After Money

The discussion of the risks of complexity in the last few posts here on The Archdruid Report dealt in large part with abstract concepts, though the news headlines did me the favor of providing some very good examples of those concepts in action. Still, it’s time to review some of the practical implications of the ideas presented here, and in the process, begin wrapping up the discussion of economics that has been central to this blog’s project over the last year and a half.

The news headlines once again have something to contribute. I think most of my readers will be aware that the economic troubles afflicting Europe came within an ace of causing a major financial meltdown last week. The EU, with billions in backing from major central banks around the globe, managed to stave off collapse for now, but it’s important to realize that the rescue package so hastily cobbled together will actually make things worse in the not-very-long run. Like the rest of the industrial world, the EU is drowning in excess debt; the response of the EU’s leadership is to issue even more debt, so they can prop up one round of unpayable debts with another. They’re in good company; Japan has been doing this continuously since its 1990 stock market and real estate collapse, and the US has responded to its current economic nosedive in exactly the same way.

It’s harsh but not, I think, unfair to characterize this strategy as trying to put out a house fire by throwing buckets of gasoline onto the blaze. Still, a complex history and an even more complex set of misunderstandings feeds this particular folly. Nobody in Europe has forgotten what happened the last time a major depression was allowed to run its course unchecked by government manipulation, and every European nation has its neofascist fringe parties who are eager to play their assigned roles in a remake of that ghastly drama. That’s the subtext behind the EU-wide effort to talk tough about austerity while doing as little as possible to make it happen, and the even wider effort to game the global financial system so that Europe and America can continue to consume more than they produce, and spend more than they take in, for at least a little longer.

There was a time, to be sure, when this wasn’t as daft an idea as it has now become. During the 350 years of the industrial age, a good fraction of Europe did consume more than it produced, by the simple expedient of owning most of the rest of the world and exploiting it for their own economic benefit. As late as 1914, the vast majority of the world’s land surface was either ruled directly from a European capital, occupied by people of European descent, or dominated by European powers through some form of radically unequal treaty relationship. The accelerating drawdown of fossil fuels throughout that era shifted the process into overdrive, allowing the minority of the Earth’s population who lived in Europe or the more privileged nations of the European diaspora – the United States first among them – not only to adopt what were, by the standards of all other human societies, extravagantly lavish lifestyles, but to be able to expect that those lifestyles would become even more lavish in the future.

I don’t think more than a tiny fraction of the people of the industrial world has yet begun to deal with the hard fact that those days are over. European domination of the globe came apart explosively in the four brutal decades between 1914, when the First World War broke out, and 1954, when the fall of French Indochina put a period on the age of European empire. The United States, which inherited what was left of Europe’s imperial role, never achieved the level of global dominance that European nations took for granted until 1914 – compare the British Empire, which directly ruled a quarter of the Earth’s land surface, with the hole-and-corner arrangements that allow America to maintain garrisons in other people’s countries around the world. Now the second and arguably more important source of Euro-American wealth and power – the exploitation of half a billion years of prehistoric sunlight in the form of fossil fuels – has peaked and entered on its own decline, with consequences that bid fair to be at least as drastic as those that followed the shattering of the Pax Europa in 1914.

To make sense of all this, it’s important to recall a distinction made here several times in the past, between the primary, secondary, and tertiary economies. The primary economy is the natural world, which produces around 3/4 of all economic value used by human beings. The secondary economy is the production of goods and services from natural resources by human labor. The tertiary economy is the production and exchange of money – a term that includes everything that has value only because it can be exchanged for the products of the primary and secondary economies, and thus embraces everything from gold coins to the most vaporous products of today’s financial engineering.

