a
place where the promise of deferred goods and services could be
redeemed. So, to postpone the inevitable crash, the Fed slashed interest
rates and loosened monetary policy to allow old debts to be repaid with
new debts (rather than real goods and services). The new financial
goods and services that arose were phony, artifacts of deceptive
accounting on a vast, systemic scale.
Various pundits have observed that the Bernard Madoff Ponzi scheme was
not so different from the financial industry's pyramid of
mortgaged-based derivatives and other instruments, which themselves
formed a bubble that, like Madoff's, could only sustain itself through
an unceasing, indeed exponentially-growing, influx of new money. As
such, it is a symbol of our times -- and even more than people suppose.
It is not only the Wall Street casino economy that is an unsustainable
pyramid scheme. The larger economic system, based as it is on the
eternal conversion of a finite commonwealth into money, is unsustainable
as well. It is like a bonfire that must burn higher and higher, to the
exhaustion of all available fuel. Just as fire breaks existing chemical
bonds and frees heat, so does our economy break the bonds of community,
nature, and culture, liberating free energy -- called money -- in the
process. Only a fool would think that a fire can burn ever-higher when
the supply of fuel is finite. To extend the metaphor, the recent
deindustrialization and financialization of the economy amounts to using
the heat to create more fuel. According to the Second Law of
Thermodynamics, the amount created is always less than the amount
expended to create it. Obviously, the practice of borrowing new money to
pay the principal and interest of old debts cannot last very long, but
that is what the economy as a whole has done for ten years now.
Yet even abandoning this folly, we still must face the depletion of fuel
(remember, I mean not literal energy sources, but any bond of nature or
culture that can be turned into a commodity). Most of the proposals for
addressing the present economic crisis amount to finding more fuel.
Whether it is drilling more oil wells, paving over more green space, or
spurring consumer spending, the goal is to reignite economic growth;
that is to expand the realm of goods and services. It means finding new
things for which we can pay. Today, unimaginably to our forebears, we
pay even for our water and our songs. What else is left to convert into
money?
A collapse is coming, unavoidably; indeed, we are in the midst of it.
The first government response, the bailout, was an attempt to uphold a
tower of money that is far beyond the total value of real goods and
services it promises to redeem. Predictably, the bailout was a miserable
failure. The next response, Obama's massive stimulus package, will fail
for a different and much deeper reason. It will fail because we are
"maxed out": maxed out on nature's capacity to receive our wastes
without destroying the ecological basis of civilization; maxed out on
society's ability to withstand any more loss of community and
connection; maxed out on our forests' ability to withstand more
clearcuts; maxed out on the human body's capacity to stay viable in a
depleted, toxic world. That we are also maxed out on our credit only
reflects that we have nothing left to convert into money. Do we really
need more roads and bridges? Can we sustain more of them, and more of
the industrial economy that goes along? Government stimulus programs
will at best prolong the current economic system for two or three years,
with perhaps a brief period of growth as we complete the pillage of
nature, spirit, body, and culture. When these vestiges of the
commonwealth are gone, then nothing will be able to stop a massive
inflationary surge and currency collapse on a global scale.
The present crisis is actually the final stage of what began in the
1930s. Successive solutions to the fundamental problem of keeping pace
with money that expands with the rate of interest have been applied, and
exhausted. The first effective solution was war, a state which has been
permanent since 1940. Unfortunatly, or rather fortunately, nuclear
weapons and a shift in human consciousness have limited the solution of
endless military escalation. Other solutions -- globalization,
technology-enabled development of new goods and services to replace
human functions never before commoditized, and technology-enabled
plunder of natural resources once off limits, and finally financial
auto-cannibalism -- have similarly run their course. Unless there are
realms of wealth I have not considered, and new depths of poverty,
misery, and alienation to which we might plunge, the inevitable cannot
be delayed much longer.
