Growing money on trees by making green the new gold
In my previous article I argued that we need to ad ecology to our balance sheet, this time I’d like to take it a step further and see how we might actually create real exponential growth and abundance by limiting the creation of money by our ecological wealth.
For that to happen we first need to ‘fix’ the market, and nature is a good place to look for inspiration. Soil for instance is a thriving market place. Trees and plants create an abundance of organic material, while transforming CO2 to clean air. In order to do this they need light and a steady supply of nutrients. That’s why we have a hyper efficient ‘supply chain’ just below the surface. Worms and other bugs grind organic matter to a pulp, to make it digestible for everyone else. Bacteria then break it down further, to individual ‘commodities’. Fungi are the clever traders that connect the needs of different ‘clients’ in a network. They make sure that everybody gets what they want and collect their commission (sugars!) in return. The one big difference between a man made market and the soil is, that the soil is circular by design. Every nutrient exists in limited quantity, but yet there is abundance, because everything is perpetually reused.
Once upon a time the amount of money in our financial ecosystem, let’s call it economy, was also limited.
The first type of money known to man, were cowry shells. These were collected early in the morning on the beach and they would serve the purpose of trading. There was no inflation or deflation, only eb and flood. If you were poor one day all you needed to do was get up early in the morning the next day and be rich.
After that came silver and gold. Admittedly less romantic, and with some serious downsides. But none the less they would at a minimum limit the production of money.
Then in the first world war governments were unable to meet the costs of war while maintaining the gold standard, and the value of money got detached from gold. From that moment on money could be printed, with no real counter value or -balance. Value would from thereafter exist on paper and currently, in a database.
So what does that value represent? Well essentially nothing. Our money is worthless.
Yes it represents things that you can buy. However, the value of money depending on things, so that you can buy things, is a form of circular reasoning. And with foodscarcity on the one hand and the sharing economy on the other, things will become either very expensive or very cheap. This poses enormous risks in terms of speculation and monopolization, which we already experienced in moderate extent in the financial crisis. So our market needs to be fixed in order to be more robust.
The first correction that is needed to make the market more like soil, is limiting the amount of money in circulation. And, rather than taking something quite random like cowry shells or gold let’s limit the creation of money with something which forms the basis for our existence: ecology.
It’s time to introduce the Green Standard, because if we can only create money upon expanding our ecosystem, then every Euro, Dollar, Yen or Pesa becomes a force for prosperity.
Second, we need a proper accounting system to create a baseline for our accounts. Preferably extrapolating our way back to about 100 years ago, before we started to deplete the planet at a massive scale.
There is quite some work being done in this area already. Natural capital accounting takes ecosystem-services as a point of departure and argues that ecosystems perform essential services to us by creating oxygen, absorbing CO2, filtering rainwater, protecting against floods, etc and attempts to quantify these services into an economic value. Currently a natural capital accounting approach is meant to influence policy decisions by measuring what was previously thought of as intangible, and that is a good first step in establishing a relation between economy and ecology. But it would require an army of ecologists the size of China to quantify every ecosystem service in every corner of the globe. And then we’d need quite a bit of historic data to determine our general regression line.
It would seem that we might need to start with a more workable solution. John Dennis Lieu (ecosystem regeneration camps) recently wrote:
“I’ve come to understand that it is the percentages and total amounts of vegetation and the percentages and total amounts of organic matter in the soils that are the indicators and determinants of ecological health.”
So, if you take the total amount of vegetation and organic soil matter, including wetlands and seabeds, this would give a good country or regional indicator of ecological health. Combining CO2 sequestration trough living and dead organic matter with emission figures provides a total climate figure that is much more precise than current standards that only partially include land-use. I can easily picture Climate Domestic Product (CDP) up there with other indicators like GDP, life expectancy and birthrate.
