The following is the twelfth installment from Sacred Economics: Money, Gift, and Society in the Age of Transition, available from EVOLVER EDITIONS/North Atlantic Books. You can read the Introduction here, and visit the Sacred Economics homepage here.
All money is a matter of belief.
We live on a naturally abundant planet, the source of life-sustaining gifts for us all. As observed in Chapter 4, the planet’s riches–soil, water, air, minerals, the genome–were created by no man and should therefore be the property of none, but held in common stewardship for all beings. The same holds for the accumulation of human technology and culture, which is the bequest of our collective forebears, a source of wealth that no living person deserves less than any other.
But what to do with this realization? These truths are closely aligned with the Marxist and anarchist critique of property, but the Marxist solution–collective ownership of the means of production, administered by the state–does not reach deeply enough; nor does it address the real problem.1 The real problem is that in both the communist and corporate-capitalist systems, a power elite makes and benefits from the decision of how to deploy society’s wealth. The convention of property–common or private–is used in both cases to justify and facilitate the allocation of wealth and power.
The metamorphosis of human economy that is underway in our time will go more deeply than the Marxist revolution because the Story of the People that it weaves won’t be just a new fiction of ownership, but a recognition of its fictive, conventional nature. What is property but a social agreement that a certain person has certain rights to use something in certain prescribed ways? Property is not an objective feature of reality, and to reify it and make it into something elemental, as both capitalistic and communistic theory do, is to unconsciously enslave ourselves to the story that contains it. I do not think that a sacred economics can start with ownership as an elemental property because that conception buys into a worldview, a story of self and world, that is not true, or that is true no longer–the discrete and separate self in an objective universe. So instead of saying, as a Marxist might, that the bequest of nature and culture should be collectively owned, let us cease applying the concept of property to these things altogether and think instead of how to justly, creatively, and beautifully embody their value in an economic system.
Today, access to money, via credit, goes to those who are likely to expand the realm of goods and services. In a sacred economy, it will go to those who contribute to a more beautiful world. While we may not all agree on what that world looks like, many important common values are emerging in our time. I have been gratified to discover, in my interaction with people from all parts of the political spectrum, a near-universal reverence for community, for nature, and for the beautiful products of human culture. Around these common values, which political language tends to obfuscate by superimposing divisions atop our common humanity, the currency of sacred economy will emerge.
In this chapter I will refer to “government” in the context of currency issue, but keep in mind that like all of our institutions, government is going to change dramatically in coming years. Ultimately, I envision decentralized, self-organizing, emergent, peer-to-peer, ecologically integrated expressions of political will. Parallel to this, I envision an ecology of money as well, an economic system with many complementary modes of circulation and exchange. Among them will be new extensions of the gift, freeing work from compulsion and guaranteeing the necessities of life to all.
Whatever form it takes, an essential purpose of government–maybe the essential purpose of government–is to serve as the trustee of the commons. The commons includes the surface of the earth, the minerals under the earth, the water on and under the ground, the richness of the soil, the electromagnetic spectrum, the planetary genome, the biota of local and global ecosystems, the atmosphere, the centuries-long accumulation of human knowledge and technology, and the artistic, musical, and literary treasures of our ancestors. As social reformers have observed for over two thousand years, no single person can make rightful claim to any of these things.
In the past, I might have said that the purpose of government is to administer these treasures for the benefit of all people. That’s a good start, but today, as we step into the relationship of Lover Earth, I say instead that government embodies our collective stewardship of these treasures on behalf of earth itself, which includes humanity as its newest organ. We can no longer look upon humanity as just another life-form on the planet because we have the power to alter or even destroy the planet as no other species ever has before.
