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.