Why do we always need more? Why is economic growth the single-minded goal of economists and government policy? Is there some perverse motive deep within our nature that drives the rat-wheel of human society? Or is there some more mundane mechanism driving our pursuit of more?
Last week Rob Kall published an OpEd News article, "
More versus Enough-- time to re-set our values". Rob argued that our mindless pursuit of "more" has become like a mental illness, an inability to impose rational healthy constraints on a self-destructive mindset of infinite materialism at the expense of all other human values. Some commenters noted the similarity of this unlimited growth mentality with cancer that grows until it kills its host, and itself.
Many years ago I talked to the "amazing fat man" at a circus. He said he should actually be called "giant" man because he had a condition known as gigantism where his body doesn't stop growing. At about 1000 pounds, all he could do was sit there and display himself as a freak. He saw his condition as a disease that grossly restricted his life options, not as a benefit that made him "bigger and better". Unlimited material growth is a disease to be avoided or cured, not a value to be desired and pursued.
Industrialization has enabled humanity to become economic giants, consuming vast resources and leaving vast waste in our wake. We are killing our host planet, and we seem incapable of changing the values system that drives us to mindlessly pursue more as individuals and as a civilization. In a comment to Rob's article I pointed out that there is a perverse monetary phenomenon that makes endless growth an arithmetic necessity of our bank-issued money system, and our capitalist production and distribution system.
***{At least one commenter didn't believe that commercial banks issue our money supply, so I will try to clearly explain the basic facts of our money and banking system in a separate article, "Why most people can't believe the truth about money"}
Our Bank-Issued Money System
Banks create virtually all of the money supply by making loans of newly created bank deposits, at interest. Money is created and loaned by banks, then the new money is spent/invested into the economy by borrowers. Money that one person spends is money that is simultaneously earned by people who sell stuff (labor, services, land, resources, goods, etc.) to the spender/investor. Money that is earned can be saved, invested, or spent, by the earner. But that money is still owed as a bank loan repayment by the original borrower/spender of the new money.
One person cannot have earnings and savings unless some other person has unpaid debt owed to a bank. Banks do not lend out their depositors' savings. Every bank loan is the creation of new bank deposits: new money ... and new debt. Money that is saved is removed from circulation in the economy. Unless the saved money is spent by the savers, the people who originally borrowed (from banks) and spent that money into the economy, cannot earn their money back out of the economy and use it to repay their bank loans. Unless earners spend their earnings, debtors cannot earn the money back to repay their debts.
{This is where many people's minds balk at recognizing the perverse truth of our bank-debt money system. People believe that saving their earned money is "good", and they do not understand fallacies of composition so they cannot believe that doing what is good individually can have "bad" effects on the money system or the economy as a whole (this contradiction is one of the core perversities of our money system). So rather than believe the truth that banks create the money they lend, many choose to believe that banks lend out people's savings to recirculate the money in the economy, where debtors can earn that money back to repay their bank loans. But banks do not function as financial intermediaries who take deposits of previously existing money and lend the money out to investors. Banks function as the original issuers of our money. Bank creation of bank deposits to fund loans and to purchase government bonds is where the money supply "comes from" in the first place.}
"Money" is created, loaned, borrowed, spent, and earned, in the amount of loan principal. "Debt" (which is owed to the bank that created and loaned the money, not owed "to each other") is simultaneously created in the amount of principal plus interest.
The banking system, which is the economy's and the government's money-issuing system, creates principal amount of money, at the same time as it creates principal plus interest amount of debt. If money is positive $numbers and debt is negative $numbers, you can see that a system that issues all of the money supply as loans at interest is a negative sum system that systematically creates more negative numbers than positive numbers. Within this system, the only way to get additional money into circulation is by more bank lending at interest, which makes the total negative sum equation even worse, not better. If the government is borrowing and spending money, public debt increases and taxpayers are on the hook. If the private sector is borrowing and spending money, private debt increases and businesses and households are on the hook.
