Friday, September 5, 2008
This is an article I was asked to write for the VT Commons, where it appeared on the front page in August 2008. It is largely a significant re-write of my The End of Money article. This article lays out the very foundation of my entire line of thinking, and I think it should be widely circulated and debated.
Full permission to reprint, post, and/or distribute is granted.
The greatest shortcoming of the human race is our inability to understand the exponential function.
~ Dr. Albert Bartlett
Within the next twenty years, the most profound changes in all of economic history will sweep the globe. The economic chaos and turbulence we are now experiencing are merely the opening salvos in what will prove to be a long, disruptive period of adjustment. Our choices now are to either evolve a new economic model that is compatible with limited physical resources, or to risk a catastrophic failure of our monetary system, and with it the basis for civilization as we know it today.
In order to understand why, we must start at the beginning. While it was operating well, our monetary system was a great system, one that fostered incredible technological innovation and advances in standards of living, two characteristics that I fervently wish to continue. But every system has its pros and its cons, and our monetary system has a doozy of a flaw.
It is this: Our monetary system must continually expand, forever.
The US/world monetary system was designed and implemented at a time when the earth’s resources seemed limitless, so few gave much critical thought to the implications that every single dollar in circulation was to be loaned into existence by a bank with interest. In fact, most thought it a terribly “modern” concept, and most probably still do.
But anything that is continually expanding by some percentage amount, no matter how minuscule, is said to be growing geometrically, or exponentially.
Geometric growth can be seen in this sequence of numbers (1, 2, 4, 8, 16, 32, 64), while an arithmetic growth sequence is (1, 2, 3, 4, 5, 6, 7). In 1798, Thomas Malthus postulated that the human population’s geometric growth would, at some point, exceed the arithmetic returns of the earth, principally in the arena of food.