In the face of the impending crisis, people often ask what they can do
to protect themselves. "Buy gold? Stockpile canned goods? Build a
fortified compound in a remote area? What should I do?" I would like to
suggest a different kind of question: "What is the most beautiful thing I
can do?" You see, the gathering crisis presents a tremendous
opportunity. Deflation, the destruction of money, is only a categorical
evil if the creation of money is a categorical good. However, you can
see from the examples I have given that the creation of money has in
many ways impoverished us all. Conversely, the destruction of money has
the potential to enrich us. It offers the opportunity to reclaim parts
of the lost commonwealth from the realm of money and property.
We actually see this happening every time there is an economic
recession. People can no longer pay for various goods and services, and
so have to rely on friends and neighbors instead. Where there is no
money to facilitate transactions, gift economies reemerge and new kinds
of money are created. Ordinarily, though, people and institutions fight
tooth and nail to prevent that from happening. The habitual first
response to economic crisis is to make and keep more money -- to
accelerate the conversion of anything you can into money. On a systemic
level, the debt surge is generating enormous pressure to extend the
commodification of the commonwealth. We can see this happening with the
calls to drill for oil in Alaska, commence deep-sea drilling, and so on.
The time is here, though, for the reverse process to begin in earnest
-- to remove things from the realm of goods and services, and return
them to the realm of gifts, reciprocity, self-sufficiency, and community
sharing. Note well: this is going to happen anyway in the wake of a
currency collapse, as people lose their jobs or become too poor to buy
things. People will help each other and real communities will reemerge.
In the meantime, anything we do to protect some natural or social
resource from conversion into money will both hasten the collapse and
mitigate its severity. Any forest you save from development, any road
you stop, any cooperative playgroup you establish; anyone you teach to
heal themselves, or to build their own house, cook their own food, make
their own clothes; any wealth you create or add to the public domain;
anything you render off-limits to the world-devouring Machine, will help
shorten the Machine's lifespan. Think of it this way: if you already do
not depend on money for some portion of life's necessities and
pleasures, then the collapse of money will pose much less of a harsh
transition for you. The same applies to the social level. Any network or
community or social institution that is not a vehicle for the
conversion of life into money will sustain and enrich life after money.
Elsewhere I have described alternative money systems, based on mutual
credit and demurrage, that do not drive the conversion of all that is
good, true, and beautiful into money. These enact a fundamentally
different human identity, a fundamentally different sense of self, from
what dominates today. No more will it be true that more for me is less
for you. On a personal level, the deepest possible revolution we can
enact is a revolution in our sense of self, in our identity. The
discrete and separate self of Descartes and Adam Smith has run its
course and is becoming obsolete. We are realizing our own
inseparateness, from each other and from the totality of all life.
Interest belies this union, for it seeks growth of the separate self at
the expense of something external, something other. Probably everyone
reading this essay agrees with the principles of interconnectedness,
whether from a Buddhistic or an ecological perspective. The time has
come to live it. It is time to enter the spirit of the gift, which
embodies the felt understanding of non-separation. It is becoming
abundantly obvious that less for you (in all its dimensions) is also
less for me. The ideology of perpetual gain has brought us to a state of
poverty so destitute that we are gasping for air. That ideology, and
the civilization built upon it, is what is collapsing today.
Individually and collectively, anything we do to resist or postpone the
collapse will only make it worse. Let us stop resisting the revolution
in human beingness. If we want to survive the multiple crises unfolding
today, let us not seek to survive them. That is the mindset of
separation; that is resistance, a clinging to a dying past. Instead, let
us shift our perspective toward reunion, and think in terms of what we
can give. What can we each contribute to a more beautiful world? That is
our only responsibility and our only security.
More concretely, let us engage in conscious, purposeful money
destruction in place of the unconscious destruction of money that
happens in a collapsing economy. If you still have money to invest,
invest it in enterprises that explicitly seek to build community,
protect nature, and preserve the cultural commonwealth. Expect a zero or
negative financial return on your investment -- that is a good sign
that you are not unintentionally converting even more of the world to
money. Whether or not you have money to invest, you can also reclaim
what was sold away by taking steps out the money economy. Anything you
learn to do for yourself or for other people, without paying for it; any
utilization of recycled or discarded materials; anything you make
instead of buy, give instead of sell; any new skill or new song or new
art you teach yourself or another, will reduce the dominion of money and
grow a gift economy to sustain us through the coming transition. The
world of the Gift, echoing primitive gift societies, the web of ecology,
and the spiritual teachings of the ages, is nigh upon us. It tugs on
our heartstrings and and awakens our generosity. Shall we heed its call,
before the remainder of earth's beauty is consumed?
