Sacred Economics: Money, Gift, and Society in the Age of Transition (31 page)

While it is true that this monetization of debt could vastly increase the monetary base, because the money would be subject to demurrage, it would naturally shrink back again over time. The monetary authority could also shrink it more quickly by selling the restructured debt on the open market.

Without negative interest or debt forgiveness described herein, Fed bailouts amount to “free money” (and not free-money) for the people who already have the most of it. If the big banks and financiers are permitted to keep their lucre, at least in exchange they should accept a system tilted against further accumulation. Yes, the financial interests stand to lose, albeit gradually, from this proposal, but what is the alternative? The increasing polarization of wealth is not sustainable.

The opportunity we had in 2008 will repeat itself, because the debt crisis won’t go away (without miraculously high economic growth). Each time, the solution has been yet more debt, which is shifted from individuals and corporations to nations, and back again, always growing. For example, when Ireland’s banks were on the verge of failure in 2010, the government bailed them out, transferring the problem onto its own balance sheet and engendering a sovereign debt crisis. To avert catastrophe, the IMF and ECB gave Ireland new loans at 6 percent interest to pay the old. Unless the Irish economy grows by more than 6 percent a year (impossible given the harsh austerity measures upon which the loans were conditioned), the problem will reappear in a few years and be even worse. We are merely kicking the problem into the future.

The bondholders don’t want to take a loss. They want more
and more for themselves.
³³
In the long run, it is mathematically impossible to redeem that wish. It can be sustained only as long as the rest of society is willing to accept worsening conditions: more austerity, more poverty, and more income devoted to servicing debt.

At some point, we as a society will say, “Enough!” A bailout will still be necessary, for the consequences of a sudden system-wide default would be catastrophic. But when it happens—and it could happen simultaneously in many debt categories—let us face the truth. The concentration of wealth, and the usury behind it, must end. We may have no choice but to rescue the wealthy, for each part of the global economy is connected to all the others, but let that rescue come at a price: the gradual freeing of society from debt.

Amid all the technical details of money and finance, let us not lose sight of the heart of this endeavor: to restore money to its true purpose as a connector of gifts and needs and as a magical talisman that coordinates human creativity toward a common end. It feels strange to say that money is a key part of the more beautiful world my heart tells me is possible, because money has long been repellant to me as an obvious cause of so much ruin and evil.

However, our repugnance toward money is based on what money has been, not on what it could be. Negative-interest money, backed by things that are sacred, in an ecological economy, turns the intuitions of the Age of Usury on their head. It is utterly
revolutionary, fundamentally altering the human experience. This transformation reverberates across all levels, from outer to inner, from the economic to the spiritual.

In
Chapter 9
, “The Story of Value,” I explained how the current social agreement on money creation is, “Thou shalt issue money only to those who will earn even more of it,” which ultimately comes down to participating in the expansion of the realm of goods and services. Society’s energy is directed toward that which will expand the realm of money and property, the human realm, the owned realm. It is part of the Ascent of Humanity to dominion over nature.

Lowering interest rates below the zero lower bound makes investments possible that have a zero or negative return on capital. Does this idea sound counterintuitive to you? Does it seem to contradict the whole concept of an “investment”? It
is
counterintuitive, but only because our intuitions have been so conditioned by a centuries-long culture of growth that we can barely conceive the possibility of another function of money, or of a business model not dependent on profit. (Of course we have nonprofit organizations, but these are fundamentally distinct from for-profit businesses. This is a distinction that will fade.)

Here is an example to bring home how weirdly counterintuitive this is. Imagine you go to a bank and say, “I’d like to borrow money for my business. Here is my business plan. See, if you lend me $1,000,000, I will earn $900,000 in four years’ time. So I’d like you to lend me $1,000,000 at negative interest, and I’ll pay you back $900,000 in installments over four years.”

“We love your business plan,” says the bank. “Here is your money.” Why do they agree? Because that $1,000,000 dollars, if left as cash, would depreciate at an even higher rate, say 7 percent,
so that after four years only about $740,000 would be left. It is to the bank’s benefit to make the loan described above.

Another way to understand the dynamics of decaying currency is that, like inflation, it reverses the discounting of future cash flows. In
The Ascent of Humanity
I offer the following example:

Imagine you are the President of the World and receive the following offer from aliens: “Supreme Leader, a sustainable gross world product (GWP) is $10 trillion a year. We would like to make you an offer: $600 trillion for the entire earth. True, we plan to extract all of its resources, destroy the topsoil, poison the oceans, turn the forests into deserts, and use it as a radioactive waste dump. But think of it—$600 trillion! You’ll all be rich!” Of course you would say no, but collectively today we are essentially saying yes
to this offer. We are carrying out the aliens’ plan to a tee, making over the next ten years perhaps $600 trillion (current GWP is $60 trillion a year). Through a million little choices every day, we are cashing in the earth.

And this is all quite economic. At prevailing rates, $600 trillion generates annual income of at least $20 trillion. In
Ascent
I quoted several prominent economists who argue that since agriculture amounts to only 3 percent of GDP, global warming or a 50-percent drop in agricultural output wouldn’t matter much. At most, GDP (the total “goodness” level, remember) would drop by only 1.5 percent. It seems absurd, but within the logical construct of usury it is quite rational. In a 1997 article in
Nature
ecological economist Robert Costanza valued the global ecosystem at $33 trillion, only 20 percent higher than GWP that year. He meant well, hoping to provide an economic reason (and not just a moral reason) to preserve the planet, but according to the same logic, the logic of “value,” it would be in our interest
not
to preserve it if we received a better offer.

