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  • Martin Schmalzried

The impossible co-existence of a debt based monetary system and Mother Nature


With the increasing severity of the consequences of climate change on our doorstep, everyone is talking about sustainable development, green this, eco that, Green New Deal, Sustainable Development Goals and what not. But the elephant in the room just crushed all of these gesticulations instantly. Unfortunately, a debt based monetary system is completely incompatible with sustainability. The obvious critique, which has become common knowledge, is that a debt based system with an interest on debt locks an economic system into mandatory growth, or the debt burden would quickly become unbearable. Some would say: “Who cares! We are at near 0% interest even negative interest soon, so what’s the problem?”


But there is a more profound problem with a debt based monetary system: bloody Mother Nature and her quirky way of functioning. Mother Nature provides things for “free”. Its various labourers never send us a pay check. The plankton in the ocean or the bees buzzing in the trees never ask for a fee. They happily work for free. How is that a problem? I’ll show you with a couple of simple examples.

Let’s simplify the economic system a bit and create three actors only:

  • The banks;

  • The “green economy” businesses;

  • The services and goods industry who sell things to the “green economy” businesses.

Here is how our story begins. A local business wants to transform a former “conventional” agriculture farm into a permaculture farm. It takes a loan from the bank at 0% interest rate (how generous of the bank) and hires the services and goods industry to buy all the necessary material: seeds, hardware, pipes, shovels, buildings for manure and all kinds of other gear. A year goes by, and the permaculture farm is flourishing: it has plenty of fruits and vegetables to sell, which the people working for the services and goods industry happily purchase. The money thus flowed from the banks to the permaculture farm, then to the services and goods industry workers as salaries, then back to the permaculture farm for purchasing fruits and vegetables, and finally, went back to the bank to service the debt. Let’s say that all the debt is repaid after the first year. What happens on year two? The permaculture farm still produces plenty of fruits and vegetables because it relies on worms, bees, rain, the natural ecosystem of Mother Nature which, if understood properly, and balanced out, will produce, each year, plenty of fruits and vegetables without a necessity to re-inject tons of money and buy new stuff. The seeds can be reused, compost can be made naturally… So the permaculture farm brings fruits and vegetables to the market but there is a problem: there is no money in the economy! All of the initial money invested to start the permaculture farm went full circle, and now the services and goods industry workers are out of a job, and have no money. The economy thus collapses.


Now run the same scenario with “conventional” farming. Each year, the farmers have to take out loans to invest in maintaining their gear, pay for their expensive tractors, buy pesticides, fungicides, fertilizers, seeds (which are patented and cannot be reused), and so they take out a loan, use that money to buy all those things from the services and goods industry, the workers from those industries purchase their fruits and vegetables, and the farmers repay their loan. The next year, the cycle starts again, and so there is always money in the economy to exchange one good against another: seeds, tractors, pesticides against fruits and vegetables, using temporary money which is destroyed after each cycle, and mirroring the destruction of the fruits and vegetables (consumed) and the deterioration or destruction of the farmers’ assets (aging tractor, need for new seeds and pesticides).


In essence, a debt based monetary system has to prevent at all costs Mother Nature to provide goods and services “for free”, simply because it is a systemic risk for the financial stability of the system. Too many goods appearing spontaneously on the market which were created without the need for an initial investment or injection of money via a loan means that there is no money in circulation to purchase it, and creates pressure on the economic and financial system. If we generalize this logic to all the areas of the economy, then the economy and the financial system would collapse. There would be too little money in the economy compared to the available goods and services.


A debt based monetary system, therefore, has an inherent interest to kill the bees and replace them with drones or kill schools of fish and replace them with ocean farms because the latter require an initial investment which creates money that can later be used to purchase those goods by the workers who provided the service to create the drones or the ocean farming equipment. When bees pollinate trees, they don’t require farmers to take out a loan and pay them to do so. The same goes for a plethora of other initiatives such as a booming market for second hand goods. These platforms enable exchanges using existing money in circulation, when the exchange happens, no new money is created. Thus if people start to buy second hand goods more and more instead of buying new ones (which typically require new investments, debt and thus the creation of new money), the monetary mass will start shrinking as debts are repaid, which means less money available for the same amount of goods, which leads to deflationary pressures on our economy.


And so in conclusion, not only is a debt based monetary system directly in contradiction with any and all real sustainable development goals, which harness Mother Natures’ innate ability to produce goods/services, it has a vested interest in sabotaging any such progress. Not because it’s “evil” and there is a plan by Monsanto to take over humanity by controlling the food production, but simply because a debt based monetary system has to transform everything “free” into something you have to pay for, one way or another, otherwise it creates risks to price stability and thus financial stability. A debt based financial system's stability rests on the balance that exists between the more or less synchronous creation/destruction cycle of money, which has to be mirrored by the creation/destruction of goods/services. If goods are created and enter the market without their equivalent in monetary creation, it will create unsustainable pressures on the financial system. Perhaps it is time to change the financial system altogether. Here is an alternative worth considering: the Relative Theory of Money.

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