Even if earners spent all their earnings back into the economy and debtors earned all that money and used it to repay their bank debts, the bank-issued money system creates exactly enough money for all borrowers to repay all of their loan principal, with zero money left over to pay the interest. The interest amount remains as an unpayable "debt" that is owed to the banking system, even though no money exists to pay it. Or if some borrowers manage to pay both their principal plus interest, other borrowers will find themselves unable even to earn money to pay their loan principal. So, ultimately, they default en masse, rendering the banking system first illiquid due to a shortage of loan payments coming in, then insolvent when there is no longer enough demand money to liquidate the banks' collateral assets at credit-bubble inflated prices.
Our money-issuing system systematically issues more debt (owed to the banking system) than it issues money to pay the debt. So unless a continuous supply of new money is created, loaned/borrowed, and spent or invested into circulation where previous debtors can earn the new money to pay their old bank loans, the Ponzi arithmetic of the credit/debt money system collapses and we get mass defaults and banking system failure and "financial crisis" like 1929 and 2008.
The present US$ money system has been in operation since 1913. WWI was the system's first large scale government debt runup to finance the war effort, followed by the short sharp financial collapse of 1920-21, then the Roaring Twenties private sector debt and asset inflation bubble, then the 1929 financial collapse and Depression, then the truly massive government credit/debt expansion to finance WWII. Because the money is issued by banks as loans that are "debts" to the borrower/spender, money supply growth requires total debt growth. Debt reduction involves reduction in the money supply, which depresses assets and goods prices, which bankrupts banks and depresses production, buying and selling in the real economy.
If you look at a chart of total US$ debt growth since 1946 you will see a nice long exponential curve that starts its vertical rise during the 2000s real estate credit bubble and ends with the 2007-2008 collapse. We are still in the Depression of that collapse. Last time we were in this boat the brain trust decided a massive increase in government debt to finance a world war would be a good solution to the money problem.
But this time is different because now we all know that governments can issue their own debt-free money to solve the negative sum arithmetic of the bank-issued debt-money system, right? War is inflationary, because governments invest prodigious amounts of newly created money to produce war materials that are shipped abroad and blown to smithereens. That invested money is earned by contributors to war production, but no consumer or investor goods (except war bonds) are produced to absorb the earned money. So besides enabling income-earners to repay their bank debts, the additional income money inflates the price of the available supply of consumer and investor goods (unless there are prices controls). So if there's going to be inflation anyway by creating/investing money to produce things that are not going to be sold, why not invest the money in rebuilding the public infrastructure, rather than invest it in building stuff that is designed to blow up and slaughter humanity? Are our dear and glorious leaders really that evil and/or stupid?
Banks lend credit to governments against the government's future tax receipts. When governments can't pay, the creditors take ownership of the nation's public infrastructure as their "collateral". Economic hitmen deliberately design unpayable national debts for just this purpose. Ownership of the Earth is being "privatized", by bankers and plutocrats.
Banks lend credit to the private sector against collateral assets like commodities, businesses and houses. For banks to create and lend an ever-increasing total amount of credit-money into the system (to prevent the money system's Ponzi arithmetic from collapsing), evermore real assets have to be built to secure the loans. More industrial and civil infrastructure, more houses and commercial real estate, more cars, more home furnishings, more exotic vacations, all paid for with more credit-money that is freshly created by banks and spent into the monetary maw by borrowers/debtors. The perverse logic of MORE is built into the perverse arithmetic of our privately owned money-issuing system, where all the money is issued as debt that must be secured by assets and repaid (to the bank) with interest.
Effects on the Real Economy Production and Distribution System
The same perverse arithmetic applies to the money and price system that produces goods for sale and pays out incomes to contributors as the "cost price" of production*. The national income is paid out (by producers, to contributors) as the total cost price of national production. Producers then markup the cost price to sell their goods at profitable prices. But the national income is equal only to the cost price of all the goods the nation produced, so the nation has insufficient income to buy all the goods it produces at prices that enable producers to earn profits. So more bank lending of more consumer credit-money (and/or more bond-debt financed government deficit spending) is needed just to enable the nation to purchase what it produces, at prices above the cost of production.
