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A Really New World Order

The End of the Old World

Tis all in pieces, all coherence gone.

John Donne, The Anatomy of the World (1621)

Things fall apart, the centre cannot hold.

W. B. Yeats, Second Coming (1919)

The speed at which the global financial crisis is unfolding has taken even the most expert economists by surprise. In the normal way a recession develops in four stages over two or three years, starting with a slowdown in real estate, then in retailing and leisure, followed by unemployment in core industries and a surge in bankruptcies. This time it has been different, for although the housing industry worldwide has been slumping for a year or more, especially in the US, unemployment has suddenly become a problem on a scale which no official forecaster could see in spring 2008. The figure for job losses in November alone is over half a million, five times what it was in August and the worst in 124 years of records. Economists struggle to interpret its significance, one called in “indescribably terrible”. Add to this the explosive creation of “money” (the quotes are important) to save the banking system with taxpayers’ hard-earned savings, and it becomes clear that historical economic charts are becoming worse than useless: they are positively dangerous in these turbulent new waters. Old solutions are as likely to make things worse rather than better.

As against previous recessions, which gave some time to adjust, the present crisis has come like a bullet in the head, paralyzing the banking and global trading system so completely that it is hard to see what measures could be taken to resuscitate it. It is hardly possible not to doubt that we are at the end of a banking paradigm, for never before has there been a situation where banks in general have refused to accept the bills of credit of other perfectly respectable banks. The freeze in lending now appears to be systemic, for banks do not know whose balance sheet is riddled with black holes of worthless derivatives. Indeed, without a market for most of them, most banks do not even know the value of their own asset base. As earlier noted, there is about $600 trillion dollars worth of derivatives in the global financial system, and if only five per cent were to go into default, economic institutions, but mostly banks, would suddenly have to find $15 trillion – that is, $15,000,000,000,000. Although we are dealing here with magnitudes, which mathematically trained economics do not like to do, it can confidently be said that even with coordinated government support the world banking system cannot be recapitalized on this scale. We are coming to the end of an era.

The words quoted at the top apply with equal force to our own time. Donne was referring to the breakdown of a European culture under the forces of Copernicus’s new view of the universe and the split in Christendom that  precipitated the Thirty Years War Yeats was writing just after the First World War about a “rough beast slouching towards Bethlehem to be born,” a reference to the emergence of dark new global forces. The economic scene today is losing all coherence, and breaking up under forces which this website has sketched very inadequately, but it is worth summarizing them to keep the theme in focus. In a word, the three key elements of classical economics are collapsing under pressures that can no longer be contained. Fiat and debt money, detached from asset backing, is losing its social function; banks have become both gamblers and bookmakers, and the trust which underpins both banking and a stable currency has been destroyed through a combination of greed and confidence trickery at every level of the financial system. The thrust of this website is that nothing can be put right until the ethical element of economics is brought back. Like it or not, a new ethical foundation must be relaid on which new economic structures can be raised. There are a few, but not many, examples from history to give some guidance in this unfamiliar field.

The challenge is monumental, for greed and deceit have become institutionalized and, as well, a kind of self-delusion has become normalized in the way that debt has been monetized. That is to say, in the West, and especially in America and Britain, loan money has become an everyday currency, without clear idea of how the loan is to be repaid. A quite astonishing statement from the US. Treasury Secretary reveals how taken-for-granted this distorted view of money has become. Speaking on December 2, 2008, he said, “Millions of Americans are being denied credit or facing rising credit card rates, making it more expensive for families to finance everyday purchases.” I have emphasized the last three words because they reveal inadvertently the belief that it is natural and normal to purchase everything by putting off payment to the future, thanks to helpful lending institutions. Whole nations are sleepwalking to economic disaster under the delusion that we can borrow our way to prosperity, for borrowing without limit is being promoted by the central banks of America, Britain and the European Union.

Can we rebuild the old world and make it workable with tighter regulations? There are many voices calling for this, including those of Gordon Brown, President Sarkozy and President-elect Obama, but the fact is that there was already ample regulation to prevent all this happening. The real problem is that the regulatory structure in America has been systematically dismantled by those who did not wish to be regulated, and elsewhere (as with Britain’s Financial Services Authority) regulatory bodies have proved to be either blind to what was going on or unwilling to use their legal powers. Where was the FSA when Northern Rock was playing fast and loose with banking principles? President Reagan’s mantra of “the magic of the markets” seems to have lulled everyone into trusting that self-regulation, or “light touch regulation,” would keep the financial world in order, but when greed and deception are rife, self-regulation is just a weasel argument for no-regulation.

