A simple explanation why our present monetary policy can only be bad for the Earth. by Gene DeNardo
(liberal)
Sunday, November 2, 2008
By now you have been submersed in good articles about why our present day Fiat monetary policy is bad for us. It seems it causes everything from runaway inflation to tooth decay! And really, it is a terrible system. A reason I haven't stumbled upon though, is that it is inherently harmful to the environment. Its very nature causes us to abuse what is necessary to sustain us. I would like to explore this a bit.
You would think that what is detrimental to the health of the earth would have little to do with a monetary system. If people are intent on destroying the natural system wouldn't they just have at it, no matter what? Not really. They have to ask permission first, and permission in our world is granted first and foremost by the monetary system. Basically, you can buy anything, if you have enough money, well maybe Ringo was right about the love thing, but just about everything. I think this is also true of the environment. We need to "purchase" the harm we impose upon it.
The monetary system we presently use evolved from a series of systems that were all based on our attempts to fulfill our basic needs. Food and water are obviously our most basic, and because of that, we initially were "hunter, gatherers", creatures who wandered about looking for tasty or not so tasty things to eat and drink. It seems our transition into a "barter" style of exchange would have occurred a bit after we decided to settle down and raise a few crops, although who's to say a hunter didn't exchange a catch or two with another hunter or gatherer? Of course, during this primitive period, there is always the fear that some non-libertarian minded creatures actually were so backward that they might have shared a thing or two within their community! As despicable as this might be, we can't dismiss the possibility of early "Statism"! A bit further along, we began to use some consistent item, to facilitate our exchange, which in time became coinage. Skip a few major steps, and we arrive at our present day Fiat monetary system, where the values and goods in our world are only vaguely related to the "symbol" of our wealth, US dollars. The Grand Master of this system, who lives in a land called "Fed", creates or destroys this symbol at will, seemingly with no concern for anything that is actually going on in the world.
Despite what any of our great leaders tell us, the economy is nothing without two things, our labor and the natural world. Although the ratio varies, we need a combination of those two things to actually produce anything. Where we run into environmental problems is when we extract an amount from the natural world that will thwart or disable the economy at some future point. And of course, if we do something that actually would make our existence impossible, that would be really bad for the economy!
The problem with our present non-value based, deficit spending economy is that it never really reflects what is happening to half our equation, the natural world. If we picture a fixed monetary system, one where money is directly linked to a value, or better, the amount of money in circulation is stable, everything we do is directly reflected monetarily.
A tree is a good example of this concept. If you cut down a tree, and mill twenty boards from it, and there is only one hundred dollars in circulation, each board is worth five dollars. If, being more intelligent about it, you are able to use the entire tree and mill one hundred boards, then each board is worth one dollar. The "waste" in the first example, has an inflationary effect on the economy. The value of the currency can only fall, whereas the second example not only strengthens the currency, but has a stimulating effect on the economy. Boards are much more affordable and there are a larger number of goods in the market, which can be used for more goods or services.
You might say, what if it were possible to mill two trees in the same amount of time, producing 150 boards, with the resulting waste of a "possible" 50 boards? Labor costs have been saved, but the cost of the boards would decrease to 66 cents apiece. The miller would receive the same total amount for his 150 boards, but would have effectively lowered the value of a competitor's boards, who is producing 100 boards from one tree. Whether the currency is strengthen or weakened is more complicated, because although the price of boards has dropped and the supply of money is limited, the miller has also created 50 boards of waste, which "potentially" could have strengthened the currency even more.
Which path would be preferable, would hinge on the cost of the tree and the cost of labor. The cost of the tree would be determined by the availability of trees, the "possibility" of producing 100 boards from one tree and the value to the economy of speedier production with greater waste. We can be certain that with each tree that is used, the equation tips toward the more efficient use of each succeeding tree and the cost of the next tree would rise. We also can be sure, with a confined currency, that waste is represented by a "loss" of goods and is a liability to the economy. Labor would certainly be a cost, but with a value based currency, purchasing power and savings would not erode through time, and wage amount would be much more consistent.
This example presents quite a different picture in a "fiat" system. Because new money is always being flushed into the economy, values are inconsistent and constantly in a state of flux. Unless supply becomes extremely limited, the cost of natural resources stays far below their actual value to society. As the Fed bombards the system with currency, goods seem to be a great bargain. Demand is artificially stimulated and individuals begin a purchasing spree. What is needed takes a back seat to what is wanted. This causes inflationary pressure, which cause people to buy things based on speculation, their possible future value and the decreasing future value of the currency. More and more money is needed, more and more money is supplied, more and more things are accumulated and more and more resources are used.
Back in the forest, the tree has lost a lot of self esteem. The mill owner becomes less concerned with the cost of a tree and more concerned with securing a quantity of trees in order to satiate demand for boards and avoid future cost increases, while taking advantage of the rising cost of boards. The amount of trees in the forest has little effect on the equation until they become so scares as to threaten supply. The cost of labor becomes a big problem, as constantly increasing prices causes constant demand for higher wages. Speed of production becomes foremost in the miller's mind and waste of the resource is barely taken into account. In fact waste is discounted, as rising prices and ever increasing abundance of currency favors production in quantity over efficiency. Needless to say, none of this favors a stewardship of natural resources. In effect, Natural Capital takes a backseat to artificially created Monetary Capital. Although this is an illusion created by the "caretakers" of our system, the unnecessary damage takes place in the real world, in the forest.