Furthermore, don’t you find it dispiriting to resort to the argument that we should preserve the ecosystem because of all the money we’ll save? This argument buys into the basic assumption that causes so much trouble to begin with: that money is an appropriate standard of value; that all things can and should be measured and quantified; that we can best make choices by adding up numbers.

“Sustainability” has been a buzzword for so long now that it has almost become a cliché. Yet despite the fact that everyone approves of it, sustainability has been fighting a losing battle against profit. Forests are dying, lakes are drying up, deserts are spreading, and rain forests continue to fall to clear-cutting—the pace has hardly slowed despite four decades of environmentalists’ best efforts. At
every turn they must fight the money power, which helplessly seeks short-term profit even at the expense of its own long-term survival. As Lenin wrote in a somewhat different context, “The capitalists will sell us the rope with which we will hang them.” The myopia of capital stems, at a deep level, from interest, which necessitates the discounting of future cash flows.

With interest rates below zero, the opposite thinking prevails. Imagine again that you are President of the World. Now the aliens’ offer isn’t looking so attractive. At negative interest, in fact, no amount of money would be enough to cash in the earth, because money in the future is actually more valuable than the same quantity of money in the present, and its future value increases exponentially with time. You would say to the aliens, “We’re not selling the earth at any price.”

Isn’t that what we should be saying today, when the economy insists on putting a price on the ecological basis of civilization and life itself? Isn’t that what we should be saying today as well to any exchange of the infinitely precious for a finite sum of money? It is time, I think, to stop “cashing in” beauty, life, health, and our children’s future.

I realize my example of cashing in the earth is far-fetched and that one could construct an economic argument challenging it. My point is that negative interest fundamentally alters what kind of behavior is “economic.” Activities that bring benefits thirty, fifty, or a hundred years hence—indeed, that bring benefits to the seventh generation—acquire an economic motivation as opposed to today, when only an idealistic person would do such a thing. With negative interest and depreciating currency, no longer will our ideals do battle against our economic self-interest.

Consider a practical example. Suppose you are considering
whether to install solar panels to power your business. The initial cost is, say, $100,000, and it will bring you savings of $1,000 a year. Currently, it would be uneconomic to install them, as the net present value of $1,000 a year is much less than $100,000 (even at very low interest). But if interest is zero or negative, the decision becomes economic. Today people are already making such decisions even though they are uneconomic, because the truth in our hearts contradicts economic logic. In our hearts we know that the ideology that equates money with the good is wrong. We need to bring money and goodness back into their promised alignment.

One more example: suppose you own a forest. Either you can obliterate it by selling it for clear-cutting and quarrying, for an immediate profit of $1 million, or you can log it sustainably for $10,000 a year in perpetuity. Well, interest on $1 million is at least double that sustainable logging income—you might as well cash it in. But if interest rates are negative, that logic no longer holds.

The internalization of external costs works synergistically with decaying currency to make money a force for good. The former aligns private interest with public interest; the latter promotes long-term thinking over short-term thinking. Although both are improvements on the current system, neither by itself will guarantee a sustainable world. Together, they align economic decisions with the long-term interests of society and the planet.

Of course, there are times when long-term thinking isn’t appropriate. We have many needs that we prefer to fulfill now rather than in the future. If we are starving, we would rather have one meal today than a hundred a year from now. The Austrian School of economics especially, but more generally neoclassical economics as well, extrapolates from such examples to claim that it is human nature to want to consume as much as possible right now. In their
view, interest is a kind of compensation for deferring consumption, a reward for delayed gratification. In other words, you, dear reader, would love to maximize your utility by spending all your money right now, but are induced not to because you know that you’ll be able to have even more later, thanks to interest. This is known in economics as the
time preference postulate
. Time preference—our supposed preference for immediate consumption—is crucial to the discounted utility model developed by Paul Samuelson in the 1930s that lies at the foundation of most mainstream economic theory today. It is also crucial to many modern “refutations” of Keynes. Moreover, in the lone mathematical economics paper I discovered addressing demurrage-based currencies, the time preference postulate was the key variable in constructing a (specious) demonstration that such currency harms the public welfare.
³⁴

The Keynesian logic I have deployed minimizes time preference. Keynes did not dismiss it altogether but said that human beings naturally tend to spend a smaller proportion of their income as their income rises. It seems quite obvious that if you are starving, you will spend all your income immediately on food; if you have enough money to meet all your urgent needs, you may spend some of the surplus on books, perhaps, or entertainment; when those desires have been fulfilled, maybe you’ll buy a Rolls-Royce. But the greater your income, the less urgency there is to spend it. Keynes believed therefore that people have a propensity to save without needing an incentive (interest) to defer consumption. Indeed, he thought that this propensity to save can be destructive when it leads to concentration of wealth. That is why he was sympathetic to low or even negative interest rates.

In reading some of the literature from the late 1930s and 1940s, I was struck by the intensity and thinly disguised emotionality of the criticism directed at Keynes by establishment economists.
³⁵
This sort of contumely is typical of any debate when the orthodox establishment intuits that a new theory challenges the core defining precepts of its field. Keynes’s theory presents at least two very deep challenges. First, his idea of a natural tendency to save essentially claims that money itself is subject to diminishing marginal utility—the more I have of it, the less useful each additional dollar is to me.
³⁶
This seems obvious to me, but it is apparently not so obvious to classical economists, who make a linear equation between money and the utility of the individual and society. In fact, they define it that way and state the base assumption that human beings seek to maximize self-interest by maximizing money.