Amid all the insanities and "Faux and Balanced" in the major newspapers like the Washington Post and New York Times, voices of sanity slip into the discussion. Today’s New York Times has such a "slip" with a discussion likely discordant to many in the American societal view, of a complexity and perspective that falls outside the acceptable weltanschauung. But, in many ways, it is those ideas that make us uncomfortable that merit the most focused attention. With that in mind, a hope, that Eric Zencey‘s Mr. Soddy’s Ecological Economy actually gets read and discussed inside "the Village" of media interlocutors.
Zencey focuses his lens on a man that few Americans have likely heard of, "a little-regarded British chemist-turned-economist who wrote before and during the Great Depression… roundly dismissed as a crank… who carried on a quixotic campaign for a radical restructuring of global monetary relationships." He rooted his economic discussions on physics: the economy as a machine which requires energy to run. And, don’t forget the laws of thermodynamics that "forbid perpetual motion." Thus, Soddy warned of economics that treated infinite wealth creation and growth as nothing more than perpetual motion, since you can’t create something out of nothing (Silicon Valley-based internet startups aside).
Soddy — and the entire field of ecological economists — can be summarized to argue that we must be balanced, that wealth is limited and thus debt should be limited, as well, so as not to create unsustainable situations that will create, inexorably, crashes with potentially catastrophic crashes.
Remember that Soddy was "routinely dismissed as a crank" when considering his five prescriptions, amid the Great Depression, for creating a sensible global economic structure.
The first four were to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort. All of these are now conventional practice.
Soddy’s fifth proposal, the only one that remains outside the bounds of conventional wisdom, was to stop banks from creating money (and debt) out of nothing.
This last, in essence, would crash the cards of modern fiscal structures: the entire concept of "leveraging," with the same money is loaned out multiple times, would be constrained. If all loans had to be balanced with real assets (remember that old community Savings & Loan where neighbors were able to buy homes using the Christmas accounts of those around them?), much of the House of Cards that have tumbled around us all in the past year would be impossible to recreate.
As we search for paths to a sustainable future, we must understand and structure all society within that conception. Part of the debt pyramid has been a near unlimited borrowing against the future and "eating the capital" of environmental reserves. Soddy’s vision of a real balance in the fiscal system might be part of the structural shift required to step back from this uncontrolled borrowing and create a balanced system that will inhibit future crashes; whether these be economic, energy, or environmental (or all three) in nature.
NOTE: Zencey’s piece is well complimented by Friedman’s column, (NO) Drill, Baby, Drill, which reminds us of "the need to remember that nature provides [an] incredible range of economic services "