Wealth without growth – Why the current economic system is incompatible with sustainable development

Since 1972 when the Club of Rome first invoked the dramatic consequences of unlimited growth, global awareness as to the relationship between growth and environmental destruction has been considerably sharpened. Growth is no longer considered a boon pure and simple. Ecological minded people start to make a difference between positive and harmful growth. Of course, growth itself is no evil. To be alive means the same to societies as to individuals: They are vigorous only as long as they go through phases of bodily or mental growth. It is therefore of utmost importance to distinguish between different kinds of growth: damaging und positive. When labeling growth as a destructive force, we refer to quantitative growth alone, which essentially means an ever-swelling turnover of material goods and a concomitant depletion of nonrenewable resources. Growth however, that is based on renewable sources – including, of course, all growth pertaining to human knowledge and skills – testifies to the greatest achievements of any society.

There is no lack of knowledge

Human knowledge and skills have never been so highly developed as in our days. Never before did they encompass so many and so diverse areas ranging from entomology to astrophysics. We may confidently say that this is equally true of our ability to determine optimal conditions for the transition to a sustainable type of economy. The pioneering work had already been accomplished three decades ago by U.S. economist Herman Daly (Steady-State Economics, 1977). Subsequently works such as his not only produced a wealth of complex research and various models for sustainable development, they also encouraged the development of specific technical processes for sustainable management in different sectors of the economy. All this was to culminate in findings of utmost importance. Leading scientists were able to demonstrate that even a highly industrialized country like Germany could do without non-renewable sources (fossil, nuclear etc.). It could do so without suffering a breakdown in prosperity.

By now,  non-action has a price

Certainly it is not lack of knowledge and skill that keeps us back from taking the necessary steps to attain sustainability. Nor is it a lack of awareness as to the consequences of delayed or omitted action. The portent of climate disasters, nuclear contamination or, more generally, the prospect of a planet made uninhabitable for future generations is by now probably on the mind of most people, at least in the developed hemisphere. Even mass media are wont to conjure visions of horror – and at least some of these are based on scientific prediction. We are bombarded with slogans like “five minutes to midnight”, most recently in December 2012 at the Climate Conference in Durban.

People know about imminent dangers. It is precisely this global awareness which leaves us with a challenging problem. Why do nations bump into towering barriers on their way to sustainability? Why is it, that even in the world’s most privileged countries no party or government is really committed to turn the tide? Why does the entire world speak of growth as the hoped for solution to all problems – when we all know that it is precisely growth: unlimited, eternal growth that leads us directly into ecological disaster?

Ruthlessness provides advantages over responsible action

One obvious answer is to be found in the competitive behavior of states. It is true that a state relying completely on renewable sources may still provide a standard of living not or not significantly inferior to earlier times, but it is equally true that a competing state relying on both conventional as well as renewable sources, will certainly be able to obtain a much higher production and competitiveness. Hence he may provide a considerably higher standard of living to its population. It just makes a difference if I merely exploit sun power as available now and here, or if I choose to further add the power of solar activity stored during millions of years. So there is no doubt that a competitive advantage will accrue to those countries that delay their transition to renewable sources as long as possible.

Fearing to lag behind in international competition is a huge obstacle on the way to a sustainable economy. Developing countries are particularly concerned lest they suffer from any reduction in fossil and nuclear supply. They want to embark on a sustainable path only after they attained a stage of development equal to that of leading industrial countries. In other words, they resist any limitations on quantitative growth.

However, the greatest resistance to change still comes from northern hemisphere countries

But we should take care not to put all blame on developing countries. The northern hemisphere still poses the greatest threat to nature as its per capita impact (ecological footprint) far surpasses that of the South. And, certainly, the early industrial nations stick to the imperative of growth as if it were a fetish or a collective mantra. Ecologists constantly fight against this attitude, but it is a fight against a ubiquitous and powerful enemy that regularly forces them to retreat. As mentioned before, we may neither blame lack of knowledge nor of good for our frequent defeats. After all, at least in Europe, we see nearly all parties and politicians loudly proclaim a new ecological era. Meinhard Miegel, a renowned right-wing author on economics, has lately written a book against growth delusion (Wachstumswahn).