I admit, for the sake of brevity and respect for your attention span, I have simplified many things in this analysis. But, the point that I am trying to make is a simple one. When we disconnect the currency from anything of real value, we also disconnect the economy from the natural world and ourselves. Instead of making decisions based on real factors in the economy, we make decisions based on models overcomplicated by a monetary policy that belongs more in a fantasy film than it belongs in our world. The prefix of the word economy and ecology are the same. "Eco" is the Greek word for house and as long as we work within this "house" we will be fine. When we leave that house and seek alternate shelter under the fiat system, that is when we are endanger of being left out in the cold.
Did you like this article? If you did, Thumb It! 8
thumbs so far
The views expressed
in this article are those of Gene DeNardo only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Gene DeNardo is solely responsible for the contents
of this article and is not an employee or otherwise affiliated
with Nolan Chart, LLC in his/her role as a columnist.
Considering that Federal Reserve Notes are made of 100% Cotton Rag content by the Crane Company, I am not sure if you can realistically blame the cutting of trees on the production of fiat money, its bad enough as it is, ya know?
I'm sure you were attempting to make another point entirely...
In a truly free-market economy, the use of resources is automatically set to the most efficient use. This helps prevent boom-and-bust cycles because bubbles are much less likely to develop.
When Austrian economists think of efficient use of resources, they are usually thinking of capital and time, but shouldn't this also apply to raw natural resources?
Authoritarians like to tell people that free enterprise is short-sighted and will not think about the future. They tell us the oil will run out and if the government doesn't step in, nobody will step in to get ready for the coming shortage. This isn't true. Free enterprise is often forward thinking when it is free to do so.
Take computers for example. Bell Labs and other businesses would expend huge amounts of money to hire geeks to work at inventing technologies, sometimes unusable for 40+ years! Their forward thinking wasn't a result of government coercion. They did this themselves.
Right now we have people working in garages creating our future cars. One man I once knew (who worked for an oil company during the day) would work evenings in his garage building engines. He built one Ford Ranger that got in excess of 60 miles per gallon on regular unleaded. No hybrid, no diesel and no wild fuels. No government grants, loans or requirement to do this.
Was he able to mass produce his design? No. Somebody had a patent on his technique already.
And thus we see government favoring big patent houses and inefficient automakers over the good of our people and the environment with their intervention.
Who knows, maybe if he could have sold these cars we would have 100+ mpg cars on the road using pump unleaded by now.
Want another example of government intervention ruining the auto industry? Google Tucker Motor Car. Protecting the interest of the big automakers was more important than consumer safety.
Free markets favor the best efficiency, safety and price. government-run markets don't.
Now, to go convince other people who care for the environment that big government will not protect it....that's the challenge.
Posted By: Jake, the champion of the constitution
Date: 2008-11-03 03:48:53
Enjoyed reading your article. Your analogy to trees brought back memories of the imperial Japanese forest depletions, and how the daimyo (Japanese feudal lords) eventually were forced to take care of them. Sort of the same principle as I remember, except politics were involved. My source is Collapse by Jared Diamond (best writeup) but they were some other places, I just forget at the moment
You have some interesting analogies. Just wanted to propose a little food for thought to you. My father and I had a discussion over the weekend about the current (and I mean today current) economy. Obviously the price of gas is at the lowest in about 2 1/2 years. Gold has dropped from 1000 to 700. The FED continues to print money like its going out of style yet the prices are falling! Instead of inflation, the past month has shown signs of deflation. Well we came up with an interesting "view" I guess you could call it.
Lets say that the US's value is 100 trillion dollars.
The value accounts for everything from credit lines to equity lines. The value of homes to cash, savings and checking accounts.
Feel free to correct me if Im wrong but I believe the value of houses has dropped about 15%-at least it has in my neck of the woods. Credit lines have been shrinking and so have peoples savings, MFs, CDs and IRAs.
Lets say that all in all, the value of all those sectors drop an average of 10%. That would lower the value of the US to 90 trillion (i know, hard math right?lol) That would indicate a shrinking economy.
The FED could then print up to 10 trillion dollars(not necessarily cash but bonds and other forms as well) before the market would feel inflation. Right? With the price of oil and gold falling, that could indicate, rather crudely, that the Government just simply isnt printing the money fast enough to stabilize the prices.
Now, lets say the government pulls off something miraculous and makes money off the bail out package. If/when the market bounces back, that means that the Government would own about 50% of the economy instead of its 15 or 20% now. Its pretty scary but I dont know how close to reality it is, I'm just starting to take econ at my university.
Hi Emerson, good deductions! On the inflation issue, you first have to believe that the point we were at before wasn't inflation to say that 10% can be injected without it. And then, you have to think that the 10% will actually go exactly where you want it to, to bring everything back to where it was. This virtually never happens. This is the problem with the fiat system, it doesn't have any direct connection to the "actual" economy, what people are producing and doing. It cerainly affects it, and as far as the environment, it usually affects it in a negative way, we extract more from the environment because excess money is available that makes the extraction seem "profitable" when in fact, it only makes sense with the fiat or extra currency in the picture. As far as government ownership, after public outcry, the government is actually getting some shares of stocks, but for the most part they would rather give the money away to who they see fit, those they would most like to see benefit.
Want to comment on
this article? Leave your comment
here. Your email address is required to track your
comment. However, we will neither publish your email
address nor distribute it to other organizations or
persons. The only reason we might use it would be if
we needed to contact you regarding your comment. All
comments are subject to our
terms of use policy.