Global economic events are now changing at such a pace that one cannot do much more than give a few snapshots to indicate the direction in which they are heading, and on that basis we can discern the end of three thousand years of economic history, since money was invented, and three hundred years of political history, since the nation state was recognized as the basic economic community. In the few months since I embarked on this website, socio-economic trends which I have traced back to their origins in a very brief way are now culminating in a sort of banking and monetary Götterdämmerung. The collapse has come about through deception at the highest level and because it has been practised by the most respectable institutions, it is hard for the ordinary person to believe or even to comprehend. Previous pages of the website have been devoted to making institutional crime comprehensible.

To speak thus is to risk getting lost in abstractions, but the concrete reality is that the wealth of the planet becomes concentrated in fewer and fewer hands, and the ordinary person wonders why they have ended up owing the bank £200,000 on a house which is worth only £100,000, or why the shares they bought for their retirement are worth only a quarter of what they cost, or why the value of their savings is melting down or why they are suddenly out of a job and unemployable.

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The Evolutionary Spiral

What we are witnessing is the latest turn in an evolutionary spiral that has taken the species from the tribal group in which barter was the only form of economic activity to the nation state with all its complex monetary institutions and political associations. The vector of change has been towards larger groupings and more sophisticated ways of using money, but under all change has been a struggle between two types of human being and two tendencies within each individual. At its simplest, it can be seen as a struggle between greed and unselfishness, but at a deeper level it is a matter of empathy and self-identity. Greed in the individual goes along with moral numbness more generally, and greed in the group, labelled mercantilism by economists, goes along with war. The constant antagonism between empathy and moral autism seems to break out into the open when humankind crosses critical barriers in social organisation, and we take a critical step forward in our understanding of what it means to be human.

The conflict between primitive, greedy man and a higher kind of humanity is age-old.  One can see it in the Old Testament, where spirituality is invariably linked with social awareness, as, for instance, the prophet Amos railing against those who “swindle and tamper with the scales, who buy up the poor for money and the needy for a pair of sandals (Amos 8:46). One sees it in Dante, acutely aware of a world passing from mediaeval culture to the early stages of the Renaissance and racked by endemic war. His political writings hinge on the conflict between cieca cupidigia, e ira folle  – “blind greed, insane folly” - and fratellanza - “brotherhood” which is the only basis for any worthwhile human group. We are now facing the biggest step of all, from seeing ourselves as members of a nation, with all the tribal and selfish instincts it preserves, or members of a global family. This ethical-economic issue is not abstract philosophy but a matter of survival. To quote from Buckminster Fuller’s Utopia or Oblivion: The Prospect for Humanity (1969):

Humanity now, for the first time in history, has the realistic opportunity to help evolution do what it is inexorably intent on doing – converting all humanity into one harmonious world family and making that family sustainingly, economically successful.

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The Economic Crisis in Four Pictures

The phrases “Peak Oil” and “the end of oil” have come into prominence in the past few years, indicating a situation in which by far the greater part of the world’s petroleum resources has been already discovered and best estimates point to lower production year by year until near total depletion about mid-century. The obvious significance of this forecast is that the world will have to find alternative sources of energy to run cars and heat homes, but it goes much further than this. Without oil and natural gas the world will be without plastics and fertilizer, and the overall impact of this development will be devastating, as witness Fritz Schumacher, writing in 1973:

There is no substitute for energy. The whole edifice of modern society is built upon it ... . It is not ‘just another commodity’ but the precondition of all commodities, a basic factor equal with air, water and earth

To find a substitute for oil and coal as fuel is not an impossible task, though we have hardly yet taken it seriously, but we are looking at Peak Everything around the same time, the exhaustion of almost all minerals (barring iron, aluminium and coal) within a time scale of thirty to seventy years at present rates of extraction and recycling. We have lived until now as if the planet had limitless boundaries and inexhaustible food, water, forests, fish in the sea, and as if we all had inalienable rights to have as many children as we wished. In all these respects, the future is very bleak indeed, for there is no reason to think that national governments – especially when elected on a popularity ticket – will do anything about the onrushing catastrophe until it is upon us. More detail on this topic can be found on my personal website under “Facing the Future.”  

The discovery and exploitation of oil as a source of energy has been an economic event of epochal significance, which can be appreciated by standing back from it and seeing it in the context of even a couple of centuries. The graph below shows a spike of economic advance on all fronts from which everyone in the West has benefited. It has been said that we have all had the equivalent of a hundred slaves, a dramatic statement which can be justified very briefly by pointing to the work that a single farmer can do with a tractor. Very shortly the world will return to a situation without this cheap energy, and there is as yet no plan to adapt.

The graph is adapted from Richard Heinberg’s  Powerdown: Option and Actions for a Post-carbon World  (2004), which is highly recommended, informative and readable, and, incidentally, has more to say about the economic influence of the Neocons to add to the brief information on this website.

