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It’s the Money, Stupid!
Jay Hanson, August 10, 1998

... in the first place, I put forth a general inclination of all mankind a perpetual and restless desire of power after power, that ceaseth only in death. —Thomas Hobbes

Power tends to corrupt, and absolute power corrupts absolutely. —Lord Acton

Money is power because money "empowers" people to buy and do the things they want – including buying and doing other people (Babbitt just opened four million acres in Alaska to oil drilling). Money is the ultimate "political" [1] resource.

The economy "economizes" money – it tends to reinforce social hierarchy: the rich get richer and the poor get poorer. [2] Moreover, the accumulation of wealth invariably corrupts political systems and is inherently "unsustainable". [3] At some point, the wealthy will be able to bribe the last honest politician and then chop down the last tree, catch the last fish, shoot the last tiger, eat the last whale, and so on until our complex society spirals into "chaos and cannibalism". [4]

In his Second Treatise of Government (1690), John Locke blamed money for scarcity. Prior to money, it was solely the usefulness of things that counted, so a man had only what he needed. But money enabled a man "to enlarge his possessions" more than he needed and caused scarcity. Although Locke saw money as the source of the problem, three hundred years ago there was plenty of land left so he recommended "improving" the earth:

"Nor was this appropriation of any parcel of land, by improving it, any prejudice to any other man, since there was still enough, and as good left; and more than the yet unprovided could use."

But now that all the land is gone, Locke would see that we need a new answer to the problem of scarcity – that money itself must be abandoned. In 1970, M. King Hubbert reached the same conclusion.

Hubbert noted the fundamental difference between the properties of money and those of matter and energy upon which the operation of the physical world depends. Money is essentially an abstraction and not constrained by the laws within which material and energy systems must operate. In fact money grows exponentially by the rule of compound interest. Hubbert suggested we do away with money and distribute "energy certificates" instead:

"On this basis our distribution then becomes foolproof and incredibly simple. We keep our records of the physical costs of production in terms of the amount of extraneous energy degraded. We set industrial production arbitrarily at a rate equal to the saturation of the physical capacity of our public to consume. We distribute purchasing power in the form of energy certificates to the public, the amount issued to each being equivalent to his pro rata share of the energy-cost of the consumer goods and services to be produced during the balanced-load period for which the certificates are issued. These certificates bear the identification of the person to whom issued and are non negotiable. They resemble a bank check in that they bear no face denomination, this being entered at the time of spending. They are surrendered upon the purchase of goods or services at any center of distribution and are permanently canceled, becoming entries in a uniform accounting system. Being non negotiable they cannot be lost, stolen, gambled, or given away because they are invalid in the hands of any person other than the one to whom issued. If lost, like a bank checkbook, new ones may be had for the asking. Neither can they be saved because they become void at the termination of the two-year period for which they are issued. They can only be spent." [5]

Hubbert concluded that under his proposed system individuals would not have to work longer than about 4 hours per day, 164 days per year, from the ages of 25 to 45, but would still receive lifelong income. "Insecurity of old age is abolished and both saving and insurance become unnecessary and impossible."

The start of the new millenium is an ideal time to dump economics in the trash and invent something new. Hubbert’s proposal for a new society goes a long ways towards addressing problems that have stumped economists for the last 200 years: "work", "redistribution", "social security", "social justice", and "sustainability".

Hubbert’s ideas should be studied carefully by everyone working for a better future. It’s the only realistic proposal on the table.

Jay – www.dieoff.com


[1] When I use "politics" or "political", I simply mean "one coercing another" in the broadest sense. To "coerce" is to compel one to act in a certain way – either by reward or punishment. When I use the term "economics", I mean "standard" economics.

[2] For example, whether or not a factory owner "economizes" – pays his workers and suppliers no more than the absolute minimum he can get away with – is ultimately a "political" question. With respect to wages, what is "economical" from the owner’s point of view is not "economical" from the worker’s point of view.

[3] "I see the White House is like a subway – you have to put in coins to open the gates." – Johnny Chung (1997)

Money (an abstraction) represents a claim against part of our biosphere (something real). The Federal Reserve increases the money supply – increases demands on our finite biosphere – to keep the economy growing. Obviously, this process is inherently unsustainable.

"The Federal Reserve has three main tools for maintaining control over the total supply of money and credit in the economy. The first is the discount rate, or the interest rate that commercial banks pay to borrow funds from Reserve Banks. By raising or lowering the discount rate, the Fed can promote or discourage borrowing and, thus, alter the amount of revenue available to banks for making loans.

"The second is the reserve requirement. These are percentages of deposits, set by the Federal Reserve, that commercial banks must set aside either as currency in their vaults or as deposits at their regional Reserve Banks. These percentages cannot be used for loans. In 1980 the Federal Reserve gained the authority to set reserve requirements for all deposit-taking institutions.

"The third tool, which is probably the most important, is known as open market operations. It is the buying and selling of government securities. When the Federal Reserve buys government securities from banks, other businesses or individuals, it pays for them with a check (a new source of money that it prints) drawn on itself. When this check is deposited in a bank, it creates new reserves – a portion of which can be lent or invested – further increasing the money supply." [ http://www.usia.gov/usa/econoutl/pt7.htm ]

[4] Easter's End, by Jared Diamond (1995) http://dieoff.com/page145.htm

[5] Hubbert's Prescription for Survival, A Steady State Economy, by Robert L. Hickerson (1995) http://www.ganesa.com/ecotopia/hubbert/hubecon.htm

MONEY-PRICE MALFUNCTION

The relationship between prices and natural resources is nonlinear. In other words, the market does not reflect long-term declines in natural resources such as oil. The market is like the float in a carburetor: as the engine demands more gas, the float falls and allows more gas to flow in from the tank. But the float has no information concerning the amount of gas left in the tank until the fuel line is unable to keep up with demand.

So it is with the market. As the demand for oil increases, the increase in price signals oil companies to pump more oil out of the ground – which lowers prices again. The oil market has no information about the amount of oil left in the ground until production is unable to keep up with demand.

In October 1980, Julian Simon challenged Paul Ehrlich and colleagues to a $1,000 bet that in ten years the price of any raw material they selected would fall (measured in constant 1980 dollars).

In October 1991, Ehrlich paid up. The prices of the five minerals chosen (copper, chrome, nickel, tin and tungsten) had dropped substantially. Obviously, prices did not reflect the fact that ten years’ worth of minerals had been taken out of the ground.

Simon demonstrated that prices DO NOT reflect the decline of natural resources.