The End of Growth: Adapting to Our New Economic Reality (41 page)
Read The End of Growth: Adapting to Our New Economic Reality Online
Authors: Richard Heinberg
Tags: #BUS072000
Herman Daly is one of several authors who have advocated for the proliferation of local currencies; others include Dierdre Kent (
Healthy
Money, Healthy Planet
); Richard Douthwaite (
The Ecology of Money
); Bernard Lietaer (
The Future of Money: Creating New Wealth, Work and a
Wiser World
); and Thomas Greco, Jr. (
Money: Understanding and Creating
Alternatives to Legal Tender
).
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Among the most successful of US local currencies is BerkShares, traded in the Berkshire region of Massachusetts, launched in 2006.
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BerkShares are available at five participating banks, where 95 Federal Reserve dollars may be exchanged for 100 BerkShares and then used to purchase goods and services on a one-to-one basis at over 400 businesses. Over 2.8 million BerkShares have been traded at banks since launch.
Complementary currencies are especially useful in situations where the national currency is, for whatever reason, failing to serve the needs of producers and consumers — as occurred during the Argentine economic collapse of 2001–2002, when small-denomination, interest-free provincial bond IOUs issued by local governments enabled trade to continue.
In his book
The End of Money and the Future of Civilization
, Thomas Greco, Jr. describes mutual credit clearing as both a fundamental monetary advance, and a solution to the basic and irreconcilable problems of debt-based money.
18
Through mutual credit clearing, participants in the economy are, in effect, creating their own currency as needed.
Bernard Lietaer cites as examples credit-clearing systems such as the Commercial Credit Circuits (“C3”) in Brazil that enable small businesses to bypass banks for short-term financing; he points out that Uruguay allows payment of taxes in C3 currency.
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Greco goes on to offer a regional development plan based on credit clearing as well as suggestions for a complete web-based credit-clearing trade platform.
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The unit of account used in credit-clearing exchange systems can vary. Greco notes possibilities including a basket of commodities, a unit of energy (such as the kilowatt hour), an existing currency unit (the US dollar), or a labor standard (a statistical unit of labor productivity). Even gold or silver could be used as a unit of account — though this would not require stockpiling of metals or actual payment of accounts in coin. There would be a considerable advantage to using the same unit of account globally so as to facilitate trade, but currencies themselves would work best as nested, diverse systems — with local, regional, and national currencies in simultaneous use.
Greco, Douthwaite, Daly, and others agree that governments should support and facilitate the emergence of local currencies. Lietaer notes that complementary currencies “meet unmet needs with unused resources,” and uses the mileage programs of the major airlines as an example of complementary currencies already familiar to most people.
Historically, governments have used their monopoly on the issuance of currency as a way to consolidate state power; legal tender laws, which require citizens to use the national currency, are the primary means of maintaining this monopoly. Greco, echoing Austrian-School economist Friedrich von Hayek, advises rescinding legal tender laws, writing that, “There should be a strict separation between money and the state. Any financial instruments issued by the government must be made to stand upon their own merits in the financial markets.”
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If this principle were generally accepted, says Greco, inflation would cease to exist.
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Given a future of reduced global trade (because of scarcer fuel), and a greater need for resilience (which means more diversity, interconnectivity, and redundancy in basic societal support systems), local currencies would seem to make a great deal of sense. In practice, most local currencies in use during the past few decades have existed on the fringes of national economies, but this is largely because of legal tender laws maintaining the monopoly status of national currencies. As the global economy fails to grow, and as debt-based national currencies therefore become more dysfunctional, local currencies could enable commerce to continue.