This is an RS Encore Presentation of an article that provoked a lot
of comments since it first appeared on October 3 of 2008. The author
has revised the article with many of our readers' comments in mind.
Thanks for the feedback.
Money and the Crisis of Civilization
Charles Eisenstein
[An RS Encore Presentation] • Suppose you give me a
million dollars with the instructions, "Invest this profitably, and I'll
pay you well." I'm a sharp dresser -- why not? So I go out onto the
street and hand out stacks of bills to random passers-by. Ten thousand
dollars each. In return, each scribbles out an IOU for $20,000, payable
in five years. I come back to you and say, "Look at these IOUs! I have
generated a 20% annual return on your investment." You are very pleased,
and pay me an enormous commission.
Now I've got a big stack of IOUs, so I use these "assets" as collateral
to borrow even more money, which I lend out to even more people, or sell
them to others like myself who do the same. I also buy insurance to
cover me in case the borrowers default -- and I pay for it with those
self-same IOUs! Round and round it goes, each new loan becoming
somebody's asset on which to borrow yet more money. We all rake in huge
commissions and bonuses, as the total face value of all the assets we've
created from that initial million dollars is now fifty times that.
Then one day, the first batch of IOUs comes due. But guess what? The
person who scribbled his name on the IOU can't pay me back right now. In
fact, lots of the borrowers can't. I try to hush up this embarrassing
fact as long as possible, but pretty soon you get suspicious. You want
your million-plus dollars back -- in cash. I try to sell the IOUs and
their derivatives that I hold, but everyone else is suspicious too, and
no one buys them. The insurance company tries to cover my losses, but it
can only do so by selling the IOUs I gave it!
So finally, the government steps in and buys the IOUs, bails out the
insurance company and everyone else holding the IOUs and the derivatives
stacked on them. Their total value is way more than a million dollars
now. I and my fellow entrepreneurs retire with our lucre. Everyone else
pays for it.
This is the first level of what has happened in the financial industry
over the past decade. It is a huge transfer of wealth to the financial
elite, to be funded by US taxpayers, foreign corporations and
governments, and ultimately the foreign workers who subsidize US debt
indirectly via the lower purchasing power of their wages. However, to
see the current crisis as merely the result of a big con is to miss its
true significance.
I think we all sense that we are nearing the end of an era. On the most
superficial level, it is the era of unregulated casino-style financial
manipulation that is ending. But the current efforts of the political
elites to fix the crisis at this level will only reveal its deeper
dimensions. In fact, the crisis goes "all the way to the bottom." It
arises from the very nature of money and property in the world today,
and it will persist and continue to intensify until money itself is
transformed. A process centuries in the making is in its final stages of
unfoldment.
Money as we know it today has crisis and collapse built into its basic
design. That is because money seeks interest, bears interest, and indeed
is born of interest. To see how this works, lets go back to some
finance basics. Money is created when somebody takes out a loan from a
bank (or more recently, a disguised loan from some other kind of
institution). A debt is a promise to pay money in the future in order to
buy something today; in other words, borrowing money is a form of
delayed trading. I receive something now (bought with the money I
borrowed) and agree to give something in the future (a good or service
which I will sell for the money to pay back the debt). A bank or any
other lender will ordinarily only agree to lend you money if there is a
reasonable expectation you will pay it back; in other words, if there is
a reasonable expectation you will produce goods or services of
equivalent value. This "reasonable expectation" can be guaranteed in the
form of collateral, or it can be encoded in one's credit rating.