The big question of conventional economics is the fit between the secondary and tertiary economies. It’s not at all hard for these to get out of step with each other, and the resulting mismatch can cause serious problems. When there’s more money in circulation than there are goods and services for the money to buy, you get inflation; when the mismatch goes the other way, you get deflation; when the mechanisms that provide credit to business enterprises gum up, for any number of reasons, you get a credit crunch and recession, and so on. In extreme cases, which used to happen fairly often until the aftermath of the Great Depression pointed out what the cost could be, several of these mismatches could hit at once, leaving both the secondary and tertiary economies crippled for years at a time.

This is the sort of thing that conventional economic policy is meant to confront, by fiddling with the tertiary economy to bring it back into balance with the secondary economy. The reason why the industrial world hasn’t had a really major depression since the end of the 1930s, in turn, is that the methods cobbled together by governments to fiddle with the tertiary economy work tolerably well. It’s become popular in recent years to insist that the unfettered free market is uniquely able to manage economic affairs in the best possible way, but such claims fly in the face of all the evidence of history; the late 19th century, for example, when the free market was as unfettered as it’s possible for a market to get, saw catastrophic booms and busts sweep through the industrial world with brutal regularity, causing massive disruption to economies around the world. Those who think this is a better state of affairs than the muted ebbs and flows of the second half of the twentieth century should try living in a Depression-era tarpaper shack on a dollar a day for a week or two.

The problem we face now is that the arrangements evolved over the last century or so only address the relationship between the secondary and tertiary economies. The primary economy of nature, the base of the entire structure, is ignored by most contemporary economics, and has essentially no place in the economic policy of today’s industrial nations. The assumption hardwired into nearly all modern thought is that the economic contributions of the primary economy will always be there so long as the secondary and tertiary economy are working as they should. This may just be the Achilles’ heel of the entire structure, because it means that mismatches between the primary economy and the other two economies not only won’t be addressed – they won’t even be noticed.

This, I suspect, is what underlies the rising curve of economic volatility of the last decade or so: we have reached the point where the primary economy of nature will no longer support the standards of living most people in the industrial world expect. Our politicians and economists are trying to deal with the resulting crises as though they were purely a product of mismatches between the secondary and tertiary economies. Since such measures don’t address the real driving forces behind the crises, they fail, or at best stave off trouble for a short time, at the expense of making it worse later on.

The signals warning us that we have overshot the capacity of the primary economy are all around us. The peaking of world conventional oil production in 2005 is only one of these. The dieoff of honeybees is another, on a different scale; whatever its cause, it serves notice that something has gone very wrong with one of the natural systems on which human production of goods and services depends. There are many others. It’s easy to dismiss any of them individually as irrelevancies, but every one of them has an economic cost, and every one of them serves notice that the natural systems that make human economic activity possible are cracking under the strain we’ve placed on them.

That prospect is daunting enough. There’s another side to our predicament, though, because the only tools governments have available these days to deal with economic trouble are ways of fiddling with the tertiary economy. When those tools don’t work – and these days, increasingly, they don’t – the only option policy makers can think of is to do more of the same, following what’s been called the “lottle” principle – “if a little doesn’t work, maybe a lot’ll do the trick.” The insidious result is that the tertiary economy of money is moving ever further out of step with the secondary economy of goods and services, yielding a second helping of economic trouble on top of the one already dished out by the damaged primary economy. Flooding the markets with cheap credit may be a workable strategy when a credit crunch has hamstrung the secondary economy; when what’s hitting the secondary economy is the unrecognized costs of ecological overshoot, though, flooding the markets with cheap credit simply accelerates economic imbalances that are already battering economies around the world.

One interesting feature of this sort of two-sided crisis is that it’s not a unique experience. Most of the past civilizations that overshot the ecological systems that supported them, and crashed to ruin as a result, backed themselves into a similar corner. I’ve mentioned here several times the way that the classic Lowland Maya tried to respond to the failure of their agricultural system by accelerating the building programs central to their religious and political lives. Their pyramids of stone served the same purpose as our pyramids of debt: they systematized the distribution of labor and material wealth in a way that supported the social structure of the Lowland Mayan city-states and the ahauob or “divine kings” who ruled them. Yet building more pyramids was not an effective response to topsoil loss; in fact, it worsened the situation considerably by using up labor that might have gone into alternative means of food production.