Unfortunately, social conditions do not permit a breakthrough in ecological change

So, if ecological change is on everyone’s lips, why aren’t we able to make it come true? The answer is sobering. There is no lack of good will, but there is a definite lack of appropriate political and social conditions. In his book “Exit” Meinhard Miegel has fiercely criticized “growth delusion”. But in doing so he only reveals half the truth. Delusion may be overcome by proper instruction. We just need to recognize our errors in order to clear our minds. But things are not as simple as that. The leading industrial countries suffer from an evil much worse than delusion: They are subject to a constraint, which we may call “forcible growth”. Proper instruction does not help against this deep-routed evil since we must first change social conditions. Our present economic system fails to become sustainable precisely because it relies on growth as on a life-saving drug. Without growth, the system could indeed be led on a sustainable track, but at first it would simply break down. To be sure, this is more than just a dilemma; it is a tragedy, because it concerns our very existence on a crowded planet.

Ecological change is primarily a social problem

The transition to sustainable economics is not primarily a technical problem – it seems that technical issues have largely been solved – it is first and foremost a political and social challenge. I said above that even a highly industrialized country like Germany could do without non-renewable sources (fossil, nuclear etc.) without suffering an unbearable loss in prosperity. Yes, but even such a turnaround wouldn’t get us out of the straight jacket called quantitative growth which is definitely the main source of ecological destruction. For this to happen we must previously solve a much more formidable political and social challenge. As things presently stand, we know that an ever-increasing turnover of material goods and the corresponding depletion of nonrenewable resources will destroy nature beyond a point of return, but we also know that without such growth we are likely to destroy the existing social fabric. Put into a nutshell, this is the contradiction and challenge every contemporary nation has to stand up against.

Politicians are thus compelled to choose between two evils of equal weight. Should they condone further damage to nature – possibly up to a point “of no return”? Or should they renounce further growth, thus damaging the social body to a point where voters may send them packing or even resort to riots and insurrections? The answer is, of course, a foregone conclusion, because consequences are not symmetrical. Even assuming the by no means unthinkable case that large parts of the globe will be uninhabitable by the end of our century if we were to continue present growth at a rate of near to 3-4% annually (some scientists think this assumption is quite realistic) politicians will hardly change course – and for a simple reason. The present generation, the same by which they are elected will not be affected by what happens 50 years from now but it would definitely suffer from a decisive halt in growth.

This is the point were schizophrenia becomes manifest. Most of today’s enlightened citizens support ecological change, but only very few of them are willing to pay for it with at least a short term decline in current living standards. But that’s what they would have to expect. For growth does more than just meet their hopes for an ever-higher material well-being. With prevailing conditions, we need growth for a different and more elementary reason. Only if our economies continue to grow, will the majority be able to even maintain its present standard of living. A decline or lack of growth, i.e. a stationary economy, does not mean – as one might naively believe – the maintenance of present well-being. It leads to its dramatic collapse.

A growth imperative that is based on debt

Whoever looks out for a livable future, must seek environmental sustainability. Unfortunately, all our knowledge of necessary actions in view to achieve this goal is null and void as long as we do not fight against forcible growth. This, however, is an ambitious goal only to be achieved by a fundamental transformation of our present economic system. As long as we live within this system and remain chained to it, we obstruct the future of coming generations. Such a statement may well arouse suspicion. It sounds very much like a call for revolution or some program of religious or political ideologists.

However, it is neither the one nor the other. For it is based on a few parameters and indicators everyone is able to understand. By now, all early industrialized countries have reached a level of public debt close to 100%. To meet interest payments, that hardly ever fall below 2%, they must grow at least at an identical rate in order to neutralize the burden of interest – supposed that they borrowed all their money from abroad. If they don’t reach a growth rate of 2% to compensate for the outflow of interest, living standards will be reduced. Thus debt makes growth a necessity even if governments only want to maintain the present standard of living.