What could be a better basis for a money system–the story of value–than these things that are so precious, so sacred, so valuable? Accordingly, part of a sacred money supply will be “backed” by those things of which we are collective stewards. Here is one way it could work: first, we reach a collective, politically mediated agreement on the right amount of nature to turn toward human purposes: how much of the produce of the sea, how much of the soil, the water; how much of the capacity of the atmosphere to absorb and transform waste; how much of the land’s ability to recover from the scars of mineral extraction; how much of the gift of fossil fuels, metal ores, and other wealth; how much of nature’s quiet to give over to machine noises; how much of the dark night sky to give to city lights. These decisions often require scientific understanding, but just as often they embody value judgments. Both contribute to our collective agreement on how much natural capital to consume.
Such a decision is something new on the face of the earth. To be sure, governments today use regulations and taxes to halt or slow the consumption of certain parts of the commons, but never yet have we gotten together to ask, “How much is enough?” Ancient villages protected their commons through tradition, custom, and social pressure (the “tragedy of the commons” is largely a myth2), but on the scale of society today, we need to engage a political process to reach and implement a consensus. This process would consider the scientific consensus about what use of the commons is sustainable, as well as the social consensus about the relative importance of, say, the labor-saving convenience of internal combustion engines versus the pleasures of a quiet autumn day.
Once we have decided how much of each commons should be made available for use, we can issue money “backed” by it. For example, we might decide that the atmosphere can sustain total sulfur dioxide emissions of two million tons a year. We can then use the emissions rights as a currency backing. The same goes for the rest of the commons. The result would be a long list comprising all the elements of the commons we agree to use for economic purposes. Conceptually, it might look something like this:
Our money derives its value from the right to harvest 300,000 tons of cod from the Newfoundland cod fishery, the right to draw 30 million gallons of water monthly from the Ogallala Aquifer, the right to emit 10 billion tons of CO2, the right to pump 2 billion barrels of oil from the ground, the use of the X-microhertz band of the electromagnetic spectrum …
How to implement this in practice? One way would be for the government to simply create money and spend it into the economy in the way governments spend tax revenues today. The money would circulate through the economy and eventually back to the government when producers redeem it for the backing items. This could happen through auction, or relative prices for the backing items could be set in advance and then adjusted each year according to actual prices on the secondary market. Either way, the redemption of money for backing items would function just like a tax on resources and pollution.
Let’s look at a concrete example of how it might work. A local government issues salaries to police, firefighters, and the local ecological cleanup crew. One of them spends her salary on food, electricity, and a new transmission for her car. The food comes from a local farm, which spends part of the money for the right to pump 300,000 gallons of water a year from the local aquifer. This payment goes to the local government, which is the steward of that part of the commons.
Meanwhile, part of the money for the transmission goes to a factory somewhere, which pays part of that for pollution credits needed to operate. That cost is embodied in the price of the transmission, which also reflects the pollution credits for the gasoline used to transport it, the mineral rights for the iron ore used to make the steel, and so forth. These payments go to various stewards of the commons, some local, some regional, some national or global. Any factory that figures out a way to use less of the commons–for example, to make less pollution, or to use recycled metal from old junkyards–will be able to reduce its costs and earn a higher profit. The profit motive thereby becomes the ally, not the enemy, of our desire to heal the earth.
Remember the principle that whatever commodity we use as money becomes valuable, so that we seek more of it. When gold is money, we mine more gold, beyond any practical need for it. In societies where cattle are money, people keep herds beyond what they need. If we use oil or energy as a currency backing, as some propose, then we will try to produce and hoard more oil. But what if we use oil still in the ground, gold still under the mountain, and forests still in their pristine state as currency backing? Won’t we then elevate their value, too, and seek to create more and more of them? The mechanism is not at all mysterious. If you have to pay the full environmental costs of oil extraction, you will diligently find ways to keep it in the ground. If you have to pay for each unit of pollution, you will strive to pollute less.
An alternative means to the same end would be for the government to create credit-money by borrowing from the central bank at zero interest and repaying the loans with money from the sale of the items of the commons it holds in trust. The government could also issue bonds to investors and the central bank exercise monetary policy as it does today by purchasing or selling varying amounts of these bonds on the open market. It is crucial that these bonds bear zero (or negative) interest, a possibility I will explain in the next two chapters. Otherwise, a need for perpetual growth in the use of the commons would be created.