An even better example, because a closer parallel to the present instance, is the twilight of the Roman world. Ancient Rome had a sophisticated economic system in which credit and government stimulus programs played an important role. Roman money, though, was based strictly on precious metals, and the economic expansion of the late Republic and early Empire was made possible only because Roman armies systematically looted the wealth of most of the known world. More fatal still was the shift that replaced a sustainable village agriculture across most of the Roman world with huge slave-worked latifundiae, the industrial farms of their day, which were treated as cash cows by absentee owners and, in due time, were milked dry. The primary economy cracked as topsoil loss caused Roman agriculture to fail; attempts by emperors to remedy the situation failed in turn, and the Roman government was reduced to debasing the coinage in an attempt to meet a rising spiral of military costs driven by civil wars and barbarian invasions. This made a bad situation worse, gutting the Roman economy and making the collapse of the Empire that much more inevitable.

It’s interesting to note the aftermath. In the wake of Rome’s fall, lending money at interest – a normal business practice throughout the Roman world – came to a dead stop for centuries. Christianity and Islam, the majority religions across what had been the Empire’s territory, defined it as a deadly sin. More, money itself came to play an extremely limited role in large parts of the former Empire. Across Europe in the early Middle Ages, it was common for people to go from one year to the next without so much as handling a coin. What replaced it was the use of labor as the basic medium of exchange. That was the foundation of the feudal system, from top to bottom: from the peasant who held his small plot of farmland by providing a fixed number of days of labor each year in the local baron’s fields, to the baron who held his fief by providing his overlord with military service, the entire system was a network of personal relationships backed by exchanges of labor for land.

It’s common in contemporary economic history to see this as a giant step backward, but there’s good reason to think it was nothing of the kind. The tertiary economy of the late Roman world had become a corrupt, metastatic mess; the new economy of feudal Europe responded to this by erasing the tertiary economy as far as possible, banishing economic abstractions, and producing a system that was very hard to game – deliberately failing to meet one’s feudal obligations was the one unforgivable crime in medieval society, and generally risked the prompt and heavily armed arrival of one’s liege lord and all his other vassals. The thought of Goldman Sachs executives having to defend themselves in hand-to-hand combat against a medieval army may raise smiles today, a thousand years ago, that’s the way penalties for default were most commonly assessed.

What makes this even more worth noting is that very similar systems emerged in the wake of other collapses of civilizations. The implosion of Heian Japan in the tenth century, to name only one example, gave rise to a feudal system so closely parallel to the European model that it’s possible to translate much of the technical language of Japanese bushido precisely into the equivalent jargon of European chivalry, and vice versa. More broadly, when complex civilizations fall apart, one of the standard results is the replacement of complex tertiary economies with radically simplified systems that do away with abstractions such as money, and replace them with concrete economics of land and labor.

There’s a lesson here, and it can be applied to the present situation. As the rising spiral of economic trouble continues, we can expect drastic volatility in the value and availability of money – and here again, remember that this term refers to any form of wealth that only has value because it can be exchanged for something else. Any economic activity that is solely a means of bringing in money will be held hostage to the vagaries of the tertiary economy, whether those express themselves through inflation, credit collapse, or what have you. Any economic activity that produces goods and services directly for the use of the producer, and his or her family and community, will be much less drastically affected by these vagaries. If you depend on your salary to buy vegetables, for example, how much you can eat depends on the value of money at any given moment; if you grow your own vegetables, using your own kitchen and garden scraps to fertilize the soil and saving your own seed, you have much more direct control over your vegetable supply.