Any time you use money, you are essentially guaranteeing "I have
performed a service or provided a good of equivalent value to the one I
am buying." If the money is borrowed money, you are saying that you will
provide an equivalent good/service in the future.
Now enter interest. What motivates a bank to lend anyone money in the
first place? It is interest. Interest drives the creation of money
today. Any time money is created through debt, a need to create even
more money in the future is also created. The amount of money must grow
over time, which means that the volume of goods and services must grow
over time as well.
If the volume of money grows faster than the volume of goods and
services, the result is inflation. If it grows more slowly -- for
example through a slowdown in lending -- the result is bankruptcies,
recession, or deflation. The government can increase or decrease the
supply of money in several ways. First, it can create money by borrowing
it from the central bank, or in America, from the Federal Reserve. This
money ends up as bank deposits, which in turn give banks more margin
reserves on which to extend loans. You see, a bank's capacity to create
money is limited by margin reserve requirements. Typically, a bank must
hold cash (or central bank deposits) equal to about 10% of its total
customer deposits. The other 90%, it can loan out, thus creating new
money. This money ends up back in a bank as deposits, allowing another
81% of it (90% of 90%) to be lent out again. In this way, each dollar of
initial deposits ends up as $9 of new money. Government spending of
money borrowed from the central bank acts a seed for new money creation.
(Of course, this depends on banks' willingness to lend! In a credit
freeze, banks hoard excess reserves and the repeated injections of
government money have little effect.)
Another way to increase the money supply is to lower margin reserve
requirements. In practice this is rarely done, at least directly.
However, in the last decade, various kinds of non-bank lending have
skirted the margin reserve requirement, through the alphabet soup of
financial instruments you've been hearing about in the news. The result
is that each dollar of original equity has been leveraged not to nine
times it original value, as in traditional banking, but to 70 times or
even more. This has allowed returns on investment far beyond the 5% or
so available from traditional banking, along with "compensation"
packages beyond the dreams of avarice.
Each new dollar that is created comes with a new dollar of debt -- more
than a dollar of debt, because of interest. The debt is eventually
redeemed either with goods and services, or with more borrowed money,
which in turn can be redeemed with yet more borrowed money... but
eventually it will be used to buy goods and services. The interest has
to come from somewhere. Borrowing more money to make the interest
payments on an existing loan merely postpones the day of reckoning by
deferring the need to create new goods and services.
The whole system of interest-bearing money works fine as long as the
volume of goods and services exchanged for money keeps growing. The
crisis we are seeing today is in part because new money has been created
much faster than goods and services have, and much faster than has been
historically sustainable. There are only two ways out of such a
situation: inflation and defaults. Each involve the destruction of
money. The current convulsions of the financial and political elites
basically come down to a futile attempt to prevent both. Their first
concern is to prevent the evaporation of money through massive
bankruptcies, because it is, after all, their money.
There is a much deeper crisis at work as well, a crisis in the creation
of goods and services that underlies money to begin with, and it is this
crisis that gave birth to the real estate bubble everyone blames for
the current situation. To understand it, let's get clear on what
constitutes a "good" or a "service". In economics, these terms refer to
something that is exchanged for money. If I babysit your children for
free, economists don't count it as a service. It cannot be used to pay a
financial debt: I cannot go to the supermarket and say, "I watched my
neighbors kids this morning, so please give me food." But if I open a
day care center and charge you money, I have created a "service". GDP
rises and, according to economists, society has become wealthier.
The same is true if I cut down a forest and sell the timber. While it is
still standing and inaccessible, it is not a good. It only becomes
"good" when I build a logging road, hire labor, cut it down, and
transport it to a buyer. I convert a forest to timber, a commodity, and
GDP goes up. Similarly, if I create a new song and share it for free,
GDP does not go up and society is not considered wealthier, but if I
copyright it and sell it, it becomes a good. Or I can find a traditional
society that uses herbs and shamanic techniques for healing, destroy
their culture and make them dependent on pharmaceutical medicine which
they must purchase, evict them from their land so they cannot be
subsistence farmers and must buy food, clear the land and hire them on a
banana plantation -- and I have made the world richer. I have brought
various functions, relationships, and natural resources into the realm
of money. In The Ascent of Humanity I describe this process in depth:
the conversion of social capital, natural capital, cultural capital, and
spiritual capital into money.