The second picture illustrates the astonishing rise in the money supply in America after the Paulson coup, showing how within one week there has been created “out of thin air” (Keynes’ expression) as much money as in the past twenty five years.

This is Federal Reserve data, and there could hardly be more conclusive evidence for inflation and hyperinflation coming within the next two or three years.

The third Picture is of world population – past, present and predicted.

If this prediction by the United Nations is accurate, world population will have gone from its present six billion to nine billion by 2050. How is the planet going to sustain so large a number? Translating the problem into the amount of arable land per person, and assuming other factors such as desertification, gives us the following picture.

This is an exemplary picture of a far deeper problem, for along with the shrinkage in available land, as the population increases there will be a corresponding shrinkage in other essentials, such as clean water, grain, fish stocks and every kind of commodity.

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Economics for a Better World

With the present economic order being tested to destruction, we must start thinking about what is to follow and what kind of sustainable system is possible. The alternative is simply to let disaster overtake us and limit our opportunity for any action. Recent economic developments are starting to raise awareness of the need of the ethical dimension of economics, but it is assumed that the system can be reformed by a return to normal standards of decency, rather than by advance to something higher, which is the point of this website. Thus William Rees-Mogg, in a Times article of October 28, 2008 entitled “The Banks must Rediscover Victorian Values”, argues for a return to a sort of golden age when ‘a mutual trust between customer and bank was the foundation of our financial system.’  He recognizes that the deepest cause of our economic disorder is ethical, and says explicitly that

the decline of moral responsibility is the real flaw,

but he misses entirely the point that moral responsibility is alien to a global system dedicated single-mindedly to making profit.

It is an illusion that commerce and banking at global level is a game played by gentlemen. The appropriate metaphor is war, with all its ruthlessness, war in which no prisoners are taken and disinformation is a strategy. For those at the top making money is the most serious business of life. While all men may be prone to deceive and exploit at an individual level, when this kind of behaviour is scaled up to the level of global economic activity, it becomes an alternative ethics, or rather an anti-ethics in which selfishness becomes a new norm. This is the elephant in the economic room that no one sees. The joint stock company, in its drive for growth without limit, generates an insidious anti-morality. The directors’ duty is to “maximize shareholder benefit,” and they would be doing wrong if they were to subordinate this to any other aim, such as helping the sick or protecting the environment.

By chance or otherwise, two days later in the same newspaper the novelist Ben Okri takes the moral argument a critical step further. Entitled “Our false oracles have failed. We need a new vision to live by,” his article is a call to look forward rather than backward. It is worth quoting at length, for it echoes the arguments of this website, particularly about the breakdown of community:

The crisis affecting the economy is a crisis of our civilisation. The meltdown in the economy is a harsh metaphor of the meltdown of some of our value systems …. The only hope lies in a fundamental re-examination of the values that we have lived by in the past 30 years. It wouldn’t do just to improve the banking system – we need to redesign the whole edifice …. We are now at a crossroad …. To whom do we turn for guidance in our modern world? …. The Church speaks with a broken voice. Politicians are more guided by polls than by vision …. If we need a new vision for our times, what might it be? …. Education ought to be more global … we need to be a people of the world …. We must transform ourselves or perish.

It is a strange sort of economic theory that calls for self-transformation, but Okri is surely right in suggesting that global economic collapse has been caused by selfishness on an institutional scale. The vector of his thinking takes us in the opposite direction to that which mainstream economics has been following for two centuries. The call for simple unselfishness – which I take it is the germ of the self-transformation promoted by Okri – ultimately gives rise to an evolutionary agenda on every scale and to a new kind of globalisation.

In support of the need for vision and self-transformation, I would quote another novelist, J K. Rowland, who has become a half billionaire almost by accident. Giving the Commencement Address at Harvard University in June 2008, she pressed home the theme that vision and imagination go far deeper than entertainment:

In its arguably most transformative and revelatory capacity, imagination is the power that enables us to empathise with humans whose experience we have never suffered.

The words which stand out here are transformative, revelatory and empathise, and I would make the heretical statement that an enduring and beneficial economic system must have them all at its heart. If vision is to be more than smart new ways of tweaking the system now collapsing, it must be grounded in awareness of humankind as a global family.  

Such an assertion may seem at first to have nothing to do with the practical business of commerce, but it is no more than a replay of the ethical challenge that confronted economic theory and practice when slavery was abolished. Aristotle took slavery for granted, and there is nothing in the Christian scriptures to condemn it. Thomas More had assumed that slavery would exist in his Utopia and even Adam Smith, himself an abolitionist, wrote that slavery “has been universall in the beginnings of society, and the love of dominion and authority over others will probably make it perpetuall.” The real challenge, now as then, is to change public perception, so that what once was normal becomes unacceptable.

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What is an Economic Community?