*{This is the basic "money and price system" insight that led CH Douglas to devise, in the 1920s, his "social credit" system of government money issuance, with its National Dividends to all citizens, as an arithmetically stable alternative to the periodically collapsing Ponzi arithmetic of privately issued money: Douglas wanted to reform the money system so the for-profit production system could work sustainably}
Or, in the good old days of mercantilism, English producers tried to export their goods so French incomes would purchase England's surplus and provide English sales and profits, at the expense of the French producers who had paid out those French incomes as
their costs of production of France's national output. French incomes purchased English imports, rather than purchasing French goods. Goods moved from English producers to French consumers, and money moved from French consumers to English producers. Or rather, money moved from the pockets of French capitalists (whose investments in domestic production had paid out the French national income) into the pockets of English capitalists.
On our narrow planet, mercantilism robs France to pay England, or robs the US to pay China. We can't all be "net exporters" any more than we can all be "above average," Lake Wobegone notwithstanding. For one nation to be a net exporter, some other nation must be a net importer. "Trade" implies me trading my goods for your goods. If you have no goods to trade for my goods, we don't trade, so there can be no net importers and net exporters, only balanced trade.
But in a money economy that's not how it works. Goods are bought and sold for money, not traded for other goods. Money moves from buyers to sellers; goods move from sellers to buyers. And producers do not create the money by producing food and cars. Banks create the money by making loans. So producers can't produce more "money" by producing more goods. You get more money by "selling" your goods, for money. You can build a billion cars, but unless you sell one of them, you will not earn any money for all your productive efforts.
Mercantilists are capitalists who want to get richer in money. Mercantilists do not share the interests of their workers and the unemployed masses who would like to consumer the goods that the nation produces, rather than export and sell the goods so capitalists can get richer in money.
The zero sum monetary arithmetic of international buying and selling, the beggar thy neighbor money arithmetic of mercantilism, is not difficult to understand, is it? "Our" capitalists want to get the money that was invested by "their" capitalists, so our capitalists can be richer in money. Our consumers are poorer in goods, because our capitalists exported those goods that we produced, in order to get more money for themselves. Adam Smith harshly critiqued this process in his 1776 book, "The Wealth of Nations", Book IV, Chapter XIII: Conclusion of the Mercantilist System. This is not new knowledge.
Profit is necessary to life. Profit is not inherently evil. A caveman who invests 3000 calories hunting must earn a return of 6000 calories in meat, in order to feed his family and feed himself so he can hunt again tomorrow. We all need to "profit" from our work.
Profit is not the problem. Giving private bankers an exclusive monopoly over money-issuance is the problem. Insisting that income that is "earned" by contributing to production (income that is thus part of some producer's cost price of production) is the only "legitimate" way people can get money to buy what the nation produces, is the problem.
Already by 1848 both Marx/Engels (The Communist Manifesto) and John Stuart Mill (Principles of Political Economy) recognized that in a post-agrarian industrial economy where everything is produced by paying out money, and bought and sold for money, some system to supplement "earned income" had to be implemented for getting purchasing power into the hands of consumers, so nations could "afford" to consume what they produced. Industrialism permanently replaces workers with machines*, and only pays out earned incomes to people who contribute to production. Industrial workers can produce far more than they can consume, so how will the surplus be distributed to all the people who want and need to consume, but whose work is not needed to contribute to production?
*{Even David Ricardo, that great capitalist advocate of international trade to exploit comparative advantage, admitted that the Luddites were right: capitalists' adoption of machinery harms the condition of the working class. See Chapter XXXI, On Machinery, in his 1817 book, "Principles of Political Economy and Taxation".}
The for-profit production system systematically adds more prices of goods for sale (cost plus markup) into the economy than it adds incomes (cost price) to purchase those goods. Some argue that investment adds the necessary income money, but capital investment must be recaptured in the prices of future goods for sale, so lengthening the term of the negative sum arithmetic equation does not solve the negative sum arithmetic problem. Producers need to earn profits, but as long as the earned incomes that producers pay out are the only non-debt income money in the system, the negative sum arithmetic of producer profit (and bank issued money-at-interest) cannot be solved.
