The Role of Money for a Healthy Economy
19
1970
1980
1990
2000
2010
0
1,000
2,000
3,000
4,000
5,000
1970
1980
1990
2000
2010
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Fig. 1 Left: Estimated money supply M3 U.S. (billions USD) (Source Own work, based on data
provided by OECD). Right: Federal debt U.S. (billions USD) (Source Own work, based on data
provided by the US department of treasury)
Interest makes deposits grow and, since there is no interest without debt, also the
total debt of an economy has to grow in a likewise manner. This is a simple fact. To
say it in the words of Frederick Soddy (1934: 25) “Money is a credit-debt relation
from which none can effectually escape”. And even worse: money supply and debt do
not only grow linearly but following an exponentially function. This is because any
amount deposited on an interest-bearing bank account will have doubled after some
time. Here we understand why the money supply (defined as bank deposits plus cash)
in any country grows exponentially and so does total debt as we can observe in Fig. 1
that depicts money supply and total debt for the United States. We will recognize
the same exponential function of both money supply and debt in any country of the
world if the observed time period is only long enough.
A steady increase of the total debt means that we are ever more indebted, and this is
the reason why we have to work ever more to not lose status quo. We can corroborate
this taking a look at companies’ balance sheets and compare them with some 20 years
ago. It is very likely that today we will find much more borrowed capital. But even if
a business is not financed with borrowed capital it is not freed from the obligation to
grow. This is because interest is the opportunity cost of any productive investment.
Any business that does not yield a return at least as high as what the business owner
could receive depositing the money on a bank account is economically inviable.
Hence, interest is the rhythm to which the real (productive) economy has to dance,
and not just a “fetish” (Hamilton 2003). Since economic growth (real GDP growth)
means that this year we produce more than the year before, and since the first law of
thermodynamics tells us that we cannot produce something out of nothing, a steady
GDP growth rate in the long run must end up in an increased use of natural resources.
Any so-called “green” politics that do not take into account our financial system can
therefore be seen as a farce (Fuders and Max-Neef 2014).
19
1970
1980
1990
2000
2010
0
1,000
2,000
3,000
4,000
5,000
1970
1980
1990
2000
2010
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Fig. 1 Left: Estimated money supply M3 U.S. (billions USD) (Source Own work, based on data
provided by OECD). Right: Federal debt U.S. (billions USD) (Source Own work, based on data
provided by the US department of treasury)
Interest makes deposits grow and, since there is no interest without debt, also the
total debt of an economy has to grow in a likewise manner. This is a simple fact. To
say it in the words of Frederick Soddy (1934: 25) “Money is a credit-debt relation
from which none can effectually escape”. And even worse: money supply and debt do
not only grow linearly but following an exponentially function. This is because any
amount deposited on an interest-bearing bank account will have doubled after some
time. Here we understand why the money supply (defined as bank deposits plus cash)
in any country grows exponentially and so does total debt as we can observe in Fig. 1
that depicts money supply and total debt for the United States. We will recognize
the same exponential function of both money supply and debt in any country of the
world if the observed time period is only long enough.
A steady increase of the total debt means that we are ever more indebted, and this is
the reason why we have to work ever more to not lose status quo. We can corroborate
this taking a look at companies’ balance sheets and compare them with some 20 years
ago. It is very likely that today we will find much more borrowed capital. But even if
a business is not financed with borrowed capital it is not freed from the obligation to
grow. This is because interest is the opportunity cost of any productive investment.
Any business that does not yield a return at least as high as what the business owner
could receive depositing the money on a bank account is economically inviable.
Hence, interest is the rhythm to which the real (productive) economy has to dance,
and not just a “fetish” (Hamilton 2003). Since economic growth (real GDP growth)
means that this year we produce more than the year before, and since the first law of
thermodynamics tells us that we cannot produce something out of nothing, a steady
GDP growth rate in the long run must end up in an increased use of natural resources.
Any so-called “green” politics that do not take into account our financial system can
therefore be seen as a farce (Fuders and Max-Neef 2014).