For the past several decades the US dollar, created by commercial banks through interest-bearing loans, regulated by the Federal Reserve, and mandated by legal tender laws, has acted as a de facto global currency. It will take a financial-monetary earthquake to dislodge the dollar from that role and function. But pressure is building along the fault lines of the global economy, and even within the US political system. In recent months, US House of Representatives members Ron Paul (by some accounts the member furthest to the political right) and Dennis Kucinich (by some accounts furthest to the left) have both called for the abolition of the Fed; Paul advocates a return to the gold standard, while Kucinich backs the direct creation of debt-free money by the Federal government.
Meanwhile, the use of barter within the US is trending sharply upward.
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Mutual credit-clearing exchanges and local currencies represent a significant advance over barter, but without the drawbacks of our present national debt-based currencies.
BOX 6.1
A Global Currency?
There is some tentative and controversial indication that policy makers at the highest levels are aware of the vulnerability of existing currencies and have begun thinking about alternatives. Some anti-globalization bloggers believe there may be an Orwellian solution in store: Point 19 of the official communiqué from the 2009 G20 summit noted, “We have agreed to support a general SDR allocation which will inject $250bn (£170bn) into the world economy and increase global liquidity.” SDRs, or Special Drawing Rights, are “a synthetic paper currency issued by the International Monetary Fund.” Could the IMF be testing the waters for the creation of a global currency?
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Full implementation of a global currency would require many more steps, including the setting up of a full-fledged global central bank (the IMF is not currently equipped to fulfill this role, though perhaps it could be revamped for the purpose). Globalization critics fear that an IMF currency would not only inherit the reserve status of the US dollar, but could become be the primary means of exchange within all countries. Presumably, as a condition for inclusion into this new global currency system, nations would have to accept the kinds of austerity packages recently meted out to Greece and Ireland.
The evidence suggests that any plans that may be in the works for a global currency are far from implementation. Meanwhile, one can’t help but wonder whether a better outcome could be achieved if the project of designing a new money system were undertaken with more transparency, and if alternatives such as direct credit clearing systems were taken into account.
Post-Growth Economics
The past three decades, and especially the past three years, have seen an explosion of discussion about alternative ways of thinking about economics. There are now at least a score of think tanks, institutes, and publications advocating fundamentally revising economic theory in view of ecological limits. Many alt-economics theorists question either the possibility or advisability of endless growth.
The fraternity of conventional economists appears to be highly resistant to these sorts of challenging new ideas. Governments everywhere accept unquestioningly the existing growth-based economic paradigm, and this confers on mainstream economists a sense of power and success that makes them highly averse to self-examination and change. Therefore the likelihood of alternative economic ideas being adopted anytime soon on a grand scale would seem vanishingly small. Nevertheless, alternative thinking is still useful, because as growth ends the managers of the economy will sooner or later be forced to try other approaches, and it will be extremely important to have conceptual tools lying around that, in a crisis, could be quickly grasped and put to use.
As noted in Chapter 1, conventional economics starts with certain basic premises that are clearly, unequivocally incorrect: that the environment is a subset of the economy; that resources are infinitely substitutable; and that growth in population and consumption can continue forever. In conventional economics, natural resources like fossil fuels are treated as expendable income, when in fact they should be treated as capital, since they are subject to depletion. As many alternative economists have pointed out, if economics is to stop steering society into the ditch it has to start by reexamining these assumptions.
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The following four fundamental principles must be established at the core of economic theory if economics is to have any relevance in the future:
• Growth in population and consumption rates cannot be sustained.
• Renewable resources must be consumed at rates below those of natural replenishment.
• Non-renewable resources must be consumed at declining rates (with rates of decline at least equaling rates of depletion), and recycled wherever possible.
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• Wastes must be minimized, rendered non-toxic to humans and the environment, and made into “food” for natural systems or human production processes.
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Further, economics must aim for a dynamic balance between efficiency (maximizing throughput) and resilience (adaptability, redundancy, diversity, and interconnectivity) — whereas today economists focus almost entirely on efficiency.
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The contributions of the alternative economists (via schools of thought known as ecological economics, environmental economics, and biophysical economics) can be divided into three broad categories: critiques of existing economic system, proposals for an alternative system, and strategies for making the transition from one to the other.