Of course, forcible growth must be greater, the higher the level of debt. Just reflect on what that means for Germany. Explicit sovereign debt of this country amounts to approximately 80% of GDP. However, if you add implicit government debt (with future pension obligations included as the intergenerational contract is being steadily eroded), you come up with a total value of approximately 200%. (1) At an interest rate of 2%, Germany therefore needs a permanent growth of up to 4% per annum just in order to maintain the current standard of living. However, even this picture is far from complete. It still omits corporate debt, which is two times as big as its sovereign counterpart. Together the two types of debt amount to a total of about 7 trillion € or three times Germany’s GDP. (2)

Companies pay for their debts in dividends and interest, charged from their customers via product prices. Thus, with growing debt, products gradually become more expensive. This, of course, puts a limit to living standards in the same way as when government raises taxes.

A total debt of seven trillion €, equivalent to three times GDP, makes it easy to calculate the whole burden to be carried by Germans. Even if the government as well as private companies would only spend 1% in dividends or interest – actually, companies pay much higher rates – the economy would have to grow at least at an annual rate of 3% in order not to impair the current standard of living. But at a much more realistic value of 2% interest and dividends, an annual growth of no less than 6% would be required just in order to protect society against an erosion of its former well-being!

My starting point was the assumption that government as well as private companies would exclusively borrow all money abroad. Then, the above figures would be correct. But this assumption is only partially true – and it could be completely wrong in case government and business would only borrow at home. Even in this case, the above figures need, however, not necessarily be revised. Let us assume that all interest and dividends would flow to the top 5 percent as these are the only ones from whom government and business procured capital in the first place. Then, the above figures would still hold true. At 2% interest for public debt (the latter being equal to 100% of GDP), the bottom 95% would have to guarantee a growth rate of 2% annually if they want to maintain their standard of living. But usually things are more complicated. Though the top five percent procure the lion share of credits and investments, the bottom 95% usually are depositors and holders of stocks and bonds as well. This means that they too receive a due portion of interest and dividends – and thereby reduce the ratio of forcible growth. When figuring out this portion for Germany the above figures for forcible growth induced by debt must be roughly cut in half. (3)

A simple statement like this should open our eyes to the highly uncomfortable situation of present day politicians. We understand why, nearly without exception, all of them tend to be staunch and mindless followers of forcible growth, much aloof from any reflection on its possible consequences. And now there is even a further disturbing fact: Look at the above mentioned figures and you will easily understand why a philosophy of permanent growth is doomed from the beginning. We know that apart from emerging economies, growth is nowhere high enough to offset the pressing service of debt.

Growth needs inequality to unfold its threatening potential

However, on closer inspection the relationship between debt and growth turns out to be more complex. Supposed assets and income were evenly distributed among Germans, everybody would shoulder pretty much the same amount of taxes and the same amount of interest and dividends contained in product prices. Or expressed in a different manner, each of us would with his left hand collect as much in interest and dividends on bank deposits and shares, as he would pay with his right hand in taxes and product prices. Unless government is indebted to the outside world, total debt and total credit always are numerically identical. In case of a totally uniform distribution, they would be identical for every single citizen as well.

This fact has important consequences for growth. With equal distribution of assets and incomes the standard of living would not suffer from growing debt – even if the latter were to reach a multiple of GDP. Politicians would not see themselves driven to embrace forcible growth and debt would not lead countries into poverty. Converting the economy into a sustainable system would then be no problem.

The shattering force of debt is therefore dependent on and comes into being only through unequal distribution. While a minority accumulates more and more assets, the majority carries more and more debt. Until the mid-eighties material inequality in Germany was still relatively low, but since that time it increased at an alarming pace. Now about ten percent of the population own over 60% of all interest and dividend-bearing assets, i.e. about 4.2 of a total of 7 trillion Euros. All interest and dividends accruing from such assets must be earned by the bottom 90%. If growth doesn’t make up for the difference, the burden directly cuts into their flesh. In other words, without sufficient growth they pay with their own standard of living for the luxury of the upper ten percent.

This is what happened since the early nineties in all industrialized countries, because they no longer achieved the required growth. At the top we find dazzling splendor and lush extravagance, at the bottom a depressed class spreads like ugly mildew. And the mushrooming evil doesn’t stop at the bottom. By now it reaches even the middle class as it begins to reel under the increasing burden of taxes and prices. Meanwhile the top grows fatter and fatter. Even during the turbulence of recent years only few among the rich have incurred real losses, namely those who inadvertently held on to money as their principal asset. All those, on the contrary, who changed into property, had no difficulty in keeping the distance with regard to the unprivileged majority.

