The Archdruid Report - Archive

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.