, , , , , , ,

Today I took the time to have a second look at the video that is here, at this blog, titled: “Margrit Kennedy, PhD: On the ‘Invisible Wrecking Machine’ that is the Component of Interest in our Financial System

I did so in order to get a better fix on Dr. Kennedy’s purport, which I here put to myself in the form of two questions:

a)      in what sense does our ‘financial system’ constrain our economy in such a way as to force us to choose exclusively between either ‘economic collapse’ (what Dr. Kennedy refers to in her presentation as ‘social collapse’) or ‘environmental collapse’?

And, as put to Dr. Kennedy by Dimitri Devyatkin and to paraphrase him,

b)       in what sense does ‘profit seeking’ not constrain us, as ‘compound interest’ apparently does, to sacrifice the environment to our ‘economic wellbeing?’

Having looked at the video a second time, I think I can venture an assenting answer to the first question and that I presume faithful to Dr. Kennedy’s intent, but a dissenting reply in regard to the second:

As to why in the context of our economy we must always choose quite exclusively between either economic stagnation or environmental degradation, the ‘sole’ or ‘essential’ criteria of reference for determining the economic viability of any venture is always the projected rate of return on the venture’s capital outlays or cost as compared to investing that sum in a fixed income investment, wherein a borrower of those funds might over time return more ‘money’ value than that projected for the venture.  The expectation of which of these two options will return the greater value in ‘real money terms’ decides the feasibility or in-feasibility of the venture.

It is from that and only that comparison, according to Dr. Kennedy, that the bias for production methods more harmful to the environment derives.

On the one hand, ventures more mindful of the environment tend to entail higher production costs than those less mindful, and thus there is a bias in finance to appraise capital projects that will be more harmful ecologically as being more feasible.

On the other hand, because large capital outlays are unlikely ever to be repaid in the course of a single ‘borrowing term,’ future renewals of loan contracts will inevitably coincide with periods of rising interest rates, and as debt servicing expenses increase, so must the pressure to expand the activities of the venture so as to satisfy the requirements of its increasing cost structure.  This means, for resource intensive activities, a heightened tempo of environmental degradation, and since high interest rates do generalize from time to time to the economy as a whole, often it isn’t only one or a few resource intensive businesses that must intensify their production, but a great many simultaneously.

There seems to be, therefore, a direct link between the role that the calculation of ‘compound interest’ plays in appraising the viability of proposed business ventures in our contemporary economic context and the manifest bias in our economic decisions to privilege environmental negligence over stewardship.  So with this part of Dr. Kennedy’s analysis I am inclined to agree, since it seems plausible to me that if ‘compound interest’ was taken out of our reckoning for the feasibility of an economic venture, the outcome of that reckoning could be more easily tailored to minimizing ecological impacts.

It is, however, more difficult for me to see how ‘profit seeking,’ liberated from the fetters of ‘compound interest,’ might in-itself be more benign in its implications for the environment.

As I understand Dr. Kennedy, ‘profit seeking’ finds its ‘natural’ logarithmic limit where demand for its products and services trails off.  And indeed, one of the primary contradictions inherent in our ‘capitalist’ economy as it currently exists is precisely the irreconcilability between the insuperable logarithmic growth pattern of the real economy and the irrational demand for an exponential growth pattern foisted upon it by the banking sector.  The result of this contradiction, which is at the root of our current global economic crisis, is an exponentially accumulating debt burden suffocating the ‘capitalist’ pursuit of profits in the real productive sphere of our economy.  If anything, the ‘debt burden,’ which results from the process of ‘debt’ being repaid at ‘compound rates of interest,’ works in the long run to stifle economic expansion and, therefore, to reduce what would otherwise be an even greater burden on the environment.  Eliminate tomorrow morning the cost of interest payments currently factored into the costs of both capital and consumer goods as well as user fees, and the economy will surge mightily, but much to the detriment of our natural world.

I am not, of course, arguing for the status quo.  I am merely pointing to what would ensue if ‘compound interest’ was the only thing abolished about the way in which we currently go about managing the production and distribution of our goods and services.

With or without ‘compound interest’ as an item in the cost of production, if ‘profit’ remains the prime motive for producing anything at all, it remains that ventures more mindful of the environment tend to entail higher production costs than those less mindful, and thus there is as much a bias in a ‘for profit’ economy, as in a ‘debt burdened’ economy, to appraise capital projects that will be more harmful ecologically as being more feasible.

I believe that along with ‘debt issued money,’ therefore, it is necessary to abolish the practice of conducting production with a view to extracting ‘surplus value’ from labor, that is, with a view to selling commodities on the open market for more than their cost of production – the cost of production being defined so as to include a fair to even generous wage apportioned to everyone involved in that production.

Individual and community ‘needs’ must become the reason for producing anything at all.  And the introduction of more efficient technologies in the work place should be done, not to enhance returns on investment, as is now done, but to reduce work time for everyone.

If we could get serious about gearing economic production to the purpose of enhancing the quality of our lives, we would produce less garbage, reduce our ecological footprint, spend less time working at mindless tasks serving mindless ends, and live longer, more productive, and more meaningful lives.