Jack Santa Barbara weighs the value of natural capital against financial capital and makes some suggestions on how to avoid a “Midas Touch on steroids”
It’s good to have the money we need, but we don’t often think about where the money is coming from and how much is in the world, and what it means.
Money is a lot of things. It is a commodity for exchanges, a source of security, a status symbol, a source of influence and power, a means of accessing what one wants. Usually we prefer to have more money than less. More money offers both greater long-term security and more flexibility in what we buy, allowing us to meet the whims as well as the necessities.
And if you want to, owning sums beyond your whims and needs means you can use your money to influence others. You can use the money to influence public opinion and legislation to serve your personal interests. And if you have a large excess of money, you can surreptitiously influence public events, funding think tanks, media, research grants, lucrative job postings, and more. Indeed, research indicates that such influences undermine democratic institutions around the world.
Considering the power and the extraordinary array of things that money can do, it may be surprising to learn that money itself is inherently worthless. After all, money is just scraps of paper, metal, or, most of the time, just entries in an eBook ledger. These artifacts themselves cannot do much real work in the real world. You could use paper money to help start a fire if you had to, or use coins to act as a paperweight, but their actual physical uses are quite limited.
It is only because we collectively agree to accept that these artifacts are of value that they are important in our lives. It is the social agreement that makes these artefacts valuable. Using cash is very convenient for a number of reasons. But do we really appreciate all the implications that we tacitly accept when using it? Wouldn’t it seem reasonable that given the sheer size and power of money, we would be more involved in this deal about what it is and how it can be used?
While there are many issues regarding the types and definitions of money economists debate, as well as how to measure it, all agree that the global money supply has grown significantly over the past century. . And it grows every year as the GDP grows. Since money represents a claim on resources (natural or manufactured), it means that more and more of the world’s resources have a claim against them.
This is a problem because we currently consume nearly 100 billion tonnes of raw materials per year to meet these demands for money. The majority (around 90%) of these raw materials are non-renewable, and we also use renewable resources faster than they can regenerate. This is the phenomenon of ecological overshoot and represents serious existential risks for humanity, of which climate change is only one example.
This process of using natural resources to convert them into goods, which are then converted into money, means that we liquidate our natural capital to convert it into financial capital. This raises the question of which is the most valuable capital, natural or financial. Obviously, both are important, but what’s the right balance?
If it were physically possible to convert all natural capital into finance capital, we would indeed have a large amount of money available. But what would it be if there was no more natural capital to provide the goods we need, or simply to take advantage of them? And what about the future – there would be no natural capital to replenish our business when it wears out.
We are not there yet, but this is clearly the trajectory we are on. This quest for ever-increasing amounts of financial capital (‘money’ for most of us) is what drives ecological overshoot. Ecological overshoot means we consume so much of nature, or natural capital, that we reduce nature’s ability to continue to provide the things we need to consume. It also means that we produce more waste than natural systems can absorb without breaking down.
It is obviously an absurd notion that we would even want to convert all natural resources into money. This would mean that every tree, rabbit, finger, and child would have monetary value and would be marketable. Nature would cease to exist. It would be the Midas Touch on steroids.
As absurd as this notion of liquidating all natural capital into financial capital may be, this is in fact the path we are on. We don’t have a “when to stop” rule that tells us we’re converting too much natural capital into money, nothing to tell us when things are out of balance.
In fact, we have such a rule, but it is only recognized by scientists and environmental economists. Unfortunately, no rule that saves lives is enshrined in our political economy and, therefore, this biophysical reality is not “official”, it does not count in the day-to-day decision-making of politicians and business leaders. .
Most of us don’t think about it when we spend our money either. Because the “when to stop” rule is not legally binding, we continue to convert more and more of nature into money, and see it as a good thing. When we spend money, we encourage businesses to convert even more nature into money.
It’s no wonder politicians and business leaders think this way, as the rest of us share the illusion that money is real and of great value in itself. Collectively, we have come to the point that treating money as having intrinsic value is a serious problem. And one of the greatest ironies and paradoxes of this phenomenon is that more money (above a sufficiency level) does not make you happier or contribute to our objective well-being. Yet we idolize money and generally seek more of it.
There are a range of policy options to achieve a better balance between natural and financial capital. The recognition of natural capital in the balance sheets of national accounts would be a step; it would at least give us some idea of how quickly we are liquidating our natural capital and allow us to envision and seek a desirable balance. Taking GDP off the pedestal of economic goals would be another, replacing it with well-constructed measures of social and environmental well-being that actually bring us closer to what GDP is wrongly supposed to do.
Getting rid of fractional reserve banking would help, as it requires continued liquidation of nature. Governments claiming the exclusive right to issue currency would also be helpful, as the consequences of expanding money supply could then be more closely tied to the promotion of social and environmental well-being.
Adoption by governments of modern monetary theory would provide the necessary finances to invest in social and built public infrastructure to support well-being. Placing an income cap would also help; earning and spending more money than is necessary to meet basic needs (including psychological and social needs) will only continue to contribute to ecological overtaking. And a universal basic service system would deliver a range of goods and services that everyone needs in the most efficient way possible, reducing inequalities and improving social well-being.
We have the tools, but we have all let the system out of balance. There are all the reasons why we can work together to restore this balance. Do we have the collective will?