Inequality in conjunction with debt is the driving force of permanent growth

It is therefore true, what has been said at the beginning: The imperative of growth dominates those very states who in view of their accumulated knowledge and skills would be in the best position to make a quick transition to sustainability. After the nineties inequality and indebtedness are on the rise. They are the unholy forces that drive western states away from the path of sustainability, leading them towards an ever increasing depletion of energy and resources. In order not to let down a majority of voters squeezed by the growing demands of debt, governments elected by that very majority are constrained to preach and practice eternal growth as a matter of course even if this means complete environmental destruction.

One thing should, however, be clear. Whatever politicians decide to do, no amount of growth is sufficient to offset the burden of debt if inequality rises. “The tendency for debts to grow faster than the population’s ability to pay has been a basic constant throughout all recorded history“. (4) Ultimately, politicians do not only destroy the environment but the social fabric as well. To put it more bluntly: Ours is an economic system with an inbuilt time bomb device making self-destruction a mathematically predictable certainty.

Peace with nature requires first of all social peace

How do we realize a sustainable economy without growth, an economy exclusively based on renewable and recyclable sources? The relevant technical answers to this question – let us stress this truth once more – were already largely provided by scientists all over the world. What we still lack is a convincing social response. In fact our question must be reformulated. How can we create the necessary social conditions for the transition to sustainable economies?

The preceding discussion seems to offer a definite conclusion. There will be no sustainable economy and society, as long as we cannot get free from the imperative of eternal growth. On the other hand, there is no doubt, that politics will not abandon growth as long as social conditions are characterized by excessive debt and inequality. The prospect of a future society living in peace with nature can only come true if society itself is at peace.

But how do we achieve the goal of a peaceful society? On the one hand, we must take action against debt and corresponding assets. On the other hand, we must develop strategies to address the specter of growing material inequality. Theoretically, the case seems to be rather simple – in practice we are dealing with a problem of immense complexity.

The main challenge of the present century

What is it that makes our case so utterly complex? It is a fact that all parts concerned rather tend to overlook, namely that debt, once piled up to mountain heights, cannot be redeemed whether in principle or in practice. People easily overlook this fact because, obviously, it does not apply to individual debtors and lenders. Debtors have to pay, or otherwise loose their property. In former times they were even liable to pawn their own lives taking the risk of being turned into servants or even slaves if unable to pay. Nor is the before mentioned principle true for sovereign states when one of them is indebted with regard to another. In case of insolvency a state is made to renounce his natural resources or even parts of his territory.

The principal that excessive debts may not be redeemed applies to the some total of debts within a state. The biggest lenders use assets (money or other) with the intention to gain interest and dividends, because their income already largely surpasses all possible needs of consumption. Interest and dividends are thus put to the exclusive task of providing more interest and further dividends. In simpler terms, money is made to produce even more money. Instead of serving the requirements of consumption such assets turn into means of economic and political power.

Privatization does not diminish overall debt

But what with privatizations expressly used for the purpose of cancelling sovereign debt? Alas, it is a popular misunderstanding that they diminish its overall level. The truth is that they tend to even increase it. By privatizing public space, means of transportation etc., the state only offers a different source of income to creditors. Instead of getting interest from the state they now derive it from their newly acquired property. And normally they strike a good bargain as well: During sprees of privatization public assets tend to be offered at ridiculous fares. Overall debt is thus actually increased instead of being reduced. The flow of money the upper ten per cent up to then derived from government bonds the state had to pay for with taxes, now comes from the private sector. After privatization the top ten percent (in the U.S. the top one percent) are even richer, while the bottom 90% always turns out to be the loser.

What type of social action leads to sustainability?

Excessive debt is beyond redemption – unless upholstered by corresponding growth it can only accumulate up to the point of system collapse. If this is true, none of those proposals currently put forward for saving the Euro zone, whether we speak of Eurobonds or the model set up by the German Council of Economic Experts (Deutscher Sachverständigenrat), offers the slightest chance for getting out of the present debt predicament. There is but one efficient method when dealing with excessive debt. You either drastically reduce debt itself or you reduce its counterpart, namely assets. US economist Michael Hudson and anthropologist David Graeber have shown that since the time of Sumer excessive debts have mostly been annihilated by brutal force in revolution and wars. (5) Sometimes, however, powerful rulers managed to cancel debt by peaceful means. They offered a debt amnesty in order to get their people out of bondage.