Of the many still valid economic insights to be found in Aristotle’s Ethics and Politics, perhaps the one that most justifies attention today is his teaching that communities on different scales have different economic needs. The root meaning of the word “economics” is actually “management of a household”, even though Aristotle’s main economic thinking was directed to the polis or city state. It is important to know that he considered the polis to be the normative community for human development. He famously described man as zoon politikon, which does not mean “a political animal,” as commonly mistranslated, but an animal that lives in the polis. That historical information will help to focus attention again on the critical question of what constitutes a normative economic community today. Adam Smith, of course, considered the basic economic community to be the nation state, as indicated by the title of the work which established his reputation, The Wealth of Nations.

When Smith wrote, the nation state was a relatively new kind of political community, having only been given international status and legal existence by the Treaty of Westphalia in 1648. Before then the “natural” community, both political and economic, was the kingdom or, more rarely, the empire. There is, in fact, nothing natural about the nation state: it is, in Benedict Anderson’s well known phrase, an “imagined community,” made up very often from different linguistic, ethnic and religious groupings in balance. What defines them as a single nation is that they are born (the root meaning of “nation”) in a particular geographical area. What keeps the different groups unified and in balance is a common language and a code of common values, explicit or taken for granted, and most of all a heartfelt common cause – usually war against a common enemy. The globe is scattered with “failed states” which are nominally nation states, and have a seat in the United Nations Assembly, but whose inhabitants do not have the political maturity to hold the state together or live peacefully alongside ethnic or religious groups different from their own. They simply do not think as a nation. It is the height of naivety to think that a nation state can be created by drawing lines on a map. Without a certain level of education and shared moral values the concept of a democratic nation state is a tragic delusion. How much more the concept of a global family of nations.

My contention here is that the world is heading into an unprecedented chaos in which a new kind of economics will need to be created, with attention given to the smallest element of the microstructure, as against Aristotle’s city state or Smith’s nation state. It will be in effect the economic cell within the body politic, a microstructure of survival units.

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Towards a Global Family

Three new factors which have only recently entered into history give reason for hope that such a transtribal and transnational identity may be possible. Three quite different kinds of knowledge are converging to prepare the species for a step change in self-awareness.

• Knowledge that we are all inhabitants of what Barbara Ward called “spaceship Earth”. Once we have looked at a photo of the planet taken from space, we feel the stirrings of a sense of belonging a global family which has a duty to protect its members and its home.
• Knowledge that we are a species in evolution gives us a dissatisfaction with what we are and the motive to become something better or higher. Our sense of identity shifts from the past and present, and we feel increasingly that we are refugees from the future. The future of the human species now depends on those who want to change, but most critically on those who feel a deep need to actualize their unfulfilled potential as human beings.
• The communications revolution, and particularly the aptly named World Wide Web, is making new associations possible and helping to atomize traditional communities. We find it natural now to create networks from common interests, and a network is the preliminary to building a new kind of community.

The evolutionary significance of the Internet is not fully appreciated, but it is very real. In the words of MIT Professor Sherry Turkle, taken from her Life on the Screen: Identity in the Age of the Internet:

The rethinking of human identity is not just taking place among the philosophers but on the ground through a philosophy in everyday life ….

At different levels of awareness we are all asking questions about the nature of a species which we feel must be defined by something deeper than nationality. Geography will always be there, and hence something akin to the nation state must always exist, but the Internet, without fanfare, is helping to lay the foundations for a new kind of global identity.  As with the nation state, however, we cannot just glue together the component parts and hope for harmony, let alone for a sense of vibrant unity. The obstacle that now confronts the evolutionary process is like a cliff face: to make progress means that we must go higher as a body, to levels that we would never have imagined before ordinary consciousness became infused with evolutionary awareness. But perhaps Aristotle was there before us, as so often, with his distinction between the potential and the actual. In his Monarchia Dante draws upon the Nichomachean Ethics to reach the conclusion that “the specific capacity of humankind is an intellectual potentiality.” To which I would only add that the ability to know includes the ability to feel and empathize.

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Globalisation in Context

The economic significance of this evolutionary awareness springs from the simple fact that every community must of its nature be an economic community: it must have at least the wherewithal to survive, and in order to develop a culture it must have a system for trading – in fact, two systems, one internal, the other across its borders. Aristotle’s initial insight about economic units on different scales may be expanded as in the diagram below, which indicates clearly three kinds of economic community, thus suggesting that each has its own kind of problems and solutions. A considerable part of the problem of creating a global monetary system arises from the fact, rarely recognized, that a global currency may be poorly fitted for local use.

We have become so hypnotized by the theoretical benefits of global free trade that we have lost sight of the very real disadvantages that it brings, and not least what I have called the race to the bottom in wages and working conditions that has followed from global competition.