Either way, producers would have a financial incentive to minimize their use of the commons. No such incentive exists today, or if it does, it exists only haphazardly. This system would fully internalize social and ecological costs. Today, when a mining company drains an aquifer or a trawling fleet depletes a fishery, the costs to society and the planet are external to the producer’s own balance sheet. With this system, that is no longer true. Since these costs would be passed onto downstream industries and eventually to consumers, consumers would no longer face today’s dilemma that the cheapest products are those that cause the most social and environmental damage, while the fair-trade and eco-friendly products are way more expensive. Instead, products that avoided pollution in their manufacture would be cheaper because pollution quotas would cost a lot of money. Products would be more expensive in proportion to the amount of the natural commons consumed in their production.
Some might object that this system would necessitate a lot of bureaucracy and paperwork, since it requires keeping track of every pollutant and social cost generated in the process of production. My answer to that is twofold. First, this system embodies the new attitude of environmental responsibility that wants to know and take responsibility for the effects of our actions on other beings. Look what happens to the earth, when we are oblivious to the risk of oil spills and nuclear disasters. Increasingly, we want to know what we are doing, we want to know all the effects of our actions, and we want to take responsibility for them. This attitude is quite natural for the connected self that knows, “As I do unto the other, so I do unto myself.”
Secondly, what I have described is actually much less complicated than today's byzantine and uneconomic system of regulation, which puts environmental responsibility and financial profit in opposition. From the user’s perspective, it is nothing more than a shift of taxation away from sales and income and toward raw materials and pollution. Private producers would have to pay for things that are now “free”–free to them at least. You might see this as a form of indirect taxation, but another way to look at it is that producers are simply paying for the things they take from the commons, the things they take from us all. It is only fair. We might say that such taxation is simply the enactment of the principle that “those who benefit from the larger community of life must also contribute to the larger community of life.” Those who take from the commonwealth must contribute to the common good in equal measure.
The kind of taxes, the means of levying contributions to the common good, that we have today are nearly the opposite of what we want to create in our world. We can take from the commons–that which no one should own–without paying for it, yet the one thing we can be said to own–our own productive labor–is subject to taxation in the form of income tax. Meanwhile, we are forced to pay a tax on the circulation of goods–a sales tax–while there is no tax on the accumulation of wealth not used for exchange. We have it backward. The money system I am describing in this chapter reverses income tax, shifting taxes away from what you earn and onto what you take. The next chapter describes a similar reversal of sales tax, shifting costs away from spending and onto hoarding.
Despite my upbringing in a politically liberal household that justifies income taxes on the grounds that they put more of the tax burden on those most able to pay, I always felt a kind of primal indignation about income tax. It seems unfair. Why should the most productive or hardworking people pay more? It makes much more sense to make people pay for what they are actually taking.
For the reader unfamiliar with unorthodox economic thought, I want to emphasize that this proposal fits into a respectable historical context. It is a synthesis of several elements. The idea of shifting taxes onto polluters and resource consumption was developed by A. C. Pigou in the early twentieth century and carried forward by such people as Herman Daly, Paul Hawken, and numerous environmentalists. The idea of eliminating profit from the ownership of the commons goes back to the tradition of Henry George that I discussed in Chapter 4.3 Numerous recent thinkers have suggested backing currency with such things as energy and other resources (though as far as I know they haven’t considered backing it with energy and resources still in the ground). What I am describing in this chapter is the natural extension of the ideas of Henry George and Silvio Gesell into the ecological age, firmly grounded in two or three converging traditions of thought.
