Money and Sustainability – The Missing Link: Review

February 1, 2013

NOTE: Images in this archived article have been removed.

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by Bernard Lietaer et al

So here we have it. The austerity versus Keynsian spending debate is about as useful as arguing whether the earth is flat or sitting on the back of a pile of turtles. Neither will provide sustainable interventions to our converging crises while the debt-based money system remains the only significant game in town.

Money & Sustainability
is as long as it has to be and no longer. Its 200 page analysis details the adverse impact of the current financial system on sustainability as a root cause of boom and bust cycles. It requires short-term thinking and unending growth, concentrates wealth and destroys social capital.

The authors first ‘make explicit’ the prevailing economic paradigm and contrast this with an ecological economics approach (which they claim is rooted in the response to Limits to Growth [the 1972 report from the global thinktank the Club of Rome]) by Herman Daly and others.

The underlying narrative here, of how a fantasy world (or model of economic reality) has come to be taken as read and treated as gospel by a whole generation of economists, academics and politicians, is short and to the point. It deals brutally with two of the main faults in this paradigm: the treatment of non-monetised entities (notably the environment, non-paid activities and cultural and spiritual traditions) as irrelevant externalities; and the erroneous assumption that money is a passive neutral element : an ‘innocuous facilitator’. The first of these has received a fair amount of air-time lately though the summary here is concise and helpful. The second is described via consideration of a monetary ‘blind spot’ comprising three layers.

Although dual or multi-currency societies have existed, appreciation of how they have operated is not widespread and mainstream economics generally ignores them, assuming a single, monopolistic hierarchically-issued currency. The communism versus capitalism ideology war has layered on top of this assumption (embodied in both ideologies) a blanket of comparative debates and analyses, further obscuring the single currency hegemony. And on top of this, a layer of institutions, central banks, and academics have pickled and preserved this monetary orthodoxy. The book reminds us that no matter how entrenched, repeated and defended, this structure is still just a paradigm – a particular view of reality – and alternative paradigms exist.

Chapter 3 is a taxonomy of financial crises, split into monetary, banking and sovereign crises. Prefaced with a disturbing description of the casino economy (only 2% of the $4 trillion daily forex transactions are real trade – 98% are speculation), the chapter describes each type of crisis and the connections between them. The analysis fully supports Mervyn King’s observation (used at the head of the chapter) that “of all the ways of organising banking, the worst is the one we have today.”

In Chapter 4 banking and monetary instabilities are addressed by reference to the physics of complex flow systems. Hopefully my colleague at Feasta David Korowicz might review and comment on this section of the book separately. Unfortunately this sort of ‘crossover’ analysis puts me in mind of the mathematic modelling and analysis that has been incorporated into mainstream economics as the aspirational trappings of a wannabe science. For that reason it leaves a sense of unease. However the chapter is notable for its exploration of the trade off between efficiency and resilience and the offered definition of sustainability as the optimal balance between the two. The argument is that nature selects for this optimal balance but that the current economic system favours efficiency at the cost of resilience. Further, a multiplicity of diverse currency systems with various channels of linkage and exchange between them is needed for monetary sustainability.

Chapter 5 returns to the money – sustainability gap by looking at the impact of existing systemic biases on human behaviour – mostly negative impacts. These biases include pro- cyclical money creation fuelling boom-and-bust cycles; an analysis of short-termism and finally our favourite – debt and the effect of compound interest. This latter topic explores ‘the ideology of the cancer cell’ – the search for growth as an end in itself – and explains Herman Daly’s concept of uneconomic growth. But the overall prescription is not for a replacement of debt-based money but for a proliferation of currencies – as suggested by Hayek but with a broader range of non-banking issuers. Finally the concentration of wealth and destruction of social capital are described. The whole chapter is a compelling critique of the devastating impact of what is traditionally and erroneously seen as a neutral medium of exchange. It should be required reading for anyone who is still attached to mainstream economics, especially the teachers of the subject.

Chapter 6 attempts to address a weakness of most modern analyses of monetary dysfunction – scenarios for change. It is only partly successful but given the intransigence, inertia and vested interests of the status quo this is understandable. The approach taken is to analyse the institutional framework of power – the unholy alliance between government, banks, the finance industry and the ‘professional tax bureacracy’ which acts to perpetuate the dysfunction. The central role of ‘warfarism’ is also referenced.

There is a section on the New Chicago Plan whereby governments would take back the power of money creation from the banks. As would be expected from the above commentary the authors do not believe that replacing a private monopoly with a public monopoly would address the structural fragility problem. Interestingly they also believe that such a proposal (as with the original Chicago Plan) would be fought to the death by the banking system and therefore that the multiple diverse currency approach might be less threatening to them. This is the disappointing part – the fact that experts that understand monetary dysfunction better than anyone cannot foresee any roadmap for change that doesn’t need the permission of the interests that personify the problem.

The remaining sections of the book are largely case studies. They are well written and draw out the key comparative aspects of various new currencies and they are split into private initiatives and government initiatives. These sections are perhaps more a reference guide than a read-through.

Omissions? Well, apart from coverage of STRO’s C3 model in the case studies there is no mention of P2P ideas and ‘self-certified’ money issuance, which some activists believe is the gold standard for currency backing.

Overall Money and Sustainability is a well written and compelling summary of the sustainability challenge for future money systems.

Featured image: broken chain. Author: Sigurd Decroos. Source:

Graham Barnes

Graham Barnes is a Currency Innovation Strategist. He is a Director of Feasta and co-organiser of the Feasta Currency Group. He holds a PhD in Computer Science and worked at a senior level in IT and online marketing in a previous life. His current projects include the design and delivery of currencies to be sponsored by a local authority; by a social entrepreneur to complement and enhance a well established sustainability methodology; and by a restaurant chain.

Tags: money, Money and Sustainability