…. How to relieve the growing economic and environmental strains that would trigger a deeper collapse. Enough people need to understand that we all need to understand it, and there is rapidly shrinking time to respond.
6/15/11 J.M. Keynes devoted the concluding chapter of his master theory of economics to describing the natural limits of money in a free market system, Chapter 16 of The General Theory. It seems economists were generally confused as to why Keynes would consider that, and didn’t study what Keynes had to say about where following the rest of his theory would lead. He pointed to why a market economy will continue to have growing savings and keep making growing investments even when natural limits and environmental conflicts make that increasingly unprofitable for the system as a whole.
He also described the alternative that would allow the whole system to remain profitable in the long term. Either way the expansion of wealth and money would reach a climax, either by investors continuing to accumulate assets until investments produced no net returns and businesses failed or by spending their assets as a way to assure the long term profitability of the whole. The one choice is utterly disastrous and the other a bit unappealing to some but a way out of the trap, forcing us to recognize that every part of a system depends on the whole.
A strong case seems possible that all the intense debates about the viability of the market system leading up to the 2008 collapse and through the economic turmoil since, and why “systemic risks” remain a high and growing concern, and “nothing we do seems to work”, all directly come from our reaching a point of diminishing profitability of the whole economic system, with too much money chasing too little opportunity for natural causes. From his view from the 1930’s Keynes had predicted that this point of excessive financial capital would be fairly easy to achieve.
What we now see are the convergence of all the hidden liabilities from past bad investment practices. We have the rapid deterioration of the environment, the high debt and noncompetitive cost structure of the developed economies, the globally escalating food and fuel resource prices due to theglobal condition of demand exceeding supply, and our beginning to feel the heat of climate change, that together seem to prove the case.
Seeing the necessity to halt this progressive deterioration is where one finds the boldness to consider the one last option that would actually work, reducing whole system economic demand on the earth by regulated divestment of excess savings. It could be done if a simple principle was followed universally, and social peer pressure was what enforced it, and both of those seem quite possible, but it takes global learning and communication of a new kind. Finding some means to do it is an indispensable step to relieving our burden on the earth and finding the funds for other purposes needed to restore a healthy sustainable economy.
Of course, it also can’t be done without better ways to measure economic impacts and their financial liabilities as well as things from everyone else’s lists too. The following is the original of this post. You can use a site search for references to Keynes , and go to my blog list of “natural economy” posts to find other discussions of how and why it’s important to restore a “circular economy” now that our “growth economy” is becoming unprofitable and multiplying our complications.
Keynes was a misunderstood systems ecologist too… and there’s a trail of evidence that he discovered the secret of how natural systems switch from multiplying complex designs to refining simple solutions, he gave it the strange name “the widow’s cruse” after a bible story about the gift of an inexhaustible cup (I Kings 17:8–16). His proposal makes no real sense to anyone, unless, you consider our “crisis of capitalism” as a growth ecology creating insurmountable internal problems for itself at natural limits and needing to switch to nature’s usual solution for that.
The general conservation equation for auto-catalytic growth compares the resource for making products (P) and the saving from it for developing the process (S). If the linked markets for it’s “work” and “investment” grow and stabilize together, then the system stays in balance as it develops. In an economy that occurs when the returns added to savings (S*r) and spending from savings (S*s) match the increase in products (P*p).
When physical limits cause product growth to stop, p = 0
THEN stable change over time requires:
EITHER: r = 0 and an end to average positive returns on investment
OR: r - s = 0 so the comfortable positive returns are spent on purposes other than multiplying returns
SO: both S1 = S0 + S0 (r - s) and S1/P1 = S0/P0
That’s Keynes “widow’s cruse” idea for turning the economies into an “inexhaustible cup” with a lasting sustainability plan, to spend enough of the seed money on something useful for the system to stabilize it. It’s not about stabilizing growth but stabilizing a healthy economy without growth, treating it as a natural living system switching to maturation, sacrificing the practice of limitless growing investment and concentrating wealth. It would be a big cultural change for us, but once it’s realized why it was always going to be physically necessary…, as at the end of growth there is no other healthy economy option … there are ways to provide quick systemic relief.
It’s also an application of “new physics”, using scientific models to refer to and assist in studying complex physical systems that remain undefined. That’s an approach that avoids representing nature as the conceptual model used, and allows connecting different languages of interpretation through their references connecting aspects of the same physical things.
Physical systems that operate by themselves in relatively passive environments develop by auto-catalytic growth from a seed process of some kind, generally animated by their own self-organizing parts. The whole system develops by treating some of its products as operating surpluses, and using them to build the process. That multiplies its scale and the surpluses until the erupting internal and external environmental imbalances disrupt or exhaust it, or trigger a switch to maintaining the surpluses and adapting to the new environments by completing and perfecting the design its operations.
For “what to do” from an environmental and systems science view, see also the 6/10/11 notes for Alex Jakulin’s Foo Camp talk on my work and my various discussions of the natural limit for money that Keynes identified which comes down to one thing. That’s the subject for slides #5-8, for for Aleks’ talk.
All natural systems start with growth like economies, using a “seeding mechanism” for planting seeds to multiply the “start-up” system. That mechanism, which for money is the use of investment to grow investments, has to change form to become a “steering mechanism” so the “end-up” system can transition from growth to becoming sustainable, if is to survive beyond its start-up period.
From more general views see “What to do” 3/6/10