In our time the road to an economy without growth will have to take the same direction. The existing debt of all major industrial nations is basically unredeemable. Of course, this is true for Germany as well. (6) In order to get free from the imperative of eternal growth, we must first of all cancel debt. This can be done in two alternative ways. Either we let money loose its worth by inflation and thus devalue the wealth of creditors as well as the burden of debtors or we directly expropriate creditors in part or totally. The first alternative, namely high or super-inflation can reduce debt and corresponding money assets to zero in all but a short span of time. But inflation always hits the bottom 90% hardest, while it spares the richest creditors, as these usually choose the right moment to turn their money into material property. Hyperinflations drive people to barricades and to madness. They disrupt the body politic. Politicians have good reason to be alarmed. (7)

On the other hand, the expropriation of creditors invariably provokes revolts by the privileged class mobilizing the whole apparatus of subservient media, lobbyists and industrial magnates. Instead of being destabilized from below the state is under attack from above. For elected politicians this means nothing less than a choice between Scylla and Charybdis. We may say that past political misconduct: a large debt associated with excessive material inequality, puts governments in front of alternatives with unpredictable consequences for state and society. Such a situation is really dramatic since neither debtors nor creditors can be legitimately accused of culpable conduct. The “system” itself has encouraged them to act as they did. Until right up to the outbreak of the crisis, their behavior was not only considered perfectly normal, but it even seemed necessary in the public interest. (8) Indeed, actual malice and evil doing rarely figure among the main reasons for the failure of states, much more often mere stupidity takes this role – the inability or even aversion of politicians to reckon with the long-term effects of their actions.

Debt makes growth inevitable – but the opposite is equally true

The transition to sustainability will not be possible as long as debt oppresses the living standards of most people and growth, therefore, remains the only way to ease that burden. Confronted with the choice between ecological and social peace governments will most likely choose the latter. They will sacrifice nature – or, in other words, the welfare of future generations – for the sake of the generation now living, for it is the demands of the latter which they have to satisfy here and now.

However, it would be too simple to construct a mere one-way dependence of ecological on social pacification. In fact we are rather dealing with a mutual dependence. Debt results in forcible growth, but growth in turn makes debt inevitable. This is true because even economies on a sustainable level cannot do without positive qualitative growth. And this will always require debt at least up to a certain point. Our economic system presupposes a truly fundamental exchange between two kinds of individuals: those with ideas but without money to realize them, and those who lack ideas but do have superfluous money. Individuals and corporations, researchers, laboratories etc. obtain the necessary means through stock exchanges or banks. Without debt neither the development of early industrial nations nor the meteoric rise of their present-day successors in the Far East would have been possible. Thus, it is true that growth, whether of the quantitative or qualitative type, leads in turn to debt.

A complete abstinence from debt and growth is out of the question

Even societies at peace with nature who limit material throughput to such a degree that it can be upheld by recycling and from renewable sources, cannot do without research. On the contrary, we will need a lot of research if we want to achieve this goal without a substantial reduction in the present standard of living. But research requires investment, and thus renders debt inevitable. Even if we had already gone a long way towards sustainability, we would still have to rely on a certain amount of debt. It is therefore an essential task of political economy to search for ways and strategies with which to control and counteract the negative consequences of debt.

Japan during its “three golden decades”

There are examples from which to take lessons. At least one among early industrialized nations has shown to the world how to reach this goal. Between the end of World War II and the late 80s Japan achieved a higher degree of material equality than any other developed nation. True, at that time Japan already suffered from exorbitant sovereign debt but in no way did this debt tear the social fabric apart. Why not? The answer is the absence of pronounced material inequality. On balance the average Japanese had as many assets as liabilities. What he paid in taxes or in consumption (as dividends and interest for company debt are included in product prices), he later took back in different ways either as interest on his bank deposit or as dividends for stocks in his possession. In the Empire of the Rising Sun income differences were much smaller than anywhere else. Even around 1990, the earnings of a top manager in Japan only surpassed that of an average worker 11 times, while the ratio was 93 times for a chief executive in the US. (9) Because of low material inequality – a big advantage even in comparison with socialist states with the possible exception of Maoist China – Japan’s extremely high domestic debt proved to be socially harmless.