The most important item of the commonwealth is undoubtedly the land itself, the subject of the original criticisms of the institution of property. The proposals of George and Gesell that arise from this criticism fit seamlessly into the monetary system I have described. For what is George’s “single tax” but a fee paid for the right to use the commons (of land)? This tax, which applies to the underlying value of land independent of any improvements upon it,4 could also take the form of a lease or a right-to-use payment. Obviously, since improvements to land are immobile and often require years or decades to build, lessees would have to enjoy the first right to renew. Many gradual and gentle ways have been proposed to realize the reclamation of the land commons for the public; there is no need to confiscate existing real estate holdings, but only to enact the principle that the earth belongs to everyone.5 That means that no one should be allowed to benefit financially from owning the land.
The same goes for the electromagnetic spectrum, the minerals under the earth, the genome, and the accumulated fund of human knowledge. These should be available for rent, not ownership, and the rents should go to the public. Presumably, those who can put these assets to best use would be the most eager to rent them. There would still be room for entrepreneurship–even more so than today since access to resources would be based not on prior ownership but on most effective use. There would be no more profiting from “I own and you don’t.”
The foregoing account of currency issue may have left the impression that it is the federal government that will create most of the money. This is not what I envision. Many of the commons on which money will be based are best administered bioregionally. Many pollutants, for instance, wreak their most devastating effects on local ecosystems, and only indirectly on the planet as a whole. It does little good to restrict global emissions of ozone when the damage to people and trees comes from regional concentrations of it. Thus it might be the state of California, or perhaps smaller political divisions of it, that issue currency backed by ozone emissions allowances. In some cases, where there is an overlap of local and global effects, polluters might have to pay for two different allowances for the same pollutant.
The most important commons, the land, is also inherently a local commons–in fact, land provides the very definition of “local.” Overall, basing money on the commons entails a general devolution of financial and ultimately political authority to the local level. Of course, there are some kinds of commonwealth, and some human endeavors, that involve the entire planet; inescapably, then, there must be political power on a global level with the ability to coordinate human activity, probably using money. But global or national governments should not administer any form of the commons that is inherently regional or local. Since so much of the commons–land, watersheds, minerals, some fisheries, and the capacity of the ecosystem to handle many types of pollution–is local, the money system I describe corresponds to a shift in political power away from centralized governments. Local governments will have the power to issue money backed by real wealth.
So far I have described how national and local governments could issue money based on the natural wealth they administer in trust for communities, humanity, and the earth. Yet not every source of wealth is something from the collective commons. Critics of property going back to the early Christian fathers recognized that a person at least owns his or her own time, labor, and life. After all, we are born with nothing else, and shall return to the grave with not even that. If anything, our lives are our own. Shouldn’t individuals, then, be able to issue money or obtain credit “backed” by the their own productive resources?
Well, we already do this today, when private enterprises and individuals create money through bank credit. Whether or not we can say we “own” our lives, surely we are the stewards of our time, our energy, and the creative power that dwells within us. If a government can issue currency based on the productive wealth it holds in trust, why can’t a private entity do the same?
I ask this question because some monetary reformers think this is a bad idea and have built entire economic philosophies around gold or fiat money systems in which fractional-reserve banking and private creation of credit-money would be prohibited. I will address this issue in some depth because it represents an important line of thinking in the New Economics. Recent proposals by monetary historian Stephen Zarlenga have even found sympathy in the fringes of American politics, notably with Congressman Ron Paul. The abolition of fractional-reserve banking also is part of the philosophies of certain followers of the social credit movement, the Austrian School of economics, and many others. Their logic seemed compelling to me at first, and they provide a very thorough account of the disastrous effects of debt growth in the mid- and late-twentieth century, when money became decoupled from gold. A 100-percent reserve system, it is claimed, would prevent debt from outstripping money–but how, then, to prevent concentration of wealth in the presence of interest?
Except for the Austrian School, most proponents of 100-percent reserves also support some kind of economic redistribution or monetary expansion, such as direct spending of government fiat money into the economy so that debtors can obtain enough money to repay principle and interest on loans. Frederick Soddy, among the first modern economists to recognize the impossibility of unlimited exponential growth and to distinguish between money and wealth, proposed a 100-percent reserve requirement for banks, excluding them from the business of money creation, but also provided that the government would spend money into existence at levels sufficient to prevent deflation. Irving Fisher, a founder of mathematical economics and arguably America’s greatest economist, put forth a very similar proposal that he called “100-percent money.” Major Douglas went even farther by advocating a social dividend to be paid to all citizens.