Few mainstream economists have dealt directly with this problem, largely because Ricardo’s principle of comparative advantage has been relied upon too blindly. The logic that works rather obviously on the meso-level of economics, often breaks down when scaled up to global trade. Comparative advantage asserts as an economic law – like Newton’s law of gravity in physics - that when there are no artificial restrictions to trade, such as customs and tariff barriers, everyone ultimately benefits, despite local disadvantage, since goods are made available to everyone at their cheapest price. Using a very simple example to illustrate, it would be folly to protect or encourage the minuscule English wine-producing industry by placing huge duties on imported wines. Unfortunately, things are not always as simple as that, and comparative advantage can easily become an instrument so blunt that it does more harm than good. It is in the interest of huge global companies and banks to use globalisation as a mantra – “one market under God,” as it has been wittily, but rather accurately, called. It can, however, have devastating effects on developing economies. Rather surprisingly, John Maynard Keynes was a critic of globalisation without restraints (surprising perhaps, because he had proposed a global currency to replace gold, which he called “bancor”) and his words are worth quoting in this context:

I sympathize with those who would minimize, rather than with those who would maximize, economic entanglement between nations. Ideas, knowledge, art, hospitality, travel – these are the things which should of their nature be international. But let goods be home-spun whenever it is reasonably and conveniently possible, and above all, let finance be primarily national.

The Bank of the Future

Instead of “saving the system” of banking by taxing citizens into poverty, we would surely be well advised to question the banking system in its present form, which has become so dysfunctional and socially destructive. I have made the point that the twin causes of our current economic breakdown are

• fractional reserve banking without adequate asset backing,
• money-creation without corresponding productivity.

We have become used to the idea of banks as pure profit-making machines, especially since modern technology has mechanised so many banking procedures, but a quote from Peter Blom, the chief executive of Triodos Bank, will show how distorted is this perception.

A bank should be an organisation that brings together two groups of people – depositors and borrowers, people who have money to spare and people who need it. A bank adds its knowledge and expertise [my emphasis]. If you move away from that basic principle, and allow the pressure for ever increasing profits and bonuses to force you into an abstract world of derivatives and structured products, you lose sight of what is virtual and what is real.

Looking with fresh eyes at the bank as part of a society where competition and profit are not absolutes, we can revive this basic principle of mutual assistance, and then anticipate the return to cooperative banking as the key element in a newly conceived economic microstructure. Before coming to that, however, there is something to be gained by considering the decay of another form which once brought together individuals who had money to spare and individuals who needed it.

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Banks for the People

Private banking may be the ultimate source of global corruption, but there are a few examples of flourishing banks which began with philanthropic individuals and have grown without losing their original ideals. One can think of Raiffeisen, which started in Germany, Triodos in the Netherlands and Migros (perhaps) in Switzerland. All have quite different, and fascinating, histories, with Triodos incorporating the philosophy of Rudolf Steiner, and actually using the phrase “religious renewal” in its articles of association. All, however, show in varying degrees a cooperative spirit which has come under strain as they have grown and entered into the banking mainstream.

Size alone weakens the cooperative ideal, since personal contact between lender and borrower inevitably loses its closeness, especially when the borrower is not another human being but a large company. The main obstacle to keeping idealism alive, however, is the need to compete in the market place without using the same dubious strategies and risky investments as the purely commercial banks. A bank with a highly geared capital base is both more profitable and more risky than one that works with a smaller reserve ratio. Triodos, by way of example, keeps to a reserve ratio of 6:1, against the 12:1 limit recommended by the BIS, whereas some global banks have three times the limit, thanks to off-balance operations. That is to say, by various dodges, especially derivatives, they are able to lend thirty or forty times the amount of capital on their books. By any standards that kind of high wire banking is insecure, and it is the depositors, not the directors who suffer when the fall happens.

Self-help, or pure cooperative, banking has a long and honourable history, and has taken roots in many countries, thriving best where it presents no threat to orthodox banking interests. Where it does, as for instance in the Coop bank in the UK and Mondragon in the Basque region of Spain, it tends to become little different from other commercial banks and loses the sense, and function, of being a “bank for the people.”  The most successful of self-help banking organisations have been, without doubt, the self-limiting friendly societies and building societies which enjoyed the most vigorous growth in 19th century Britain. They were not strictly banks, and deliberately avoided using that name, in order to avoid legal and practical problems. Friendly societies were the more financially flexible financial of the two, often doubling as life insurance companies, whereas building societies concentrated on enabling their member to become home owners. More generally, they were very safe places for savings depositors, for the very reason that they did not operate on the fractional reserve system of banks. It is rare for building societies to fail, and requires some skills in mismanagement. What happens when the building society becomes focused on highly geared profit-making has been shown in the sad fate of famous names such as the Halifax and Northern Rock. As regards those who resisted privatisation, it is equally sad to note the occasional reports in the press of those who deceive member-depositors by leaving them in ignorance of their better yielding accounts, which, of course, boosts corporate earnings. The spirit of profit-before-everything has infected even mutual associations.