29
In his book
Prosperity Without Growth
, British economist Tim Jackson writes: “During the [period since 1950] the global economy has grown more than 5 times,” and economists expect it to quadruple again by mid-century. “This extraordinary ramping up of global economic activity has no historical precedent,” according to Jackson.
It’s totally at odds with our scientific knowledge of the finite resource base and the fragile ecology on which we depend for sur-vival.... Questioning growth is deemed to be the act of lunatics, idealists and revolutionaries. But question it we must. The idea of a non-growing economy may be an anathema to an economist. But the idea of a continually growing economy is an anathema to an ecologist.... The only possible response to this challenge is to suggest — as economists do — that growth in dollars is “decoupled” from growth in physical throughputs and environmental impacts. But...this hasn’t so far achieved what’s needed. There are no prospects for it doing so in the immediate future. And the sheer scale of decoupling required...staggers the imagination.
30
The New Economics Foundation in London recently published a book-length study titled
Growth Isn’t Possible
, which asks whether goals related to mitigating climate change can be met in the context of continued global economic growth. Its conclusion: “Economic growth in the OECD cannot be reconciled with a 2, 3, or even 4°C characterization of dangerous climate change.”
31
Herman Daly, one of the pioneers of ecological economics (he published
Toward a Steady State Economy
in 1973 and
Beyond Growth
in 1996, and co-authored a textbook titled
Ecological Economics
in 2004), differentiates between
economic
growth and
uneconomic
growth.
32
For Daly, uneconomic growth
consists of GDP gains that are accompanied by static
or declining social benefits, as for example when a certain amount of short-term
growth is achieved by undermining ecosystems whose services have a
greater long-term value
.
33
In Europe, a “degrowth” movement has taken root, founded on the ideas of Mohandas Gandhi, Leopold Kohr, Jean Baudrillard, André Gorz, Edward Goldsmith, Ivan Illich, and Serge Latouche.
34
The work of Romanian economist Nicholas Georgescu-Roegen (1906–1994) was especially pivotal in setting the movement on its path: his 1971 book titled
The Entropy Law and the Economic Process
pointed out that neoclassical economics fails to acknowledge the second law of thermodynamics by not accounting for the degradation of energy and matter. Georgescu-Roegen’s thinking had in turn been influenced by that of chemist-turned-economist Frederick Soddy (1877–1956), author of
Wealth, Virtual Wealth and Debt
(1926), which sought to bring economics into line with the laws of thermodynamics and which critiqued fractional-reserve banking.
35
The French translation of Georgescu-Roegen’s book in 1979 under the title
Demain la
décroissance
(“Tomorrow, Degrowth”) spurred
décroissance
thinking and organizing that eventuated in the first International Degrowth Conference in Paris in 2008 and the founding of a French-language newspaper,
La
Décroissance: Le journal de la joie de vivre
, published in Lyons.
In the United States, the term “degrowth” is seldom mentioned; however, over the past twenty years a similar trend in thinking has spurred the “voluntary simplicity” movement, which questions the environmental, psychological, and social costs of ever-growing consumption. The movement has roots in the ethical beliefs of religious groups like the Amish, but also in the writings of philosopher Henry David Thoreau (1817–1862) and back-to-the-land pioneers Scott and Helen Nearing (1883–1983; 1904– 1995, authors of
Living the Good Life
).
36
The books
Voluntary Simplicity
by Duane Elgin (1981), and
Your Money or Your Life
by Joe Dominguez and Vicki Robin (1992), and the documentary film “Affluenza” (1997) helped define this movement, which now also features magazines and newsletters to assist in the formation of local simple living networks.
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Many simplicity advocates promote Buy Nothing Day, which falls on the Friday following Thanksgiving Day in the United States, as an antidote to pre-Christmas shopping frenzy.