I spent quite a while trying to resolve the question of whether fractional-reserve banking or full-reserve banking is consistent with sacred economics. After wrestling with the formidable complexities of the issue and reading papers going back to the 1930s, one day I gave up and lay down on the couch where, predictably and somewhat to my chagrin, it dawned on me that the two systems are not as fundamentally different as most people think. The confusion, which is rife on the internet, comes on one level from a simplistic and incorrect view of how fractional-reserve banking actually works, and on a deeper level from an artificial and irrelevant distinction between what is conventional and what is real. I present an alternative view in the appendix.
Here, suffice it to say that the proposals of this book can fit into either system. Overall I am more sympathetic to a system that includes private credit, first because it allows organic, endogenous money creation independent of a central authority; second because it more easily incorporates exciting new modes of economic cooperation such as commercial barter rings and mutual-credit systems; third because it allows for much more flexibility in financial intermediation and capital formation; and fourth because it simplifies interbank credit clearing. Moreover, as some of Irving Fisher’s associates began realizing in the mid-1930s, it is nearly impossible to prevent fractional-reserve deposits from appearing in covert forms.6 I draw this point out in the appendix, but consider: even if you issue an IOU to a friend, and your friend gives it to another friend in lieu of cash, you are increasing the money supply.
Whatever the advantages and shortcomings of private money creation via credit, and whether the government issues fiat money or creates credit money in partnership with a central bank, a vastly greater proportion of money will originate outside the private banking system than it does today. The reason is quite simple: much of the natural commonwealth that is used as the basis for private credit creation today would become public. No longer, for example, would a company be able to take out a business loan based on projected future revenues from depleting an aquifer. The future costs of that depletion will have been internalized and returned to the public via use-rights payments. There might still be opportunity to profit, however–for example, if someone finds a more efficient or productive use of the same amount of water. Such things are a legitimate basis for private credit creation; what is illegitimate is to create money by taking something that should belong to all.
Because of today’s concentrated private ownership of the commonwealth, the profits that come through mere ownership are also highly concentrated. When producers (and ultimately consumers) pay the full cost of embedded energy and raw materials and the fair rental price for the land and other commons, then much of the wealth that concentrates in few hands today will accrue instead to the stewards of the commons. The situation will be analogous to what happens when a nation such as Venezuela or Bolivia nationalizes its oil fields. Foreign producers can still operate the fields, but they profit only from the service of extracting the oil and not from ownership of the oil itself. That part of the profit goes to the nation. What happens to that money depends on politics–it could go to a coterie of corrupt officials, or it could go to public works projects, or it could be paid directly to the people as a kind of royalty (as in Alaska, where each resident gets an annual payment of several thousand dollars). Extended beyond oil to the entire commons, this makes enormous amounts of money available to various levels of government, especially at the local and bioregional level, replacing current forms of taxation.
Another consequence of commons-based currency is that we would pay a lot more for many things that are cheap today because their prices would embody costs that we now pass on to other people or future generations. Goods would become more expensive in comparison to services, providing an economic incentive for repairing, reusing, and recycling. Gone would be the skewed economics that makes it cheaper to buy a new television set than repair an old one. Gone would be the present financial incentive for planned obsolescence. A new business model (emerging already in some industries) would blossom: extremely durable, easily repairable machines that are leased rather than sold to consumers.
It was only two generations ago that appliances as humble as a toaster would be taken to repair shops. Even shoes and clothes were mended. Not only are such services inherently local, thus helping to invigorate local economies, but they also contribute to an attitude of caring toward our material things, and by extension toward materiality in general. A life full of throwaway stuff is not a rich life. How can we have a sacred economy if we don’t treat its subjects–the things that people create and exchange–with reverence? I find it very satisfying that a money system based on a protective reverence for nature induces, on the individual level, the same reverent attitude toward the things we make from natural raw materials.