Essentially, for the economy to continue growing and for the
(interest-based) money system to remain viable, more and more of nature
and human relationship must be monetized. For example, thirty years ago
most meals were prepared at home; today some two-thirds are prepared
outside, in restaurants or supermarket delis. A once unpaid function,
cooking, has become a "service". And we are the richer for it. Right?
Another major engine of economic growth over the last three decades,
child care, has also made us richer. We are now relieved of the burden
of caring for our own children. We pay experts instead, who can do it
much more efficiently.
In ancient times entertainment was also a free, participatory function.
Everyone played an instrument, sang, participated in drama. Even 75
years ago in America, every small town had its own marching band and
baseball team. Now we pay for those services. The economy has grown.
Hooray.
The crisis we are facing today arises from the fact there there is
almost no more social, cultural, natural, and spiritual capital left to
convert into money. Centuries, millennia of near-continuous money
creation has left us so destitute that we have nothing left to sell. Our
forests are damaged beyond repair, our soil depleted and washed into
the sea, our fisheries fished out, the rejuvenating capacity of the
earth to recycle our waste saturated. Our cultural treasury of songs and
stories, images and icons, has been looted and copyrighted. Any clever
phrase you can think of is already a trademarked slogan. Our very human
relationships and abilities have been taken away from us and sold back,
so that we are now dependent on strangers, and therefore on money, for
things few humans ever paid for until recently: food, shelter, clothing,
entertainment, child care, cooking. Life itself has become a consumer
item. Today we sell away the last vestiges of our divine bequeathment:
our health, the biosphere and genome, even our own minds. This is the
process that is culminating in our age. It is almost complete,
especially in America and the "developed" world. In the developing world
there still remain people who live substantially in gift cultures,
where natural and social wealth is not yet the subject of property.
Globalization is the process of stripping away these assets, to feed the
money machine's insatiable, existential need to grow. Yet this
stripmining of other lands is running up against its limits too, both
because there is almost nothing left to take, and because of growing
pockets of effective resistance.
The result is that the supply of money -- and the corresponding volume
of debt -- has for several decades outstripped the production of goods
and services that it promises. It is deeply related to the classic
problem of oversupply in capitalist economics. The Marxian crisis of
capital can be deferred into the future as long as new, high-profit
industries and markets can be developed to compensate for the vicious
circle of falling profits, falling wages, depressed consumption, and
overproduction in mature industries. The continuation of capitalism as
we know it depends on an infinite supply of these new industries, which
essentially must convert infinite new realms of social, natural,
cultural, and spiritual capital into money. The problem is, these
resources are finite, and the closer they come to exhaustion, the more
painful their extraction becomes. Therefore, contemporaneous with the
financial crisis we have an ecological crisis and a health crisis. They
are intimately interlinked. We cannot convert much more of the earth
into money, or much more of our health into money, before the basis of
life itself is threatened.
Faced with the exhaustion of the non-monetized commonwealth that it
consumes, financial capital has tried to delay the inevitable by
cannibalizing itself. The dot-com bubble of the late 90s showed that the
productive economy could not longer keep up with the growth of money.
Lots of excess money was running around frantically, searching for a
place where the promise of deferred goods and services could be
redeemed. So, to postpone the inevitable crash, the Fed slashed interest
rates and loosened monetary policy to allow old debts to be repaid with
new debts (rather than real goods and services). The new financial
goods and services that arose were phony, artifacts of deceptive
accounting on a vast, systemic scale.
Various pundits have observed that the Bernard Madoff Ponzi scheme was
not so different from the financial industry's pyramid of
mortgaged-based derivatives and other instruments, which themselves
formed a bubble that, like Madoff's, could only sustain itself through
an unceasing, indeed exponentially-growing, influx of new money. As
such, it is a symbol of our times -- and even more than people suppose.
