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The Ecology of Money

8
Posted December 3, 2012 by Ray Grigg in Uncategorized
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The long history of money and finance offers unique and important insights that are unavailable in any narrow slice of time. Consider, for example, the ideas provided by Professor Michael Hudson in Surviving Progress, a video documentary inspired by Ronald Wright’s impressive book and Massey Lecture series, A Short History of Progress. As an economist and financial specialist with an academic’s scholarly perspective and practical experience as an advisor to international banking, Professor Hudson has some insights worth considering.

One of his key insights can be stated quite simply. “Every society for the last 4,000 years,” he says, “has found that its debt grows more rapidly than people can pay.” This burden of ever-increasing debt is ultimately owed to a financial oligarchy, about 10 percent of a society that inevitably rises in economic stature and power to control most wealth. This suggests two important questions. Why should this process occur so consistently? And what are the consequences?

The first question is probably answered by Darwinian economics. Some people with more financial skills than others — or with more initial assets, opportunity or power — will eventually become more affluent than those with lesser capabilities. By manipulating the economic structure to their advantage and by gaining political influence, they hold increasing amounts of debt and gather increasing amounts of wealth.

The second question — about consequences — is vividly answered by David Korten, an economist, author, and former professor at the Harvard Business School. “It’s a game that ultimately self-destructs,” he says in another video documentary, The Big Fix. “As a few people control more and more of the real resources and the means of production, it creates enormous instability, it creates extreme inequality that destabilizes the whole society and moves in the direction of increasing violence. The endgame is total financial, economic, social, environmental and political collapse.”

Previous civilizations were aware of these effects, according to Professor Hudson. They averted such “collapse” by periodically cancelling all debt, resetting the economic game to zero and beginning afresh. This was a common practice in the old civilizations of Sumer, Babylonia and Egypt, likely because they discovered that debt cancellation was preferable to the chaotic alternative. The term in the old Jewish tradition for ritually forgiving of all debt every 50 years is the origin of the English word “jubilee”.

The first civilization to not periodically forgive debt, according to Professor Hudson, was the Romans. Their egalitarian culture ended with oligarchs in control of vast quantities of land and wealth. The narrow and self-interested ownership of debt by a small number of avaricious individuals mitigated against forgiveness. Wealth concentrated more power with the wealthy, further entrenching the notion that “a debt is a debt” and must be paid. And so it was. But the forcible collection of this debt turned towns, cities and countries into economic “deserts”, according to Professor Hudson. Temples were stripped of gold, business and farming structures were bankrupted, communities could not maintain their infrastructure, civil servants could not be paid, taxes were debilitating, slavery flourished, soils were depleted, resources were pillaged, and wars were initiated to collect debt. The result was an enactment of David Korten’s endgame scenario of total collapse. Western Europe needed nearly 1,000 years for the fertility of the soil to rebuild, for civil order to return, and for the institutions of social stability to re-establish.

Professor Hudson fears that we might be returning to this precarious Roman condition today — with the added worry that the impact will no longer be local or regional but global. The banks and financial institutions are international — with interests that interconnect with transnational corporations. They loan money and issue debt to needy countries, and insist on repayment. This, of course, is their business. But it is too often a cunning, unforgiving and brutal system that maximizes profits with ruthless enthusiasm. Since the effects are usually foreign, the financial institutions bear little political cost for the social mayhem they create.

Professor Hudson speaks from experience. As a one-time financial advisor to global financial institutions, he recounts how poor countries were enticed to borrow for the promises of modernization. Loans and interest rates were then tailored to fit the maximum possible repayment capacity of their earnings. When economic growth failed to occur in the unfair marketplace into which they were lured, they were loaned more money. As debt exceeded their ability to pay and default was inevitable, then natural resources became the collateral that debt-holders could collect in lieu of cash. As one example, Professor Hudson notes that Brazil’s wholesale destruction of the Amazon, beginning in 1982, can be linked directly to the economic effects of the Wall Street and London financial sector. The strategy is to use credit to acquire the public domain of countries — their forests, water, oil and minerals. “Asset stripping” is the technical financial term that describes this process, he says.