19th century political economists like JS Mill dreamed of industrial age freedom from the curse of Adam, as machines replaced the need for human labor. Imagining a coming age of leisure, they talked about development of our human attributes, made possible by our freedom from lives of heavy labor. But human freedom and development of our "higher nature" was not to be allowed.
A combination of deification of enormous personal wealth (plutocratic Mammon-worship), and Puritan worship of endless toil to keep idle hands out of the devil's playground, has prevented reasonable public discourse on the topic of structural industrial era unemployment and systematic supplements to the earned income system. These prejudices run very deep in the US. Many Americans are morally outraged at the very idea of people getting something for nothing, even if there is plenty of extra stuff to go around, nobody with money to buy it, and there is literally nothing "productive" for tens of millions of Americans to do. Even though machines have freed most people from lives of physical labor, people's minds have not been freed from the belief that humanity was born to work, not play.
So work we must, even if that means scarifying the planet to keep producing evermore junk that we don't need and wouldn't even want were it not for pervasive psychologically sophisticated advertising and the built-in obsolescence of what used to be called consumer "durables".
"Money" should be the elastic factor in the economic production and distribution equation, because money is simply accounting numbers, and numbers can be pulled out of nowhere and added into equations to make the arithmetic work. We don't have to take $numbers from some people to give them to others (redistributive taxation), if our government exercises its constitutional imperative to provide the nation with an adequate supply of money.
The bankers' private for-profit monopoly of money issuance is the root of the problem. Until the money system is modified to enable governments to issue, not borrow, the money that they deficit spend, the only solution to the profit problem (and the bank loan interest problem: interest is the bank's income and profit) will be MORE asset production to secure MORE loans of bank-issued credit money which is MORE total debt to government and private sector borrowers. "More" (and war) is baked into the arithmetic of our present money system.
If you try to have "less", without first making the needed reforms to the money system, the whole money-based economy collapses and stops producing and delivering food and goods for sale. If no money changes hands, no goods change hands, and unless we are peasant farmers we need money to buy food and our daily necessities of life.
"Less" material production and consumption is good. "None at all" is death.
Government-issued debt-free money, distributed in equal monthly amounts to everyone with a SS number (including Bill Gates, you, and the crack dealer on the corner), is what a real solution would look like. Public banking to finance infrastructure investment is probably the most politically feasible beginning of a solution to the money problem, given that all previous efforts to relax the bankers' monopoly of money-issuance have utterly failed.
Submitters Bio:
I spent my working life as an independent small business owner/operator. My academic background is in philosophy and political economy. I began studying monetary systems and monetary history after the 1982 banking crash that was precipitated by the Mexican default and rendered 7 of America's 8 biggest banks, and 4 of Canada's Big 5, technically insolvent. They were quietly bailed out then as they are being loudly bailed out now. After the 2008 banking crash I started blogging about monetary system reform, in the tradition of Irving Fisher and CH Douglas who were prominent voices for reform during our last systemic collapse in the 1930s. I also write about the wide divergence between perception and reality in matters of public opinion, and the central role of mass media propaganda in moulding perception and manufacturing consent, a role identified by Walter Lippman and perfected by Edward Bernays and Madison Avenue. Financial, industrial, and military-industrial corporatism is increasingly usurping the functions of government in America, Europe and elsewhere, replacing elected republican and democratic forms of government with unaccountable plutocracies mascarading as "free enterprise". Plutocracy is a neofeudal tyranny of lawless power, serving the interests of wealth rather than democratic justice. Responsible government with the power to legislate and enforce laws and control its own monetary system is our only bulwark against concentrated corporate power, which is why plutocrats are intent on destroying the credibility and power of elected governments leaving the new feudal masters free to abuse and plunder the masses of serfs at their leisure. The money issuing function is a most fundamental feature of government sovereignty, and America's government transferred that power to private bankers in 1913, placing the effective government of the nation in the hands of the money power. It may not be possible for the people to take back control of their government from the plutocrats. But it is some consolation to be able to read and write about the truth of what is currently happening to our once free countries.