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A Bird’s Eye View

Looking at the whole economic picture, from the global macro-level to the local micro-level, one can see the logic of the argument that different sized economic communities call for different kinds of currency, and also different kinds of banks, for the institution that lends to the local plumber by way of an unsecured overdraft is not fitted to lend the billions needed to build a new dam. Further, once we start to think of different kinds of currencies, we must work out some method of exchange between them.

The point of the arrows in the diagram should be evident by now, for the economic community on every scale is defined by the control its members have over their economic welfare, and to the extent that it has its own currency, or means of exchange, it has control over its economy. Regional control of the currency must, therefore, be an unquestionable principle in any new economic regime. Where the principle comes under strain is where a group wishes to trade across its “political” boundaries, using the word political to indicate not just the nation state but a zone of any size which has control over its currency. This may appear to be putting the cart before the horse, for we tend to assume that it is political legitimacy that ultimately defines a currency, but the most superficial consideration of the European Union will indicate how closely monetary and political identity are related. There is, indeed, a strange symbiosis that calls for further examination. To put it crudely and provocatively, I am what my currency defines me to be, and to the extent that this is true, two new questions arise: do we need a new global currency (like Keynes’ bancor) to give reality to the concept of a global family, and do we need new micro-currencies as an essential part of the survival communities that will soon become an economic necessity? The questions open up a whole new approach to economics, and the final section of this page offer some thoughts as an introduction.

Pulling Things Together

Homo sapiens, the first truly free species, is about to decommission natural selection, the force that made us …. Soon we must look deep within ourselves and decide what we wish to become.

Edward O. Wilson, Consilience: The Unity of Knowledge (1999)

We come now to a point where sufficient evidence, I hope, has been presented to show that the current economic paradigm is both unsustainable, destructive of human welfare and of the planet and derives it power from the lower human instincts of greed, deceit and the will to exploit. The evidence provided is very basic, but a full audit would require many books to explain and months of study to understand in depth. Governments throughout the world are struggling to save “the system”, the system in question being essentially the subordination of national governments to banking interests.  In a nutshell, orthodox economics is so structured as to keep every citizen permanently in debt to the banks.

The situation is no different in principle from having a credit card which will never be paid off and on which exorbitant interest must always be paid for all sorts of things, not least for wars, on which the government has spent the taxpayers’ money. It is pure illusion to think that governments have secret stores of money of their own. Until recently this state of affairs was hidden from view, but the figures have become so immense that they cannot be concealed, even though the average citizen may not understand their full significance. I will pick out just three sets of figures to show how hopeless the situation is, and how an economic system held together by the US dollar as a global reserve currency must – not might – collapse.

First, the Federal Reserve (and again I emphasize that it is a private bank) has in four weeks extorted tax commitments from the US government to the extent of $6.3 trillion, which is almost double what America spent in four and a half years on World War Two. The magazine USA Today (4/12/08) computes this at $516,000 per household. Clearly such a burden can never be paid, even to the Nth generation of taxpayers, except by devaluing the dollar by at least twenty times. The situation is very comparable in the UK, and unless one relies on the ostrich strategy in forward planning, one must prepare for a meltdown of the value of the pound sterling, and of savings and pensions, on a huge scale. On the practical aspects of this more below.

Secondly, regarding the derivatives “time bomb” primed to blow up the whole system, the largest holder of them, JP Morgan (at 31/3/08) has the extraordinary amount of $90 trillion on its books. By the same rough measure I have used earlier, if only 5% of these bets (for they are nothing more) cannot be collected from, or paid to, another bookie-bank, JP Morgan will lose $4.5 trillion. No possible bail-out can solve its financial problem, and almost all major banks are in a comparable black hole.

The third set of figures, taken from The Center of Budget and Policy Priorities, shows 29 states in America facing budget shortfalls totalling $48 billion in September, and 41 states with a $71.9 shortfall in November. Something very big is happening very rapidly. California alone needs $31.7 billion to balance its budget. It is not technically bankrupt (though some municipalities have declared bankruptcy), since it can in theory go back into balance by reducing the state’s outgoings (dismissing teachers, firemen, police, etc. and closing down services) and raising state taxes, but by law it cannot put off the future by Keynesian deficit spending. It looks very probable that a deflationary implosion will happen in the component parts of the United States or that the Federal Government may step in, yet again, to delay this by lending the required sums.

