Ok, now I get it. You are postulating a fixed-money fixed-wealth economy.
I’m not sure such a thing has ever existed. Usually things go in cycles. And credit is something that starts out as an organic outgrowth of economic activity. Even if there are limits on bank loans, there is always the credit extended by vendors, which gets looser and looser the faster the economy goes.
“Let me use that horse now, and I’ll pay you back in grain when my harvest comes in.”
That’s a form of credit, and it will always exist - and it will expand and contract based on confidence, regardless of the formal, inflexible, fixed-sized money system you put in place.
So I can easily imagine a population-steady-state economy, which has an elastic money system. In fact, elastic money is what the economy will construct on its own. When people see opportunity, they’ll find credit somehow to take advantage of the opportunity. And when they’re scared, they won’t use credit at all.
So basically I’m challenging your premise. A fixed-money system won’t remain fixed.
The whole point of this website is that we are leaving the growth economy, and entering a shrinking economy. Mark BC’s point is that in the presence of a shrinking economy, rule by investment possibly results in the impoverishment of the laborer.
Well, no, that wasn’t exactly his point. His point was much more mundane. It questioned the validity of rule by investment in the presence of a shrinking economy.
Still, it’s pretty close.
So I’ll bite. I’ll agree with you that it isn’t a fixed economy. It’s a shrinking economy. Now please address his question.
The whole point of this website is that we are leaving the growth economy, and entering a shrinking economy. Mark BC’s point is that in the presence of a shrinking economy, rule by investment possibly results in the impoverishment of the laborer.
Well, no, that wasn’t exactly his point. His point was much more mundane. It questioned the validity of rule by investment in the presence of a shrinking economy.
Still, it’s pretty close.
So I’ll bite. I’ll agree with you that it isn’t a fixed economy. It’s a shrinking economy. Now please address his question.
If we assume everything is shrinking, all the time, then there will be no investment. Capital will run and hide for safe havens like cash. Cash doesn’t provide much of a yield, so capital’s share of overall income will decline from where it is today.
What’s more, most existing investment is debt-funded. A constantly shrinking economy means at first shrinking profits, then no profits, and then finally the debts will become un-payable. Capital’s “down payment” (i.e. the retained equity) will be eaten through, the debts will be defaulted on, and shareholders will end up suffering a total loss. Only the bondholders will end up with anything, and it will be pennies on the dollar.
Labor will be out of work, and that’s a problem, but capital takes a much larger loss during a deflationary event.
Thanks for the answer. I would argue that the same would happen in a steady state economy.
Regarding your previous comment in response to me, I think I confused the issue by bringing in mention of the monetary system. Whether the monetary system is based on a bunch of gold coins or it’s fully credit based and expands and contracts with credit cycles doesn’t matter. (Although I argue that a credit based monetary system will fail in a steady state economy because it is based on promises of a future return on that credit greater than the original dollar which is an exponential system)
My argument boils down to this: if you accept the premise of the main argument of this website that due to resource constraints, economic growth cannot grow exponentially, and if you accept that capital investment seeks a return greater than the prevailing interest rate and to increase the monetary power of the original investors via profit, then the inevitable result will be that those who receive this profit will gradually gain a greater and greater share of ownership of the economy. Which is the same as saying that the rest of the economy will be impoverished. Based on your latest comment, it seems that you agree.
One factor I haven’t explored is the transfer of that wealth back to the non capital part of the economy when capital investment fails due to bad investment.
Although I argue that a credit based monetary system will fail in a steady state economy because it is based on promises of a future return on that credit greater than the original dollar which is an exponential system.Just because you have a credit-based money system doesn't mean the money system must therefore grow exponentially. Steve Keen showed this in one of his lectures. People pay the interest on their obligations from flow, not from stock. As long as the velocity of money is > 1, and assuming the recipients of the interest payments don't hoard (i.e. banks pay employees salaries, dividends, etc, from that interest income - which they do), the aggregate economy can meet its interest payments from the flow of currency across the economy. The old line: "there isn't enough money to pay the interest" is just people confused about stocks & flows. As for wealth - certainly if new inventions don't add wealth, then of course you are correct. I assume that new inventions do add to wealth. Related: is it possible to have a sustainable economy that also increases total wealth? Or must a sustainable economy, de facto, equal no increase in wealth? To me, sustainable just means the non-renewable inputs aren't being depleted over time. It isn't making any claims about whether wealth increases or decreases. Here's an example. Let's say you have a topsoil-improvement technique. So presumably if you use capital to buy farmland with some additional borrowed money, then applied your techniques to it, and then you sold it at a profit, you aren't swiping money from some other sector. The farmland is now more valuable because it can produce a lot more food. Total wealth in society went up.
“Is it possible to have a sustainable economy that also increases total wealth?”
I think that question has been at the back of my mind the whole time since I first journeyed down this path, starting on this site years ago. My answer is, “no”. The things that provide for real wealth are real tangible things that come from the natural world. They are subject to the laws of thermodynamics and are near their limit. The current infatuation with high tech stuff has run its course and no meaningful advances remain in IT that could improve wealth substantially. We are left with gimmicks like holographic videos.
Material wealth boils down to access to food, energy (fossil fuels and electricity), technology to efficiently use that energy, housing, and access to information. We have hit limits in all of these.
I would agree that advancements in engine efficiency over the last century have increased wealth. But it is a game of diminishing returns as we approach Carnot limits.
With food production, well the total biological production of the planet has gone down since industrial agriculture emerged. The only reason we see gains in industrial farming is because of copious use of fossil fuels. There is basically nothing that can be done realistically on a wide scale to boost biological production on a piece of land to beyond what nature would produce naturally on its own, absent some external stimulus which the world is now finding are not renewable.
You are definitely right, things have significantly changed. The way things are going, they don’t look very bright. I hope things will get better, praise be to the almighty.
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