On the collective level, this reverence will take the form of a much different emphasis on government spending. The huge resources made available through reclaiming the commons for the public good can go toward healing the damage of past centuries of despoliation of that commons. Ecological disasters will relentlessly direct our attention to the urgent need to heal the forests, wetlands, oceans, atmosphere, and every other ecosystem from the devastation wrought in the industrial era. The urgency of this need will shift our energy away from consumption and war.
War is an unavoidable accompaniment to an economic system that demands growth. Whether through the colonization of lands or the subjugation of peoples, we have a constant need to access new sources of social and natural capital to feed the money machine. Wars also increase consumption, alleviating the crisis of overcapacity described earlier. Competition for resources and markets was thus a primary driver of the wars of the twentieth century, both among the great powers, and against anyone who resisted colonization and imperialism. Limiting resource consumption is one of the pillars of a steady-state or degrowth economy, which short-circuits this primary driving force for war and frees up vast resources to turn toward the goal of healing the planet.
The money system I have described goes a long way in reversing the age-old injustice of property, as well as the predation of the few against the many and against the future inherent in the exploitation of the commons. There is a big piece missing, though: as established in Chapter 5, the same injustice that inheres in property inheres in money as well. I have described a new story of value and how to embody it in money but so far left untouched its compulsion, which is independent of the story of value, to drive either growth or concentration of wealth (or both). Is it possible to treat money as a commons in the same way as the land or the atmosphere? Is it possible to reverse the mechanism of interest, which, like the expropriation of the commons, allows those who own it to profit by its mere ownership? It is to this crucial matter we turn next.
1. I should acknowledge here that pure Marxist theory does not see state ownership as the final stage of communism, but says that the state will eventually wither away, and, presumably, the concept of property along with it.
2. The tragedy of the commons is a pseudo-historical story meant to illustrate the free-rider problem. In it, the meadow in a village commons was stripped bare of vegetation, because it was to each villager’s advantage to graze as many sheep there as possible. When everyone pursued their own advantage, the result was overgrazing and losses for all.
3. The unfairness and economic inefficiency of economic rents were recognized by classical economists as well and come under criticism in the writings of Adam Smith, David Ricardo, and John Stuart Mill. See Hudson, “Deficit Commission Follies.”
4. This distinction is actually somewhat problematic. The value of the land and the value of “improvements” on the land cannot always be separated. For one, human activity can alter the land permanently and change its “underlying value.” Secondly, improvements can attract other people to the area, raising land prices generally regardless of improvements. Thus, paradoxically, improving land can raise the value of the underlying unimproved land, creating a disincentive to make improvements. I think these difficulties, which apply to some degree to other kinds of natural capital, are resolvable, but a detailed discussion is beyond the scope of this book.
5. For example, land could gradually be bought out from private ownership by instituting a 3-percent land-value tax initially paid for by existing equity so that owners would only have to start paying the tax thirty-three years later.
6. Economist Henry Simons wrote to Fisher in 1934, “Savings-deposits, treasury certificates, and even commercial paper are almost as close to demand deposits as are demand deposits to legal-tender currency. The whole problem which we now associate with commercial banking might easily reappear in other forms of financial arrangements.… Little would be gained by putting demand deposit banking on a 100% basis if that change were accompanied by increasing disposition to hold, and increasing facilities for holding, liquid ‘cash’ reserves in the form of time-deposits. The fact that such deposits cannot serve as circulating medium is not decisively important; for they are an effective substitute medium for purposes of cash balances. The expansion of time deposits, releasing circulating medium from ‘hoards,’ might be just as inflationary as expansion of demand deposits–and their contraction just as deflationary.” Cited in Allen, “Irving Fisher,” 708-9.
Image by faceless b, courtesy of Creative Commons License.