From these three sets of statistics alone even the economically illiterate can work out that “the system” is doomed, but what kind of new system can replace it is at this stage an unanswerable question. The answer will become visible only through the rear view mirror of history. We are in a similar position to that of a thoughtful person in the fifth century AD, watching the Roman empire disintegrate and wondering what would come after it. The old order was eventually resurrected in a garbled way by the Frankish kings, as the Holy Roman Empire, but the reality of post-imperial Europe was a long period of warlordism out of which eventually emerged something entirely new, the mediaeval civilization. One could not have imagined it at the time, let alone planned for it, but it has lessons to offer in the growing chaos of economics today. The point and purpose of this website is to apply the logic of evolution – and simple mathematics, as above – to convince the viewer that something similar can now be expected. A period of profound chaos is hardly avoidable, followed by a fundamentally new kind of economic world. It must be built bottom up and on the small scale. The dinosaur is dying, it is the turn of the shrew. As against the past, however, history has given us clues about how to plan for and construct it, and this should give us hope.

I can only take the first step towards it here by mapping point by point the basic assumptions of the paradigm now breaking up into a new set of assumptions. Some of these can be found elsewhere, as for example in the work of the New Economics Foundation. My contribution, and I believe it is critical, is to insist that working with the same old human nature we must eventually end up with the same kind of dysfunctional economic systems or, as I have expressed it on the first page, you can’t build a better world without better people.  But it is equally true that you can’t build better people without a better world, and the logic of that demands the construction of new kinds of communities which will be at the same time economic and educational social units.

The mapping is as follows:

Fiat or debt-money  asset-backed currency at national level, scrip at local level

Joint Stock Banks mutual banking associations

Fractional reserve lending  at least seventy per cent asset backing

The nation as economic community economic communities on appropriate scale

Growth as the aim of economics Sustainability as the aim of economics

Wealth as money or goods Wealth in terms of human fulfilment

Each of these is a topic for extensive discussion and calls for some technical or historical knowledge. Perhaps the most important is the ever-present problem of the nature of money, and while this is too vast a question to go into here, it is worth mentioning that Adam Smith was a great advocate of “real bills of exchange.” A bill in this sense was (oversimply) what might be called a “You-owe-me” issued by banks against money they had lent. The loan notes typically expired in three months, but in the meantime they circulated as money, with each new owner holding it along with goods he had acquired without physically handing over gold sovereigns. The significance of this arrangement is considerable, not least that it gives tight control over money creation, while providing money as required for the expansion of trade – a bank’s primary social function. Each of the topics listed would fully justify its own website.

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The Lifeboat Community

Some twenty years ago I was invited to attend a lecture at Oxford given by Norman Myers, the eminent environmentalist and (if I may indulge a little innocent tribal pride) a fellow Lancastrian. His speech was an exemplar of its kind, packed with fact, delivered fluently and structured to make a forceful point. His point was that, viewed globally, all the critical trends – population growth, energy and food depletion, climate change, pollution – were converging towards a catastrophic event around 2050. He is not a man who fiddles figures, and the convergence to this single point of so many developments was almost eerie. At question time afterwards, all were asking what could be done, and the answers did not rise much above, “Write to your MP,” except for one, which sticks in my mind, which was to the effect, “If we are to believe your projections, we had better start building arks, like Noah.” It appeared flippant, and was ignored, and yet I realised that the speaker had grasped a logical point that others had not. When faced with problems that are too big or solutions that are too unfamiliar, unmanageable or uncomfortable, we tend to go into denial and switch off our logical processes. In this case the audience could project a state of future chaos from the figures that Myers had provided, but their logical processes could not cope with the concept of socio-economic breakdown on such a scale. I am sure that Dr Myers could, but his immediate task was to raise awareness, not to offer detailed solutions.

Sometimes it is necessary to put off decision-making and say, “We’ll deal with that when it arises.” This is the most honest and logical response when there are too many variables in a situation or not enough information, and perhaps this is the case now, for there is probably greater economic uncertainty today than at any time in the past. Furthermore, my projection of the future is shared by very few others, and in its wholeness by no one, so far as I am aware. I am certainly not the first to challenge the role of profit in economics, which Adam Smith made central, and whose words are worth quoting in this regard. Universal prosperity, he wrote, comes “not from the benevolence of the butcher, the brewer or the baker … We address ourselves not to their humanity but to their self-love.” This is, of course, the invisible hand that not only drives the economic machine but supposedly keeps it in balance, and is an assumption on which all free market economics has been founded.

My contention is that events over the past half century have gathered towards a point where they are conclusively demonstrating that profit-driven economics is now destroying itself, along with the welfare of millions and the health of the planet. Where some economists, such as the Nobel laureate Kenneth Arrow, have argued for a compromise, with not—for-profit mini-systems within an overall profit-making system, my call is for this pattern to be reversed. That is to say, we should take not-for-profit economics as the general principle but integrate profit-orientated units within it as required. That must be, inevitably, a long term view.