Most people won’t have the option of separating themselves completely from the money economy for many years to come; as long as today’s governments continue to function, they will demand money for taxes, and money will continue to be the gateway resource for many goods and services, including some that will be very difficult to do without. Still, there’s no reason why distancing oneself from the tertiary economy has to be an all-or-nothing thing. Any step toward the direct production of goods and services for one’s own use, with one’s own labor, using resources under one’s own direct control, is a step toward the world that will emerge after money; it’s also a safety cushion against the disintegration of the money economy going on around us – a point I’ll discuss in more detail, by way of a concrete example, in next week’s post.

The Principle of Subsidiary Function

I trust my readers will recognize a hint of sarcasm if I say that the good news just keeps on rolling in. Of the smoke plumes that were rising into the industrial world’s increasingly murky skies as last week’s post went up, one – the billowing cloud of assorted mis-, mal- and nonfeasance bubbling out of Goldman Sachs – has faded from the front pages for the moment, though it will doubtless be back before long. On the other hand, the two remaining – the cratering of Greece’s borrow-and-spend economics and the spreading ecological catastrophe in the Gulf of Mexico – have more than made up the difference.

It’s a matter of chance, more than anything else, that Greece happened to become the poster child for what happens when you insist on buying off influential sectors of the electorate with money you don’t happen to have. What we are pleased to call democracy these days is a system in which factions of the political class contend for power by spending large sums of other people’s money to buy the temporary loyalty of voting blocs. There’s nothing especially novel in this system, by the way; the late Roman Republic managed (or, rather, mismanaged) its affairs in exactly the same manner, and such classical theorists as Polybius argued that this is the way democracies normally end up working (or, rather, not working).

You might think that Greece, which happens to be Polybius’ home turf, would have had the common sense to dodge this particular bullet. No such luck; recent Greek governments, like many others, made the strategic mistake of using borrowed funds to provide a good deal of that unearned largesse, and the resulting debt load eventually collided head on with the ongoing deleveraging of the global economy in the wake of the latest round of bubble economics. The result was a fiscal death spiral, as doubts about Greece’s ability to pay its debts drove up the interest rates Greece had to pay to finance those debts, increasing the doubts further; rinse and repeat until something comes unglued. The much-ballyhooed announcement of an EU bailout package stabilized the situation for a few days, but that’s about all; the death spiral has already resumed, accompanied by bloody riots in the streets of Athens and comments by the usual highly placed sources that some kind of default is becoming inevitable.

Headlines for the last few days have warned of similar head-on collisions taking shape in Spain and Portugal. What very few people in the mainstream media are willing to mention is that the most spectacular examples of borrow-and-spend economics are not little countries on the economic margins of Europe, but Britain and the United States. It’s anyone’s guess when investors will begin to realize that neither countries has any way of paying back the gargantuan sums both have borrowed of late to prop up their crippled economies; when it does become clear, the rush to the exits will likely be one for the record books.

It’s equally a matter of chance, in turn, that the Deepwater Horizon drilling platform happened to be the one to fail catastrophically. That something of the sort was going to happen was pretty much a given; drilling for oil a mile underwater is risky, complicated, technologically challenging work, and any oil well, anywhere, can undergo a blowout when it’s being drilled. It just so happened that this was the one that happened to blow, and the lax safety standards and budget-conscious corner-cutting endemic to today’s corporate world made it pretty much inevitable that when a blowout happened, it would turn into a disaster.

Bad as it is already, it may get much, much worse. According to a memo leaked to Gulf Coast newspapers, BP officials have privately admitted to the US government that the torrent of hot, high-pressure crude oil surging through the broken pipe could quite conceivably blow the remaining hardware off the top of the well. This would turn the current 5,000-barrel-a-day spill into a cataclysmic gusher of 40,000 to 60,000 barrels a day. Capping such a flow a mile under water is beyond current technology; if things go that way, there may be no other option than waiting until the flow drops to a more manageable level. If that means the death of every multicellular organism in the Gulf of Mexico, storm surges this hurricane season that leave everything for miles inland coated with black goo, and tar balls and dead birds floating ashore wherever the Gulf Stream goes – and yes, these are tolerably likely consequences if the wellhead blows – that’s what it means.