Is there a peaceful transition to sustainable economy?

Japan’s period of lowest material inequality extended from the end of World War II until the late eighties. Not without reason this period was marked by greatest economic success and unbroken social peace. This was the time when many observers hailed the Far Eastern country for its “economic miracle” as an example to the rest of the world. This should still be a matter of reflection. During the period of greatest prosperity the Japanese government got into deep debt with its citizens. But not even during the 90s when the country slithered into deflation, did the government resort to the printing press in order to get rid of heavy government and corporate debt. But, of course, it could have done so without much ado. The annihilation of exorbitant debt by means of an unchecked money supply presented itself to the Japanese as an obvious and attractive option, which furthermore was expressly recommended by such an influential and renowned economist as Paul Krugman. However, egalitarian Japan did not give way to this pressure. The government did not want to expropriate its own citizens (especially those living on pensions) through currency devaluation.

In present-day Europe, choked by the debt predicament, the monetization of debt is nevertheless advocated as a recipe for overcoming the crisis. Again US economists belong to its vociferous advocates, among others, such a perceptive and informed economist like Michael Hudson. (10) No doubt, this is a way out – one of the two possible ways mentioned above. But I fear that we would have to pay for it bitterly.

Let me therefore come back to the starting point. Printing money in order to reduce both debt and assets is one of two possible strategies. The second way consists in debt relief, which is tantamount to asset reduction. It means reducing excessive personal wealth. I need not dwell on this point because I developed the relevant ideas before. Let me only refer to two basic measures likely to offer a way out of the current plight.

1. Runaway debt can be efficiently handled by introducing a ceiling for personal wealth (as opposed to business wealth that is not privately used). This should be determined in such a way that wealth only serves its basic, normal and original purpose as a means of consumption. All individual wealth not used for actual or deferred consumption – i.e. consumption in old age, disease, unemployment etc.- only serves the socially harmful purpose of acquiring economic and political clout. It should be skimmed for the public good.

The debt problem can be solved immediately

If government collects socially dysfunctional wealth now in the hands of the top ten percent, it would immediately cancel most of government debt presently weighing on the shoulders of the bottom 90%. And what is more, it would do so without physically harming anybody. The upper ten percent would still be in possession of that part of wealth which entitles them to a generous living. Their suffering is of a merely mental order: They would have to renounce wealth as a status marker and a means of power.

Let me remind you that the entire interest and dividend bearing assets in the hands of German creditors presently amount to a total of three times GDP (7 trillion Euros). The tax here proposed creates maximum benefit for the common good. Of course, such a drastic debt relief is impossible without accompanying action such as capital transactions control. Otherwise the privileged few simply disappear together with what they own. Let me add that the same challenge would have to be faced by the advocates of money devaluation – with the only difference that they have to address it at a somewhat later stage. (11)

However, a mere one-time debt relief is not enough as it does not prevent the same game of debt accumulation to start again and again. A ceiling on private property achieves far more. It ensures that material inequality be kept from the outset within reasonable limits, but it does not impair let alone abolish its socially valuable function as an incentive. Not wealth as such is put in the dock, only its excessive concentration in a few hands and its misuse for purposes of power. (12)

Let me finally add a few remarks on my second proposal.

2. I advocate a progressive tax on individual consumption on the one hand and a tax on primary resources used by companies on the other hand. These two taxes alone render most others superfluous, such as income tax and value-added taxation. The switch to consumption tax represents a major leap towards more social justice and ecological progress. And it offers a further substantial advantage when viewed against the background of the current crisis. After removing all taxes on labor, economic activity will instantly rise – even in the midst of a recession. Untaxed work will find much more opportunity than ever before. This is a potent recipe against debt deflation or killing the economy by ever increasing austerity measures. (13)

And what about more radical solutions?