In the shorter term, this website adds to the economic debate the hard prediction that the world is now entering into a breakdown without precedent. It will certainly not be a V-shaped recession, which was argued by many reputable economists even as late as early autumn 2008, or a longer, flat-bottomed recession, as Nouriel Roubini, “Dr Doom,” has predicted, and not even a 1930’s depression, as a few are now reluctantly considering, but something which hardly exists in economic literature – a disintegration. Apart perhaps from the futurist, James Howard Kunstler, I can think of no notable commentator who shares this view.

It is difficult to categorize a disintegration in economic terms. What kind of quantities can be put into the equations when society breaks down?  However, let it be conceded even as a possibility, and a whole new range of economic factors suddenly come into focus.  Among them is the need for small sustainable economic units which have been gaining the title “lifeboat communities” in some fringe writing on alternative economics. What will be possible and what will be necessary to create these on a worthwhile scale, and as a movement rather than as eccentric experiments are the opening questions in a great debate, to which I offer only two contributions, one looking backward to history, and one looking forward.

The historical contribution concerns the role played by the Benedictine revolution in the building of Europe from the social wreckage of the Dark Ages. It is largely unappreciated even by professional historians, but it began with one man attempting to escape the chaos of post-imperial Rome and finding himself unexpectedly the founder of a small community, which multiplied across Europe until at its peak there were many thousands of such communities, great and small, islands of culture, learning and humanity in a social sea where life was “nasty, brutish and short”. Until the universities came along later, they were almost the only seeds for a future European civilization. A Benedictine house was relatively self-sufficient economically in those simpler times, but its main purpose was to serve as a matrix for conversio morum, the self-transformation which Ben Okri, in the quotation above, sees as an economic necessity. I am not here suggesting a revival of the monastic tradition, but merely pointing to a powerful historical example of a relatively self-contained community where economics, learning and self-development existed in symbiotic relationship. I believe a fresh start can be made again this way, with lifeboat communities concerned first with survival, but always outward-looking. It will require some wisdom to translate old structures and religious beliefs and economic practices into a form that will meet the needs of our age.

My second contribution is to follow up possibilities offered by the Internet. To those who have a computer it is the easiest thing in the world to make connections with others and to build up a network that can be used for any purpose, good, bad or neutral. A network is a fascinating new type of social grouping, with unsuspected potential. From an evolutionary perspective it is all potential, comparable perhaps to the chrysalis which is no longer a caterpillar but certainly not a butterfly. I see the formation of a network as a necessary bridge between old and new attitudes and between communities with old and new values. Its great significance is that it allows for a deepening of awareness, a testing of ideas, a familiarizing with others without pressure to conform to anything or abandon anything. If it is conceived from the start as a developmental network, gaining focus through discussion – like a kind of informal parliament - those who do not feel sympathetic to what is emerging can drop out as easily as they dropped in.  

One can see two kinds of network, the first being simply an association of individuals with a common interest, such as football or stamp-collecting, and the second an association of individuals with a purpose in mind, such as perhaps lobbying parliament or raising money for cancer research. A developmental network is of the second kind: it has a sense of direction, but not much else, and I am suggesting that what we need now is a coming together of those who feel that we are on the threshold of evolutionary change, and that economic breakdown is a factor in the breakdown of civilization more generally, a network of those who feel the need to become involved and not to wait for the government or the church to find solutions. After years of the nanny state and centuries of the nanny church, not all will find self-help attractive. Having made this argument, I must take the first step in inviting those who resonate with these thoughts to contact me with a view to taking them further. 

If you are interested, email me at frankcparkinson@yahoo.co.uk I would particularly like to hear from any visitor to this site who has experience in constructing and managing a database or teleconferencing.

Postscript – Immediate and Practical Concerns

The accelerating breakdown of our economic system has very worrying implications for all of us, but particularly for those who must live on savings and pensions. The economic evidence brought together on this website predicts a very different investment climate from anything that previously known, and it appears that the actions now being taken by the governments of America, the UK and the European Central Bank will result in a period of deflation followed by severe inflation, and very probably by hyperinflation. History shows that when a government has overborrowed, it balances the books by stealing from savings and pension funds through inflation. There are some limited ways of avoiding being robbed in this way, and these I explore on my personal website www.frankparkinson.co.uk in the New Society pages under the heading “Personal Economics in a Collapsing Society.”

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The End of the Old World | Monty Python Economics | The Evolutionary Spiral | The Economic Crisis in Four Pictures | Economics for a Better World | What is an Economic Community? | Escape from the Tribal Mind | Towards a Global Family | The Bank of the Future | Quaker Banks: A Cautionary Tale | Banks for the People | A Bird’s Eye View | Pulling Things Together | The Lifeboat Community | Postscript – Immediate and Practical Concerns