The Triple Crisis Blog and The Daly News blog are engaged in an interesting discussion of how the field of Ecological Economics treats money, partly in response to Alejandro Nadal’s piece on Triple Crisis, “Money Matters, Mr. Daly.” Herman Daly posted a comment there and posted a piece on the subject on his own blog, “Money and the Steady State Economy.” Rob Dietz also has a related post there, “Money is a COW.” Here, Nadal, author of the forthcoming volume from Zed Books, on the macroeconomics of sustainability, responds:
I’d like to make three comments:
1. For a very long time trade liberalization was the only dimension of macroeconomic policy that attracted the attention of scholars concerned with sustainability. That monetary reform is now being discussed in this connection is a step in the right direction. Both Daly’s and Dietz’s contributions will help move the debate to a field of analysis that has been badly neglected.
Commenting on Daly’s contribution, I certainly agree with the proposal to put monetary space under some kind of public control in order to make it work for the common good as a pre-requisite for sustainability. On the other hand, changing to 100% reserve requirements will put the economy in an entirely different ball game and I also agree with this type of proposal. Because intermediation will change radically, this has to be accompanied by careful analysis of what to do with the non-banking part of the financial system. Also, monetary policy needs to be redefined. All of this will deeply affect the dynamics of capital accumulation.
2. Another set of issues pertains to international macroeconomics because we can’t have sustainability in one country only. A first problem concerns capital flows and flexible exchange rates. And here, by the way, the notion that floating exchange rates adjust the trade balance only holds in the case of economies that have not deregulated their capital account. Capital flows need to be controlled. So we basically have to rethink macroeconomics, policy and theory.
3. Finally, I want to emphasize that unless we carry out a comprehensive critique of mainstream theory, we will not be able to make progress in thinking about sustainability. This comment applies to so-called micro-foundations, such as the notion that markets solve the allocation problem (we simply do not have a theory that shows this to be the case) and to macroeconomics, as in the case of naïve views about the interest rate (the interest rate is not the variable that balances supply and demand of loanable funds). The point I’m trying to make can be illustrated by one important example in economic theory: Keynes failed to carry out a full-scale critique of Classical economics, and look how fast he was distorted and recovered.
I agree with the sweeping nature of your points about how much macroeconomic institutions and policies will need to change in order to achieve a sustainable economy (an entirely different ballgame, as you wrote). Although there are gaps in both our critique of current economic structures and the final policy recommendations, we know enough to start recruiting players for this new ballgame. That is precisely the point of the CASSE position on economic growth, which can be signed by individuals and endorsed by organizations on the CASSE website (steadystate.org).
The most difficult part of the macroeconomic paradigm shift will be the transition. Policies such as 100% reserve requirements and a macroeconomic goal of stability (or even degrowth) are so external to the current paradigm, that it’s difficult to see how to achieve a smooth or prosperous transition. Throw in physical and ecological problems on top of financial ones, and we find ourselves in a very challenging game — all the more reason to get as many players on the team as possible.
As someone who has reached an awareness of the ecological parameters of allocation, distribution, and scale from the practical end, I have many encouraging words for the theoreticians engaged in this valiant discussion. If “100 percent reserve requirements” in Dietz´s response, and the misapplied notion of interest rates mentioned in Nadal´s original post are among our concerns, we certainly have ample material for discussion at the local and firm levels.
Some of my master´s research, on top of participatory involvement, involved Fair Trade practices which have been growing dynamically. The policy of establishing cost of production and cost of living price floors, a social premium, along with production financing represent relevant policies which have parallels at the macroeconomic level. Credit Unions, as discussed by Ralph Nader in a Counterpunch article, and in the ILO´s 2009 report on resilient co-op finance institutions, indicates that depending on the level of operation and corresponding policies, credit unions and co-operative banks have demonstrated differential economic stability.
An independent tactic by the co-op bank group UNICO involved several large European banks, such as Credit Agricole and Rabobank, and represents a related development.
In discussing economics, I would also suggest that we gain by acknowledging that we are discussing philosophy. “Scientific” evaluation of these phenomena require reference to cause and effect mechanisms, and ecological economics is well advanced in this respect. The recent Riksbank Nobel prize to co-winner Elinor Ostrom, an Intl Soc of Eco Econ member, who has developed her ideas with ample field work, is one example, I would argue.