The idea of growth is part and parcel of the neoliberal ideological inventory. However, it was and is also proclaimed by socialism, which merely takes growth out of the hands of competing individuals in order to make it a government task, the so-called five-year plans. It should be emphasized that ecological awareness is neither partisan to the left nor to the right of the political spectrum. It does, however, thrive on egalitarian tendencies as excessive material inequality is, as we have seen, the main reason behind forcible growth. But this has little to do with right or left wing leanings. Egalitarian tendencies are compatible with a leftist as well as with a Christian outlook.

We may say that environmental change is hardly possible without an emphasis on community and cooperation. Both are basic prerequisites for egalitarian tendencies. But this should not be equated with the suppression of competition let alone the transfer of private to collective ownership. Certainly, a ceiling on private property and on unbridled competition is necessary if societies are to be protected against the recurring onslaught of debt collapse. We would, however, throw out the baby with the bath water if we simply abolished both. With the exception of small religious groups and equally small tribal societies of former times (societies of mutual gift and sharing), no historical society has gone unscathed through such an experiment. Collectivism always has to be violent in order to enforce perfect equality. For it provokes counter violence as it kills the invigorating dynamics of societies that allow individuals to fully exercise their knowledge and skill for mutual benefit. (14) Not competition itself is an evil, but a loss of equilibrium between cooperation and competition. The most visible sign of such a loss of balance is the steady concentration of ownership in fewer and fewer hands.

A final remark

Differences of wealth are a matter of concern only if they become excessive. For that reason they should be subject to a ceiling by democratic consent. Hard-boiled neoliberals will, of course, see this proposal as a frontal assault on one of their sacred articles of faith even if it were endorsed by a democratic majority. They reject the mere idea of putting any limit to personal property as a totally unacceptable intrusion into property rights. But neoliberal politics are based on an obvious lie. Confronted with a situation of sagging growth during the 80s politicians and economists alike advocated change: Let the top get rich in order that masses may profit. This was an obvious distortion of well known historical facts and logical truth. (15) Its consequences were felt in a short lapse of time. And they now strengthen extremists from the opposite side. These, the followers of Marx, would rather abolish private property altogether. To them a mere ceiling put on excessive personal property will rather appear as a defense of bourgeois concepts and therefore meet with their staunch opposition. I, for my part, am rather happy with simultaneous protests from the extreme left and the extreme right. I would like to take this as proof of sound thinking. (16)

1 As early as 1995 the “Economist” warned that true national debt is in fact much higher than generally assumed. The reason: long-term pension obligations are normally left out of the picture. At that time U.S. sovereign debt was equal to 85% of gross domestic product. Together with unfunded pension liabilities it went up to a total of one and a half times the GDP (151%) – far higher than the official figures quoted. The corresponding figures for Germany then stood at 53/213, for the UK at 52/238, for France and Japan at 56/272 and 97/297 respectively (The Economist, July 8, 1995, p. 115 Source: OECD. Quoted in Public Sector Finances. See also a recently published paper by the chief economist of the Basel Bank for International Settlements (BIS), Stephen Cecchetti, The Future of Public Debt. 2nd 2nd 2010).

2 According to a report published 2010 by McKinsey Global Institute the sum total of German debt (governmental plus private debt) amounts to 285% of GDP (ca. 7 trillion Euro).

3 The calculations required are by no means simple. They were first made by Helmut Ceutz in his Das Geldsyndrom and later by myself in Das Pyramidenspiel. I tried to further develop these calculations in (http://www.gerojenner.com/portal/gerojenner.com/BerechnungenZinsfluss.html). Up to 2008 academic economics did not seem to have any interest in the subject of interest-induced transfers from the bottom 95 to the top 5%. This was the era of neoliberalism.

4 Economic historian Michael Hudson in: http://michael-hudson.com/2011/12/democracy-and-debt.

5 David Graeber in his book Debt, see also Hudson in: http://michael-hudson.com/2011/12/democracy-and-debt/.

6 With uncommon honesty this was frankly admitted by an incumbent Austrian Chancellor with reference to his country. In an interview with the Vienna city magazine Der Falter (from 5th August 2009) Werner Faymann said: “European debt, where our level is near the avarage, will be still higher by several percent after two or three years. I do not believe that any government will repay it.”