As I discussed in last week’s post, a common thread of complexity unites these crises with each other, and with others of the same magnitude that are statistically certain to happen in the months and years ahead of us. We – meaning here those of us who live in the world’s industrial nations – have allowed our societies to become more complex than any collection of human minds can effectively manage, and our only response to the problems this causes is to add additional layers of complexity. The result, of course, is that our societies become even more unmanageable, and the problems they generate even more extreme and intractable. Once again, rinse and repeat until something comes unglued.

Now the simple, logical solution to a problem caused by too much complexity is to reduce the amount of complexity. Joseph Tainter’s The Collapse of Complex Societies, which has deservedly become required reading in peak oil circles, argues that societal collapse has exactly this function; when a society has backed itself into a corner by heaping up more complexity than it can manage, collapse offers the one way out. In a post on The Oil Drum a while back, Ugo Bardi made a similar point, arguing that if anyone in Roman times had tried to come up with a sustainable society to which the Roman world could transition, their best option would have looked remarkably like the Middle Ages.

Bardi pointed out, mind you, that there was precisely no chance that any such advice would have been taken by even the wisest of Roman emperors, and it’s just as true that a proposal to reduce the complexity of contemporary civilization can count on getting no more interest from the political classes of today’s industrial nations, or for that matter from the population at large. The experiment has been tried, after all; it’s worth remembering the extent to which the baby steps toward lower complexity taken in the 1970s helped to fuel the Reagan backlash of the 1980s.

Now it’s true that some of the achievements of the 1970s – the dramatic advances in organic agriculture, the birth of the modern recycling industry, the refinement of passive solar heating and solar hot water technology, and more – remained viable straight through the backlash era, and are viable today; and it’s also true that today’s economic debacle, not to mention the looming impact of peak oil, bid fair to make a good many of the legacies of the 1970s much more popular in the years right ahead of us. Still, the dream of a collective conversion to sustainable lifestyles that filled so many pages in Rain, Seriatim, and other journals of that period is further away now than it was then; so much time and so many resources have been wasted that it’s too late for such a collective conversion to work, even if the political will needed for one could be found.

Still, when you get right down to it, the hope of a mass conversion to sustainability by political means – by legislation, let’s say, backed up by the massive new bureaucracy that would be needed to enforce "green laws" affecting every detail of daily life – is yet another attempt to solve a complexity-driven problem by adding on more complexity. That’s a popular strategy, for the same reasons that any other attempt to deal with the problems of complexity through further complexity is popular these days: it makes sense to most of us, since it’s the sort of thing we’re used to doing, and it provides a larger number of economic and social niches for specialists – in this case, members of the professional activist community, who might reasonably expect to step into staff positions in that new bureaucracy – who have the job of managing the new level of complexity for the benefit – at least in theory – of those who have to live with it.

All of this is very familiar ground, echoing as it does the way that countless other efforts at reform have turned into layers of complexity in the past. To suggest, as I do, that it won’t work, doesn’t mean that it won’t be tried. It’s being tried right now, in many countries and on many different levels, with enough success that in Britain, at least, the number of Transition Town activists who have found their way onto municipal payrolls has excited grumbling from members of less successful pressure groups.

In the same way, I think it’s beyond question that every other reasonably well funded attempt to solve the problems of complexity with more complexity will get at least some funding, and be given at least a token trial. We’ve already had the corn ethanol boom here in the US; the cellulosic ethanol and algal biodiesel booms have been delayed a bit by the impact of a collapsing economy on credit markets, but somebody will doubtless find a way around that in good time; down the road a bit, a crash program to build nuclear power plants is pretty much a foregone conclusion; fusion researchers will have the opportunity to flush billions more dollars down the same rathole they’ve been exploring since the 1950s; you name it, if it’s complex and expensive, it will get funding.