It is not only the Wall Street casino economy that is an unsustainable
pyramid scheme. The larger economic system, based as it is on the
eternal conversion of a finite commonwealth into money, is unsustainable
as well. It is like a bonfire that must burn higher and higher, to the
exhaustion of all available fuel. Just as fire breaks existing chemical
bonds and frees heat, so does our economy break the bonds of community,
nature, and culture, liberating free energy -- called money -- in the
process. Only a fool would think that a fire can burn ever-higher when
the supply of fuel is finite. To extend the metaphor, the recent
deindustrialization and financialization of the economy amounts to using
the heat to create more fuel. According to the Second Law of
Thermodynamics, the amount created is always less than the amount
expended to create it. Obviously, the practice of borrowing new money to
pay the principal and interest of old debts cannot last very long, but
that is what the economy as a whole has done for ten years now.
Yet even abandoning this folly, we still must face the depletion of fuel
(remember, I mean not literal energy sources, but any bond of nature or
culture that can be turned into a commodity). Most of the proposals for
addressing the present economic crisis amount to finding more fuel.
Whether it is drilling more oil wells, paving over more green space, or
spurring consumer spending, the goal is to reignite economic growth;
that is to expand the realm of goods and services. It means finding new
things for which we can pay. Today, unimaginably to our forebears, we
pay even for our water and our songs. What else is left to convert into
money?
A collapse is coming, unavoidably; indeed, we are in the midst of it.
The first government response, the bailout, was an attempt to uphold a
tower of money that is far beyond the total value of real goods and
services it promises to redeem. Predictably, the bailout was a miserable
failure. The next response, Obama's massive stimulus package, will fail
for a different and much deeper reason. It will fail because we are
"maxed out": maxed out on nature's capacity to receive our wastes
without destroying the ecological basis of civilization; maxed out on
society's ability to withstand any more loss of community and
connection; maxed out on our forests' ability to withstand more
clearcuts; maxed out on the human body's capacity to stay viable in a
depleted, toxic world. That we are also maxed out on our credit only
reflects that we have nothing left to convert into money. Do we really
need more roads and bridges? Can we sustain more of them, and more of
the industrial economy that goes along? Government stimulus programs
will at best prolong the current economic system for two or three years,
with perhaps a brief period of growth as we complete the pillage of
nature, spirit, body, and culture. When these vestiges of the
commonwealth are gone, then nothing will be able to stop a massive
inflationary surge and currency collapse on a global scale.
The present crisis is actually the final stage of what began in the
1930s. Successive solutions to the fundamental problem of keeping pace
with money that expands with the rate of interest have been applied, and
exhausted. The first effective solution was war, a state which has been
permanent since 1940. Unfortunatly, or rather fortunately, nuclear
weapons and a shift in human consciousness have limited the solution of
endless military escalation. Other solutions -- globalization,
technology-enabled development of new goods and services to replace
human functions never before commoditized, and technology-enabled
plunder of natural resources once off limits, and finally financial
auto-cannibalism -- have similarly run their course. Unless there are
realms of wealth I have not considered, and new depths of poverty,
misery, and alienation to which we might plunge, the inevitable cannot
be delayed much longer.
In the face of the impending crisis, people often ask what they can do
to protect themselves. "Buy gold? Stockpile canned goods? Build a
fortified compound in a remote area? What should I do?" I would like to
suggest a different kind of question: "What is the most beautiful thing I
can do?" You see, the gathering crisis presents a tremendous
opportunity. Deflation, the destruction of money, is only a categorical
evil if the creation of money is a categorical good. However, you can
see from the examples I have given that the creation of money has in
many ways impoverished us all. Conversely, the destruction of money has
the potential to enrich us. It offers the opportunity to reclaim parts
of the lost commonwealth from the realm of money and property.