7 Michael Hudson defines the task of central banks as money printing (apparently with no lid put on money supply by economic output or price stability). As an example he refers to the actions of the British central bank since the end of the 17th century (http://michael-hudson.com/2011/12/europe ‘s-transition-from-social-democracy to oligarchy-/). But can the British central bank really serve as a model? Probably not. At that time British economy started a process of nearly continuous growth due to imperialist policy: A liberal money supply reflected this process. So this was quite different from today’s situation. All most developed industrial nations have nearly reached their limit of quantitative growth. Which means that growth becomes less and less profitable. And that is why excess cash keeps away from real economy and is deviated into the financial sector or goes straight to fast growing emerging countries. Michael Hudson seems to overlook still another important factor. The dollar currently is a world currency, so it is in high demand from the rest of the world. This makes dollar inflation much less likely than excessive Euro printing. And one more difference should be mentioned. The U.S. – like Switzerland – does not pay for the debts of its constituent states, e.g. for that of California or Missouri. But that is exactly what the ECB would do, were it to monetize all government bonds of Europe’s peripheral states.

8 In our present money economies it is the worst of crimes to hide the currency under the mattrass instead of forwarding it to the bank. The flow of goods is harmed by sucking money out of circulation. You must lend it to other in order to avoid deflation.

9 Jeremy Rifkin: The End of Work, Tarcher / Putnam, 1995, p. 173 and David E. Sanger: Japan to U.S.: Tighten Up. U.S. to Japan: Loosen Up, New York Times, 27/03/1991.

10 See note 4.

11 A policy of unchecked money supply seems, at first glance, to offer a much simpler alternative. For it is certainly difficult to reintroduce capital controls once they have been abolished. German export interests outside of Europe would be threatened. So capital transaction control meets with fierce resistance. But on closer inspection difficulties arising from a policy of inflation turn out to be even more formidable. Only in the beginning would such a policy seem beneficial as the demands of creditors may be easily satisfied if government has direct access to the printing press. This, however, does not make the economy get out of the slump. Government must therefore take a further more ambitious step. It must once more turn to the printing press in order to pump money into the real economy too. Erhard Glötzl proposes what he calls a new Marshall Plan financed by the printing press. We should be well aware of the consequences. They would consist in a further jump in inflation, especially as there is no natural limit in sight. Why should governments be content with making an investment corresponding to, say, 10% GDP, why not use freely available money from the printing press in order to invest amounts up to 50 or 100%? And why should this only be done for a single year, why not every year? In other words, once governments lay their hands on the printing press, there is no natural limit to its unchecked use. Or as we may say in a different way, there is no limit to runaway inflation.

And government will soon discover that even the policy of easy money offers no escape from capital controls. Afraid of losing their assets by way of inflation, creditor substitute property for money – in other words the upper ten percent only change the nature of wealth, not its extent and burden. Government will therefore resort to taxes on all kinds of property for otherwise its policy of easy money would prove to be futile. Creditors will know this in advance as they normally form part of the power structure. They will sell their property in the right moment and take the money abroad where it is transformed into debt to be paid by their home country. So, government will have to introduce capital controls anyway.

12 Cf. Jenner in: http://www.gerojenner.com/portal/gerojenner.com/New_Fiscalism.html and http://www.gerojenner.com/portal/gerojenner.com/Vermoegenssteuer.html.

13 Cf. Jenner: Wohlstand und Armut, Marburg 2010 and http://www.gerojenner.com/portal/gerojenner.com/New_Fiscalism.html.

14 Cf. http://www.gerojenner.com/portal/gerojenner.com/Zukunft_der_Demokratie.html.

15 Economics is supposed to be a science. If this be true, how can it overlook such a basic logical truth that in the absence of growth masses must by necessity get poorer if the top is allowed to acquire more and more wealth?

16 Even former communists now take a moderate stance. Not without expressing its amazement the German weekly Der Spiegel (11/50; p. 29) notes: “Sahra Wagenknecht, up to recently ostracized as a communist, has been offered an entire page on the Frankfurter Allgemeine Zeitung in order to explain to the public why government should make private capital pay for the crisis. And another German newspaper, Die Zeit, has millionaires express their opinion why they would be ready to pay higher taxes.