As an academic and scholar with the real-world financial experience that has nurtured his cynical edge, Professor Hudson reminds us we need to think of two definitions of progress. The first is the one most people use. This is the progression of production and living standards that provide more food and comfort for a society. The second is the definition used by the financial sector. This is the conversion of economic growth into wealth for themselves, a process of “financial extraction” that takes place by means of credit.

The destructive effect of the “financial extraction” that took place in Rome, plunged Europe into centuries of the so-called Dark Ages, a pitfall that was adroitly avoided in previous civilizations by the periodical forgiveness of debt. People like Professor Hudson and David Korten worry that we are repeating the mistakes of Rome, a disconcerting and dangerous process most discernible to those with the perspective of history.


About the Author

Ray Grigg

Ray Grigg is in his ninth year as a weekly environmental columnist for the Campbell River Courier-Islander on BC's Vancouver Island. Before this column, titled Shades of Green - now appearing on commonsensecanadian.ca as well - Ray wrote a bi-weekly environmental column for five years. He is the author of seven internationally published books on Oriental philosophy, specifically Zen and Taoism. His academic background is in English literature, psychology, cultural history, and philosophy. He has travelled to some 45 countries around the globe.

8 Comments


  1.  
    Jeffrey Simpson

    It seems to me that the USA has demonstrated most clearly and decisively that its ‘free market system’ has been a total disaster (except for the uber-rich who feel it is working very well). In a competitive system like the USA and Canada there will always be winners and losers. In a cooperative system there will only be winners. We should think about a sustainable future for our kids much more seriously and a cooperative future is the only one that is sustainable. Think about it!




  2.  
    Hugh

    Economic growth is seen as the solution to growing debt. Except that economic growth is now becoming impossible due to limited natural resources.




  3.  
    KWD

    Both Professor Hudson and David Korten fail to consider the effect cognitive progress could have on changing history. Once we come to terms with the fact that engendering economic manipulation and political influence is self-destructive we can ask a very important question: Why do we think the way we do? Which has a very simple answer: Because we are trained to think that way.

    As long as we focus on external realities as the cause for our woes we will avoid looking at ourselves.




  4.  
    KWD

    The idea that it is possible to reset the economic game to zero and start afresh is wishful thinking. Resetting and restarting assumes a never ending availability of sufficient resources to allow an ever expanding population to continue along the same path … accumulating wealth, producing more food, comfort and raising the living standard … is not going to happen in a finite world. It is an idea that simply defers total economic collapse.

    If the framework of your argument is limited to two definitions of progress, that are entirely dependent upon energy flows … required to produce more food, more comfort, more wealth … it won’t matter whether you live in Rome or Babylon. You will repeat the same mistakes that will lead to the same endgame.




  5.  
    Markerbuoy

    Wow! Quite a succinct analysis of what we all know to be happening on our door step in BC and across the country.
    Particularly depressing in light of recent developments concerning the BC Rail debacle; government officials caught playing with the truth _ again. The system works for it’s own interest and not for the public good.
    On the bright side, I’d rather live here than anywhere :-)




  6.  
    Michael\

    nice article on an important topic but perhaps second sentence in the 6th paragraph should read militated rather than mitigated such that:

    The narrow and self-interested ownership of debt by a small number of avaricious individuals militated against forgiveness.




  7.  
    salamander

    An essay/article I will read 3 times or more.. refer to/review many more times for intelligent and timely context, direction. perspective .. Thank You !




  8.  
    Rod McNabb

    It seems to me that the Federal neo-Cons and the BC Lieberals have undemocratically short-circuited the processes, so that “financial stripping” and “asset extraction” (intended inversions) occur without flagrant or immediate penury to Canadians. The template is there, however, and as our wealth is translocated beyond our borders and our resources further decline, we will feel the pinch and we will feel the pain. The benefits will be gone from our lands, and if we ever wise up we can always be sued by others in our “free trade agreement” partnerships! That pain will be slow to stop (think more than 31 years.)





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