Not all of that money will be entirely wasted, either. Current windpower technologies and PV panels may not be sustainable over the long term, but for the decades immediately ahead they’re an excellent investment; anything that can keep the grid supplied with power, even intermittently, as fossil fuel production drops out from under the world’s industrial economies may be able to help make the Long Descent less brutal than it might otherwise be. With any luck, there’ll be a boom in home insulation and weatherstripping, a boom in solar hot water heaters, a boom in backyard victory gardens, and the like – small booms, probably, since they aren’t complex and expensive enough to catch at the contemporary imagination, but even a small boom might help.

On the whole, though, the pursuit of complexity as a solution for the problems caused by complexity is a self-defeating strategy. It happens to be the self-defeating strategy to which we’re committed, collectively and in most cases individually as well, and it can be dizzyingly hard for many people to think of any action at all that doesn’t follow it. Take a moment, now, before reading the rest of this post, to give it a try. Can you think of a way to deal with the problems of complexity in today’s industrial nations – problems that include, but are not limited to, rapidly depleting energy supplies, ecological destruction, and accelerating economic turbulence – that doesn’t simply add another layer of complexity to the mess?

There’s at least one such way, and longtime readers of this blog will not be surprised to learn that it’s a way pioneered decades ago, in a different context, by maverick economist E.F. Schumacher. That way starts with what he termed the Principle of Subsidiary Function. This rule holds that the most effective arrangement to perform any function whatsoever will always assign that function to the smallest and most local unit that can actually perform it.

It’s hard to think of any principle that flies more forcefully in the face of every presupposition of the modern world. Economies of scale and centralization of control are so heavily and unthinkingly valued that it rarely occurs to anyone that in many situation they might not actually be helpful at all. Still, Schumacher was not a pie-in-the-sky theorist; he drew his conclusions on the basis of most of a lifetime as a working economist in the business world. Like most of us, he noticed that the bigger and more centralized an economic or political system happened to be, the less effectively it could respond to the complex texture of local needs and possibilities that makes up the real world.

This rule can be applied to any aspect of the predicament of industrial society you care to name, but just now I want to focus on its application to the vexed question of how to respond to that predicament. Attempts to make such a response on the highest and least local level possible – for example, the failed climate negotiations that reached their latest pinnacle of absurdity in the recent debacle at Copenhagen – have done quite a respectable job of offering evidence for Schumacher’s contention. Attempts to do the same thing at a national level aren’t doing much better. The lower down the ladder of levels you go, and the closer you get to individuals and families confronting the challenges of their own lives, the more success stories you find.

By the same logic, the best place to start backing away from an overload of complexity is in the daily life of the individual. What sustains today’s social complexity, in the final analysis, is the extent to which individuals turn to complex systems to deal with their needs and wants. To turn away from complex systems on that individual level, in turn, is to undercut the basis for social complexity, and to begin building frameworks for meeting human needs and wants of a much simpler and thus more sustainable kind. It also has the advantage – not a small one – that it’s unnecessary to wait for international treaties, or government action, or anything else to begin having an effect on the situation; it’s possible to begin right here, right now, by identifying the complex systems on which you depend for the fulfillment of your needs and wants, and making changes in your own life to shift that dependency onto smaller or more local systems, or onto yourself, or onto nothing at all – after all, the simplest way to deal with a need or want, when doing so is biologically possible, is to stop needing or wanting it.

Such personal responses have traditionally been decried by those who favor grand collective schemes of one kind or another. I would point out in response, first, that a small step that actually happens will do more good than a grandiose plan that never gets off the drawing board, a fate suffered by nearly all of the last half century’s worth of grandiose plans for sustainability; second, that starting from personal choices and local possibilities, rather than abstract and global considerations, makes it a good deal more likely that whatever evolves out of the process might actually work; and third, that tackling the crisis of industrial society from the top down has been tried over and over again by activists for decades now, with no noticeable results, and maybe it’s time to try something else. How that "something else" might be pursued in practice will be the topic of next week’s post.