Combining these indicators is equally interesting. Total organic matter (OM) combined with GDP, would provide a useful baseline figure to measure economic growth in relation to ecological growth. While CDP and GDP should be tied rather than at odds. Talking about birth rate, this is also a type of national growth that needs consideration in relation to ecology and climate. So it makes sense to divide by population. Much like GDP per capita, you’d have a CDP or OM per capita ratio. A combination of these indicators drive economic decision making as a first step and as a second step provide a healthy base for money creation.
Let’s fast forward a bit more and be the devils advocate.
How would economic growth be financed at all if profit is pumped back into ecology and money creation is dependent on ecological growth?
Growth, like the market, is not principally an economic construct. If anyone knows about growth it’s ecology. Here’s where I want to introduce the future value concept. In finance future value refers to the value of a current asset at a specified date in the future based on an assumed rate of growth (interest rate) over time. Basically creating money with money. By letting your money sit there it increases exponentially over time because it gathers interest upon interest.
In ecology on the other hand there’s ecological succession; the process of change in the species structure of an ecological community over time. The community begins with relatively few pioneering plants and animals and develops through increasing complexity until it becomes stable or self-perpetuating. During this process biomass (measured as Organic Carbon) increases not in a linear fashion but exponentially, just like with future value.
So how does the future value of ecology flow back into the economy? At a small scale this has already been proven. Communities of fishers have been known to protect areas so that fish stock could regenerate, leading to a much bigger yield a few years down the road. Their investment (sacrificing catch on the short term) paid out at a much higher yield than if they had put their savings into a bank and subsequently contributed both to their standard of living as well as the surrounding ecosystem. We are talking 16–20% increases. Understandably this hasn’t gone unnoticed in the investment community.
Ecology not only creates future value, future value is inherent to ecology. So any deposit in the ecology bank will lead to a steady interest that accumulates over time. Value can be subtracted from this account for the benefit of economy without destroying the assets. In which case recovery is automatic and at no cost or effort.
However where we stand now we have overdrawn our checkbook and like the fishers we must create an upfront investment to reap the benefits. The only way to address this gap at scale is if we get greedy about ecology. Making the creation of money dependent on the restoration of our ecological future value potential, will do exactly that.
In my small country, we’d have people on every rooftop laying down green roofs and solar panels like mad. And then lifting every tile available to practice regenerative farming. This is the same country where in the 11th century feudal lords sat down with farmers to create one of the most intricate water management systems to this day. Having a lord and a farmer sit down together seemed totally impossible before the French revolution, let alone have them co-create. And they managed all this not to keep their feet dry, but to make money. If making money becomes dependent on ecosystem regeneration, we’ll have our planet sorted in no time and the Dutch are surely going to be in the front line.
But how are we going to keep inflation out the door? I’m not talking about flooding the economy with cash. I’m talking about a complimentary accounting sheet that keeps cash creation in check while also providing a medium to express the value of ecology so that it can be aggregated and financed appropriately.
What this could potentially look like is a global eco currency. A currency with a concrete economic and monetary value, but not necessarily fully interchangeable with money. Since our current money system is already mostly a database, it’s not a huge leap to create a parallel system. I’m thinking blockchain here.
In addition our greed for ecology would have a natural boundary; satisfaction. As we build our regenerative economy our gross national happiness rate will inevitably increase. So over time we will become less greedy and learn to enjoy what we have at a more easy going pace, while ecology provides for us in abundance. Isn’t that the type of renaissance we are dreaming off? And isn’t that exactly what Keynes had in mind when he predicted that our economy would achieve a state of equilibrium when everything produced would be consumed, once the appropriate price was found for it.
It turns out that if Keynes had spent a bit more time in his garden he would have realized that the appropriate price would naturally include ecology. And that that by founding our economics on ecology we would create the abundance that he and many other had been hoping for. The good news is that it is not too late. And having heard throughout my childhood that money can’t grow on trees, I’m happy to finally prove my parents wrong! And it doesn’t just grow on trees but also in soil, oceans, mud and rivers too. Just imagine what the world could look like with green being the new gold.