We actually see this happening every time there is an economic
recession. People can no longer pay for various goods and services, and
so have to rely on friends and neighbors instead. Where there is no
money to facilitate transactions, gift economies reemerge and new kinds
of money are created. Ordinarily, though, people and institutions fight
tooth and nail to prevent that from happening. The habitual first
response to economic crisis is to make and keep more money -- to
accelerate the conversion of anything you can into money. On a systemic
level, the debt surge is generating enormous pressure to extend the
commodification of the commonwealth. We can see this happening with the
calls to drill for oil in Alaska, commence deep-sea drilling, and so on.
The time is here, though, for the reverse process to begin in earnest
-- to remove things from the realm of goods and services, and return
them to the realm of gifts, reciprocity, self-sufficiency, and community
sharing. Note well: this is going to happen anyway in the wake of a
currency collapse, as people lose their jobs or become too poor to buy
things. People will help each other and real communities will reemerge.
In the meantime, anything we do to protect some natural or social
resource from conversion into money will both hasten the collapse and
mitigate its severity. Any forest you save from development, any road
you stop, any cooperative playgroup you establish; anyone you teach to
heal themselves, or to build their own house, cook their own food, make
their own clothes; any wealth you create or add to the public domain;
anything you render off-limits to the world-devouring Machine, will help
shorten the Machine's lifespan. Think of it this way: if you already do
not depend on money for some portion of life's necessities and
pleasures, then the collapse of money will pose much less of a harsh
transition for you. The same applies to the social level. Any network or
community or social institution that is not a vehicle for the
conversion of life into money will sustain and enrich life after money.
Elsewhere I have described alternative money systems, based on mutual
credit and demurrage, that do not drive the conversion of all that is
good, true, and beautiful into money. These enact a fundamentally
different human identity, a fundamentally different sense of self, from
what dominates today. No more will it be true that more for me is less
for you. On a personal level, the deepest possible revolution we can
enact is a revolution in our sense of self, in our identity. The
discrete and separate self of Descartes and Adam Smith has run its
course and is becoming obsolete. We are realizing our own
inseparateness, from each other and from the totality of all life.
Interest belies this union, for it seeks growth of the separate self at
the expense of something external, something other. Probably everyone
reading this essay agrees with the principles of interconnectedness,
whether from a Buddhistic or an ecological perspective. The time has
come to live it. It is time to enter the spirit of the gift, which
embodies the felt understanding of non-separation. It is becoming
abundantly obvious that less for you (in all its dimensions) is also
less for me. The ideology of perpetual gain has brought us to a state of
poverty so destitute that we are gasping for air. That ideology, and
the civilization built upon it, is what is collapsing today.
Individually and collectively, anything we do to resist or postpone the
collapse will only make it worse. Let us stop resisting the revolution
in human beingness. If we want to survive the multiple crises unfolding
today, let us not seek to survive them. That is the mindset of
separation; that is resistance, a clinging to a dying past. Instead, let
us shift our perspective toward reunion, and think in terms of what we
can give. What can we each contribute to a more beautiful world? That is
our only responsibility and our only security.
More concretely, let us engage in conscious, purposeful money
destruction in place of the unconscious destruction of money that
happens in a collapsing economy. If you still have money to invest,
invest it in enterprises that explicitly seek to build community,
protect nature, and preserve the cultural commonwealth. Expect a zero or
negative financial return on your investment -- that is a good sign
that you are not unintentionally converting even more of the world to
money. Whether or not you have money to invest, you can also reclaim
what was sold away by taking steps out the money economy. Anything you
learn to do for yourself or for other people, without paying for it; any
utilization of recycled or discarded materials; anything you make
instead of buy, give instead of sell; any new skill or new song or new
art you teach yourself or another, will reduce the dominion of money and
grow a gift economy to sustain us through the coming transition. The
world of the Gift, echoing primitive gift societies, the web of ecology,
and the spiritual teachings of the ages, is nigh upon us. It tugs on
our heartstrings and and awakens our generosity. Shall we heed its call,
before the remainder of earth's beauty is consumed?
This is an RS Encore Presentation of an article that provoked a lot
of comments since it first appeared on October 3 of 2008. The author
has revised the article with many of our readers' comments in mind.
Thanks for the feedback.